Hope everyone is doing well!
I’m looking into some deals currently and am struggling to get my MOA since I’ll be using a hard money lender. How do I factor the hard money lenders numbers into my whole MOA.
Also does anyone know a hard money lender in the Miami area? I’ve spoke to a few but they usually take forever to respond and are very passive.
Thoughts and opinions on hard money lenders?
@Oscar Quintana Many Investors that flip homes use the 70% Rule that says 0.7 x ARV - Repairs = Your Maximum Allowable Offer (MAO). What hurts Investors that use this formula is it does not account for Holding Costs, Backend Selling Costs, etc.
I use the following formula to determine my Maximum Allowable Offer (MAO). This formula is the Profit Margin Formula that accounts, for 99.99%, of everything.
ARV - Desired Profit - Closing Costs to Buy - Repairs - 10% of Repairs - Holdings Costs - Concessions - Realtor Fees - Closing Costs to Sell = Your Offer (MAO or Maximum Allowable Offer).
ARV: After repaired value or what you think it will sell for once repaired.
Desired Profit: This should be taken off the top first. Most people run their numbers to determine what their profit should be. That is backwards, you should use your profit to determine what your offer should be. As a General Rule, my Desired Profit is $20,000 or 20% of ARV whichever is greater. To have an offer accepted, one may need to adjust their Desired Profit; however, it should not be below $20,000, or what one feels is acceptable.
Closing Costs to Buy: What is it going to cost you to buy the property? If you are using hard money you need to budget for the points and fees as well as traditional third party closing fees.
Repairs: The money it is going to take you to rehab the property plus an extra 10% of estimated repair costs to account for unexpected repairs.
Holdings Costs: Here is where a lot of investors get tripped up. Start by determining an amount of time that you will hold the property, probably 4-6 months. Then add ALL costs related to holding the property (utility costs, property insurance premiums, property taxes, loan payments, HOA Fees, etc.).
Concessions: Concessions are what you give back to the buyer at closing. It could be for closing costs, unfinished repairs or something else. I typically subtract 3%, of the ARV.
Realtor Fees: What is the commission you are willing to pay your listing agent (unless you are the listing agent) and the buyer's agent. Utilize 6% of ARV.
Closing Costs to Sell: Title fees and other closing costs. You can budget around 4% of the sale price to cover these.
This is a conservative formula. If you come out ahead without Buyer Concessions, on budget, etc., this puts more money in your pocket, when you close at selling.
Wow this was extremely helpful. Thank you so much it really helped me understand the overall equation.
@Oscar Quintana my pleasure!
@Oscar Quintana - Thomas' post is spot on! The only difference I'd make is 2% for closing costs (seller doesn't have much in costs other than commissions and I don't account for 3% in concessions because my ARV accounts for that; to me, a concession is a change of ARV). But he did say his is a very conservative method. Either way, he gave an excellent explanation.
The problem you're going to find is that wholesalers are making the bulk of profits in S. Florida (particularly Miami-Dade). If you can find deals on your own (not easy), you'll be good to go.
You are absolutely right. Finding the deals in Miami-Dade is the tough part but hi I’m up for it! Thank you.
I personally don’t use the 70% rule. I like actual numbers. So I have a MOA form I use to plug numbers in. I agree with @Thomas Franklin for the most part. I do not include concessions. Rehab numbers should always include an oops factor for extras. 10% is a general number that needs to be adjusted depending on the rehab numbers. A $15,000 rehab ($15,000) doesn’t really cover enough. That 10% must be adjusted. I like to start with a $30K profit and then work backwards up to a certain point. This is usually 20K or so.