Does MAO formula from Rich Dad work?

Question

I recently attended a webinar on real estate investing hosted by Rich Dad Poor Dad.  I am looking at the MAO formula and the 1% rule when searching properties in my area.  I was wondering if anyone had experience with either or both of these and could let me know how they worked out and any advice when applying them?

Dawn Anastasi · Answer

Like I said, there are some areas of the country where that same $100,000 could get you $2,000 in rent.  And there are other areas of the country where that same $100,000 could get you $3,000 in gross rent.

I didn't say it all was for ONE house.

Ned Carey · Answer

Without knowing exactly what formulas they teach, it is hard to say.

If by MAO you mean ARV X 70% - Repairs = MAO yes that is a common formula and works fine. However that and the 1% rule are "rules of Thumb" and may not work for all people in all situations. Personally I would never buy a rental at 1%.

Good luck - Ned

Matt Mason · Answer

@Dawn Anastasi

Yep. My bad

Account Closed

Rich Dad Poor Dad is a good book, especially for opening people's eyes on investing and overall financial decisions.  For real estate, I would definately delve into some of the other books mentioned in the forums that have more specifics before you get into any purchases.

Account Closed · Answer

Great.  Thank you for the info.  I've just received 3 investment books listed from the forums and articles so i'm already started reading those too.

Account Closed · Answer

Thank you all for the comments and feedback.  The 1% rule, according to them, is that if you take 1% of the MAO that is a figure that will cover the max of your out of pocket each month if you had a vacancy.  Then you can figure out what profit or loss you would have with vacancies.

Matt Mason · Answer

@Dawn Anastasi

I know what you are saying, but I don't know if there are really areas where you can rent out a $100,000 house for $3,000 anywhere in the US.  I think there are 3% deals, but I think that may be more like a $30k house renting for $900.

Correct me if I am wrong.  I am sure there is the freak fantastic deal where that might work, but not anywhere that could be applied consistently.

Dawn Anastasi · Answer

@Michael Lee usually the 1% rule means that if a property rents out for $1,000 per month, you should pay no more than $100,000 for it.  However, there are some areas of the country where that same $100,000 could get you $2,000 in rent.  And there are other areas of the country where that same $100,000 could get you $3,000 in gross rent.

Rick Baggenstoss · Answer

Does it work?  The MAO, Maximum Offer Amount, works in that it keeps you from overpaying.  It does assume your other calculations including ARV, rehab costs, holding, etc. are correct.

1% rule.  Is this really the 2% rule?  What is it?

Does MAO formula from Rich Dad work?

Most Popular Reply