In this video—part one of two—learn how to use the MAO calculator worksheet in the calculator. See how the MAO is calculated using the 70% rule.
- [Instructor] Hey, welcome back. In this lecture, we are going to cover the MAO calculation. Now, in the previous lecture we did the ARVs, and we have this ARV estimate here, right, in this worksheet. Now let's go to the MAO Calc worksheet here just click on that, now what you're going to see here is three separate boxes, this first box here is the MAO calculation following the 70% rule. Well actually whatever percent you want to put in there, but we're going to baseline start with 70%. If you want to change it to a different percentage, if you know your market is a little bit different maybe you want to be more conservative, this market is not as attractive, it's more risky. You might use this 65% rule there and it would adjust accordingly. So but for default we're going to set it at 70%. So this other box here is the fixed cost calculation method to get to the MAO. And now this one I'm going to go over in the next lecture that involves looking at here but for this lecture we're only going to look at this for now. And then this third box here is if you are trying to sell to a buy and hold investor. So let's take a look at the 70% rule calculation we're just going to blow it up a little bit so we can see it more clearly. The calculated ARV this one, is actually here. So now that's what calculated on that side now you can put in whatever you want right now it's set to the same as the estimate from the ARV Calc worksheet. Okay so if you want to be more conservative you could put to a nice round number you could do that. And then here taking the 70% rule, it takes the ARV that you start with, then whatever percent rule you put here it reduces it down. And then here's the rehab cost. Now remember we have the rehab estimator, that's where this figure's coming from. If you want to round it up for the other people, for your potential buyers you could do that as well. You can round it up. And then from that once you subtract out that, then you have this estimated sale price to your flip buyer. Okay, so based on this calculation based on these estimates, this is what the estimated sale price is to a flip buyer. Now if you want to have a wholesaling fee of 5000, like if that's the profit that you want to make from this deal then your MAO is calculated here. But usually what you want to do is you want to add a little bit of extra padding. So here this is where you can add the padding or called extra contingency here. And then it calculates a final MAO so this gives you a little bit more margin to work with. So now the calculations here don't have to relate to what's in the rehab and ARV Calc, ideally you want to work on the same deal but if you are suddenly looking at something else, you can use this calculator to calculate something entirely different. If you want to look at something that say has an ARV of 100,000 you can do that, that requires maybe 15,000 in rehab costs and if you still want to make 5,000 that's very different now right. For this deal you can only make an offer of about 47,500. This is with your padding, if you want to make 5,000 and these are with those numbers. But if you want to use the rehab estimator and the ARV Calc worksheet for your deal then this is what it's suggesting. So you can... For our example we're going to just use what the estimates are because you found good comps, they're reasonable comps, if you did your rehab estimates correctly then this is going to be pretty reasonable as well. Now if you wanted to make a higher profit from the deal, then you just change what you want to make there. And then it calculates the new MAO for you. Now if you're very confident you don't need any buffer or additional contingency you set it to zero. And this MAO is going to equal to the initial estimate. Okay so that's how you use this MAO calculator to calculate based on the 70% rule. Alright so when you have this here, you've done your estimate, you've done your rehab. You have the 70% here, this is the price that you're trying to get a flip investor to buy it from you for, to buy the property from you. This is the fee that you're trying to make and this is what you're trying to get the property for from the seller. Okay so that's there, in the next one we're going to look at the other calculation to the right.
- Name the formula used to calculate the MAO from the AVR.
- Summarize the 70% rule.
- Differentiate between the rehab estimator, ARV, and MAO calculator worksheets.
- Describe the factors in an AVR estimate.
- Cite the formulas that are helpful when pitching to a flip investor buyer.
- Explain the difference between recently sold comps and rental comps.