How to calculate the MAO - Maximum Allowable Offer - the highest amount paid…
How to Calculate the MAO - Maximum Allowable Offer - The highest amount paid for the property
How to Calculate the Maximum Maximum Bid (MAO) on Investment Property
September 18 by Jorge Vazquez
Investors are important for real estate investors to calculate the maximum they can pay for a property, and earn good after it is re-examined and sold or leased to tenants. So in this article we want to show you how to calculate the Maximum Maximum Bid (MOA) for investment property.
When you get started, remember that investors make their money when they buy property. Investors must purchase assets at the right price to make a profit. Therefore, accurate calculation of the maximum allowable bid is crucial for profitability.
Fixed cost method for calculating maximum allowable bid
One of the most accurate and accurate methods of calculating the maximum allowable bid is the fixed cost method.
Although the name “fixed cost method” is slightly misleading, because some calculations include more than just fixed costs, the theory is very clear.
The general idea of calculating the maximum allowable bid is to estimate the After Repair (ARV) value, deduct the fixed and restoration costs, and deduct the profit (or capital) * that you plan to make. The resulting number, then, is the maximum allowable bid.
ARV - Fixed Costs - Weaning Costs - Profit / Capital = MOA
* Note: If you flip the property, you consider the profit you intend to make from the transaction. If you own the property and lease it to tenants, you calculate the amount of capital you plan to have on the property when everything is complete.
Evaluate post-repair value (ARV)
The first calculation needed to determine the maximum allowable bid is the value after correction.
This calculation estimates the value of the investment property after being re-examined and is ready to sell or rent to tenants. The ARV assessment process includes:
Review information about the property you may be purchasing.
See similar features (i.e. computers).
Compare the computers with the property you are considering, and evaluate the ARV.
Learn more: How to estimate post-repair (ARV) value
Estimate your fixed costs
Now with the After Repair value, you can estimate the fixed costs, which include all costs except the restoration expenses.
Although fixed costs vary from project to project, some of the more common costs include:
Inspection.
Lending fees and financing.
Taxes.
Utilities.
Insurance.
responsibility.
Closing costs.
Commissions.
Sales expenses, such as advertising and MLS fees.
Evaluation of rehab costs
Estimating rehabilitation costs can be the most difficult part of calculating the maximum allowable bid, because there are so many unknowns that can break the budget.
It is therefore important to estimate the costs of rehabilitation with an experienced contractor with investment assets, and understand the appropriate fit and finish for the project.
Most importantly, the rehab budget should include unknown spending circumstances that the contractor can help assess based on potential issues that may arise.
Learn more: How much should I start investing in real estate?
Determine the profit / equity
Now, determine the amount of profit or capital you want to make after the restoration is complete.
If you flip through the property, this is the amount of profit you want after closing the transaction and all expenses are paid. And if you own the property and lease it to tenants, that is the amount of capital you would like to have in the property when everything is completed.
Doing the math
At this point, only the numbers are left to formulate.
ARV - Fixed Costs - Weaning Costs - Profit / Capital = MOA
Here's an example:
ARV = 170,000 $
Fixed costs = $ 22,000
Weaning costs = $ 30,000
Profit / Equity = $ 40,000
MOA = 78,000 $
The link is courtesy of Yoni Kessous
How to Calculate the Maximum Allowable Offer (MAO)
Calculate the Maximum Allowable Offer (MOA) before purchasing investment property to ensure profitability. Here is how you do the calculation.
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