As a newbie real estate investor I believe that the tools offered on BiggerPockets are Awesome. However, I'm very analytical and I like to understand how to perform the calculations by hand. I have been trying to figure out how the Wholesale Calculator is calculating the MAO. I've tried using the following formula: MAO = [ARV] – [Flipper’s Profit] – [Repair Costs] – [Fixed Costs] – [Wholesale Fee], however my calculations are much different than what the calculator calculates as the rental owners purchase price.
Here are the numbers that I'm using:
After Repair Value = $150,000
Desired Wholesale Profit = $5,000
Cash Buyer's Desired Cash on Cash Return = 12%
Loan Amount = $100,000
Loan Interest Rate = 5%
Amortized = 30 years
Purchase Closing Cost = $3,500
Total Gross Monthly Rent = $1,800
Other Monthly Income = $50
Property Taxes = $1,350
Monthly Insurance = $45
Vacancy Rate = 8%
Repairs = 8%
Cap Ex = 5%
Property Mgmt = 10%
So based on these numbers I'm calculating $150,000 - $18,000 (12% COC) - $25,000 - (not sure what's considered fixed cost) - $5,000 = $102,000 but the calculators states that my MAO is $124,767.84.
Help, what am I doing wrong???
Terrence, where did you get the "Fixed Costs". Per the calculator, it looks like the estimated repairs are $25,000? Is it possible you mixed up the term "Fixed Costs" with "cost to fix". The MAO formula for fix and flips is considered to be: MAO = (70% X ARV) - Repair Costs. You can obviously make this more detailed: MAO = ARV - Your Profit - Commissions (6%) - Holding Costs (utilities, insurance, taxes, interest). You can always dig deeper. But this model is for generally for fix and flips.
The evaluation methodology is different for buy and holds. I would evaluate based on potential cash flow.
@Ben Millar thanks for your input, I actually got that formula from one of the blog posts on BiggerPockets. I'm going to play around with your suggested formula.
@Terrence Harrington. I actually forgot something in my last formula (big oops). I somehow didn't write repair costs. The formula should be:
MAO = ARV - Your Profit - Commissions (6%) - Holding Costs (utilities, insurance, taxes, interest) - Repair Costs.
Basically, the MAO formula MA) = .7XARV - Repair costs, assumes that
Your Profit, Sales Costs/Commissions, & Holding Costs (utilities, insurance, taxes, interest) will be equal to 30% of the ARV.