How are you calculating MAO?

Question

How do you calculate your max allowable offer? I feel like I see a lot of formulas specific to people who are wholesaling properties under $300k and out here most properties are over that price point. I want to make sure I’m coming in with a fair offer.

Jerryll Noorden · Answer

When you get more experienced doing deals, you will come to find that all those formulas are crap, honestly.

You make offers based on your resources, skills and capabilities.

See it this way. WHY do you make an offer? Is it to do deals and make money? Or is it to keep you safe?

All these out-of-the-box formulas like the 70% rule are designed for people that don't really know what they are doing (in my honest opinion). They are designed to keep you safe.  From the get go you subtract 30% off of the ARV, and on top of that you skim all your holding costs repair costs, closing costs etc. etc. How are you EVER going to get a deal accepted when you compete against people like me. Investors that know what they are doing savvy, with a crew that make their offers to get them accepted.

I try to give people that highest offer I possibly can. I have a crew, so my repair costs are lower. The seller gets that difference. I only care about doing MANY deals with minimum profit (most of the time at least) instead of just a few deals with huge profits.

Mind you... .I offer them what I think is worth to ME. I have bought a house for 10 dollars before and it wouldn't hurt me to have offered 100 doollars. But I didn't want that house. To me I didn't want to give more and they could have gone with someone else. But they didn't.

So how do we make our offers? We do a complete analysis for each property individually, and we calculate what each house's holding cost ARV, Cost of Repairs, and risk involved and based on that we make the best possible offer based on actual numbers. Not based on  "I will take off 30% just in case I have no idea what I am doing and mess up so I can be safe while the seller pays for that 30%).

And that is what I recommend you to do. Start really becoming good at this and calculate your offers. Be safe of course but get good fast so you can make better offers.

Thats justme though. Plenty of others go by these weird rules...

Are they succesful? Don't know. Don't care, who cares. I do me and thats it.

BTW.. ask yourself... why 70% rule? Why not 80%, hell do 40% that will definitely keep you safe right?