MAO simply stands for Maximum Allowable Offer.  To come up with MAO we first have to know what the property will be worth when all repairs and updates are done.

ARV (After Repaired Value) – There are a few websites you can use such a www.Zillow.com or you can become good friends with a realtor and have them pull comps for you on the MLS.  A comp is at least 3 comparable sales no more than 6 months old within a mile without crossing any major landmarks.

Rehabber Finished Costs – The Rehabber will usually want to have invested 60% – 70% of the ARV into the property.  This gives room for unexpected costs as well as profits.  This also allows the rehabber to lower the sale price of the house for a quick sale.

Holding and Loan Fees – 5% of the ARV should allow for any financing costs involved in the rehab process.

Rehab Costs – This is the total materials and labor costs involved.  If you are not an experienced rehabber I would recommend getting an estimate from a reputable contractor.

Wholesalers Costs – This is the amount that you will charge if you are wholesaling the property.  If you are the rehabber and did not find this property through a wholesaler then you can omit this from the calculation.

Once you have figured out all of your costs involved you can get the MAO.  Simply subtract your Holding and Loan Fees, Rehab Costs and Wholesalers costs from your Rehabber Finished Costs to get your MAO.  Your negotiations should go much easier when you have a hard MAO number rather than a “gut” or roughly estimated value.  Your Rehabber’s and Investors will keep coming back for more when they are finishing their properties at 65% to 70% of ARV.
The Math:

Retail Value –                                   $100,000
X 70%
Rehabber Finished Costs –                $70,000

Holding and Loan Fees -                     $5,000
Rehab Costs (Will Vary) -                  $20,000
Wholesaler’s Costs ($2500-$5000)-   $5,000

MAO                                                  $40,000

Good Luck and Happy House Hunting,

Sean Marmoy
MOKSRealEstate.com (Under Construction)