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Real Estate Information |
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How Much Should I Pay For This House?
We probably answer this question for someone a couple times every week. The problem is that they don't have a good formula for determining the most they can pay and still make a profit - so they're scared to make any offer. Here's what we use for single family homes: The (MAO) Maximum Allowable Offer is calculated by first determining what the house will be worth after renovation - the ARV (After Repaired Value); less the rehab dollars required; less the Buy/Sell/Hold (B/S/H) costs; less profit margins. MAO = ARV - Rehab - B/S/H - Profit So let's break that down a little further. To determine the ARV, study comparable sales data. Comparable sales are those properties which sold in the last 6 months to 1 year, and within ½ to 1 mile from the subject house. But other factors must be considered as well. The more characteristics between the properties that are similar, the more valid the data. Make sure that the house itself is similar in square footage, bedrooms and baths, age, style, and architecture. Don't worry about condition except as it will affect the amount of rehab dollars required. Next, look at the neighborhood and the individual street. Do they look the same? Or is the comparable property on a beautiful street while the subject property is on a street riddled with empty littered lots and boarded up houses? The point is to view the potential investment as your end homeowner occupant will. If they could buy your completed investment on the bad street, or a house on the beautiful street - either for $150,000 - which would they choose? The other house of course. Which means your house is not worth the same - it must sell for less to attract a buyer. Rehab dollars differ from renovator to renovator depending whether they do the work themselves, or use cheap subs, or use an expensive general contractor. The scope of the work should be the same - it is whatever is required to make the investment look like the comparable houses (unless the plan is to sell well under market value). We do not attempt to obtain all of the various contractor bids when we are making offers. All the real deals would be sold before we'd ever have an offer together! Instead we've developed ranges of rehab dollars based on the overall condition of the home. Is it an exact science? No, but neither are the bids - there will always be something missed. So why not work with a guide that is probably 90% accurate and allows for quick offers? Buy/Sell/Hold costs include expenses such as appraisals, attorney fees, title search & title insurance, loan origination fees, debt service, utilities, insurance, taxes, real estate commissions, and closing fees paid on behalf of the end buyer. Again, these costs vary depending on each investor's individual situation. In the Atlanta area, 15% of the ARV seems to be a good average allocation for B/S/H costs. If you are the renovator, calculate your specific B/S/H costs, then utilize that percentage for future offers. Profit margins are the fun part of the equation. How much do you want to make? If you're wholesaling the property, you also want to consider how much you should leave in the deal for the investor buyer to make the deal attractive. That's it. That's how you calculate the most you'll pay for a property. But that's not what you SHOULD pay. It is the maximum you'll pay. It is the deal-breaker. You will not pay one penny over the MAO. Your negotiations should lead you as far below the MAO as possible. The difference in amounts is additional profit in your pocket. What you SHOULD pay is the minimum price below the MAO that the seller will accept. We call this the MIN-O. Have a rich week, Lou FREE! Real Estate Investing Secrets To Earning $100,000 Your 1st Year! -- 11 Overlooked Real Estate Statregies That Will Turn Your Investing Business upside Down And On The Fast Track TO Success...Guranteed! Plus A Bonus Track With A Secret So Successful It Can Double Your Investing Income Overnight! http://www.InvestorSuccessTactics.com
MORE RESOURCES: Seattle Tech Workers Are Fueling a Real-Estate Rush in the Cascade Mountains The Wall Street Journal Real estate transfers in Adams County Oct. 6-10, 2025 Muddy River News eXp is ‘prepared for anything’ as consolidation ramps up RealEstateNews.com Real estate tycoon Barbara Corcoran sells her palatial $13.5 million New York penthouse in one day MarketWatch How AI Will Transform Commercial Real Estate | Florida Realtors News Flash • Notice of Sale of Real Estate Lenawee County, MI Zillow unveils Zillow Pro, uniting top tools for agents RealEstateNews.com NJ TRANSIT Launches Real Estate Opportunities Roadmap New Jersey Business Magazine HGTV Stars Ken and Anita Corsini Talk Expected Real Estate Boom Atlanta News First Local Real Estate Activity Sees Slowdown WATD 95.9 FM Eric Trump confirms real estate tokenization plans for World Liberty Financial: CoinDesk Crypto Briefing Sharon September real estate sales The Lakeville Journal How to sell in fall and winter’s cooler housing market RealEstateNews.com Real Estate Transfers Messenger-Inquirer Marshall superintendent addresses safety, attendance, and real estate updates Marshall Democrat-News Local Real Estate Market Remains Strong and Steady Harrisburg Magazine The 10 Best Real Estate Safety Apps HousingWire New Mass. Real Estate Law Aims To Protect Buyers WBZ NewsRadio 1030 Pontiac woman charged with real estate fraud scheme that allegedly stole nearly $200,000 WXYZ Channel 7 Santa Cruz County launches free service to alert property owners to possible real estate fraud Lookout Santa Cruz Flagship Communities Real Estate Investment Trust Announces Cash Distribution Increase GlobeNewswire How Three Real-Estate Moguls Ended the War in Gaza The Free Press Sara DeWulf Realtor Achieves Top One Percent Status in Quad Cities Homes for Sale Market - USA Today Opinion: Crypto hype is affecting everything from real estate to Treasurys. Here’s how to play it. MarketWatch Ownify's New Asset Creates Social Impact Real Estate Investing, Without Sacrificing Returns Yahoo Finance NorthPeak Commercial Advisors Expands to Texas, Launching New Houston Division to Serve Commercial Real Estate Investors Mile High CRE Subdued Growth No Barrier To Kardan Real Estate Enterprise and Development Ltd (TLV:KARE) With Shares Advancing 29% simplywall.st Orange County Biz Journal seeks a real estate reporter Talking Biz News SmartCentres Real Estate Investment Trust Announces $500 Million Series AC and Series AD Senior Unsecured Debenture Issues Business Wire Stop asking AI for tax advice (and start using it for this instead) Inman Real Estate News UCLA’s Master of Real Estate Development Program to receive $2.5 million from Standard Communities’ Jeffrey Jaeger and Scott Alter Newsroom | UCLA ✰PREMIUM New York’s housing crisis and a real estate development firm looking to make a difference Brooklyn Eagle The Real Estate Top Performers discuss how easing interest rates give more opportunities for buyers WUSA9 Real estate transfers: 10/15 Toledo Blade Here's what top agents do in the 1st 60 minutes of their day Inman Real Estate News Derby Lane Partners launches to invest in commercial real estate Asset Securitization Report 13 major real estate developments proposed in Pompano Beach in 2025 The Business Journals Life Sciences Real Estate Faces a Reset Facilitiesnet JV Partnership Between PGIM Real Estate, Pithos Capital Enters Spanish Self-Storage Market Inside Self-Storage 10 major real estate projects reshaping D.C.'s landscape The Business Journals New York real estate firm leaves Brickell in major footprint expansion The Business Journals JV planning 580K-sf mixed-use development in Dallas Texas Real Estate Research Center Northwest Healthcare Properties Real Estate Investment Trust Announces October 2025 Distribution Yahoo Finance 1,000-acre park planned for Frisco Texas Real Estate Research Center Target opens 125K-sf store in Stafford Texas Real Estate Research Center 1.6M-sf business park underway in Baytown Texas Real Estate Research Center |
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