What does the percentage stand for?

[Vanessa Burgess]

What does the percent in the MAO mean/stand for? I understand there is a formula ARVx70%-repairs=MAO but what does the percentage stand for?

[Larry Turowski]

@Vanessa Burgess This is just a rule of thumb to determine the price point that makes a house a good flip.  (Rentals have different rules.)

For example, say there is a house that would be worth $100K fixed up (ARV, or after repair value), and it needs $20K worth of work. This formula says that you need to get the house at $50K.

$100K x 70% - repairs (or $100K x .7 - repairs, same thing)

= $70K - $20K = $50K

It is just a formula.  There are other factors that you would want to take into account.  Maybe the area isn't great for flips.  Maybe it is appreciating rapidly.  Maybe you are wholesaling and your buyer wants that formula so you need to get it even lower in order to make a profit.  Maybe you can pay more because you have access to cheap funds.  Etc.

In my area ARV x 75% - repairs is acceptable.