How To Calculate MAO and ARV as a Beginner | Wholesale Real Estate

Today I'm going to be teaching you one of the most important things about learning how to wholesale real estate, which is how to find your MAO and your ARV. Your MAO is your max allowable offer, meaning the most you can offer somebody for their property. And the ARV is the after repair value, meaning what the property could be worth if it were entirely fixed up and remodeled. Now, this is so important because when you're wholesaling real estate, we obviously want to get the property under contract for the cheapest possible price because the cheapest— the cheaper we get under contract for, the more money we're going to be able to sign it for. However, if you just go in and offer every single person who has a property, you know, $10 for it, you're never going to get any deals, right? So there's basically a, a middle ground that you're trying to get to where you can still give, you know, the best possible offer to these sellers and so that you remain competitive in the industry and still be able to go on and sell the property and make a great profit. So in this video, I'm going to break down exactly how you're going to go ahead and learn how to do that. And guess what? This doesn't require any expensive programs or anything like that. I have analyzed hundreds of thousands of deals probably at this point. I've gotten to be very good at it and I've done it all across the country. Okay, now here's the thing to know is that when it comes to underwriting, which is— I'm sorry if I didn't mention this— underwriting is actually analyzing a deal and finding the ARV and MAO. So if you hear me say underwriting throughout the rest of the video, that's what I mean. And one of the things about underwriting, especially nationwide, is that In different markets, there are different, um, rules sometimes. And also, the thing about underwriting is that while I wish it was an exact science, it's not. It's a little bit of an art form, meaning there are some things that are just going to be subjective, right? And you're never going to get it right 100% of the time. But that's no worries. So with that being said, let's get into showing you exactly how you can find MAO and ARV of a property from your computer without ever having to go see it just by using free software available to you on the internet. So first thing that it comes down to when underwriting the property is the very first thing you need to do is find the ARV, which after— or what we already covered, this is the after repair value. Some people say after remodel value, whatever. Essentially, all you need to know is that the ARV is what the property could be worth potentially if it were entirely fixed up. Okay. And this is the first thing you need to do because all of our calculations about what the MAO is stem from the after repair value. Okay. This is very important to know because here's the deal. When you are actually underwriting a property, the most important thing is for you to look at the deal through the eyes of the person that you're going to be selling it to. What I mean by that is put yourself in the cash buyer's shoes, right? Let's say that we have a property that the ARV is $200,000 and it's going to require $50,000 of work. Now, I'm going to ignore a lot of the other fees and the other price or deductions and stuff that we go over. But let's just say that they, you know, they can sell the property for $200K and it's going to cost $50 grand to get that property there. If you get this property under contract for $150K and you try and sell it to a cash buyer at $170K, who then has to put $50,000 into it to have a property that's worth $200,000, are they ever going to buy that deal? No, because there's no money in it for them. So this is the most important thing you have to understand is you need to make sure that there's money in it for the end buyer. I'm going to show you how we figure that out. Okay. Basically, we find the ARV, we back out all the costs associated with getting the property to that ARV and selling it. Right. Because when you sell a property after you fix it up, you're going to want to get the most amount of money for it, meaning you're going to list it on the market, meaning you're going to have to pay realtor fees. You're also going to have to pay pay closing costs when you sell it. And guess what? You're gonna have to pay money to get it to ARV. So those are going to be repair costs, and I'm going to show you how to estimate those. Um, when you buy it from a wholesaler like myself, you're going to be paying all the closing costs. So there's closing costs on the buy side. Um, even though we call them cash buyers, more often than not they're purchasing these properties using what's called a hard money loan, which is an asset-based loan, um, you know, high interest rate that people use to flip properties. It's not really important that you completely understand that for the intents and purposes of this video, but essentially you need to know that they're gonna be paying interest on that money, and those interest payments are due monthly until they sell the property. So we have to account for holding costs, right? Which is the money that they're gonna be paying in interest for them actually acquiring this property while they go and flip it before they actually sell it, right? So essentially what we wanna do, like I said, figure out what the property could be worth if it were entirely fixed up, back out all of these costs, and then boom, once we know what we can sell the property for to a cash buyer who will still be able to make money, then we know that any amount of money we can get beneath that is our profit, okay? So that's the easiest way to do this, but first we're gonna start with just finding the ARV, okay? Now the way I do this is on Zillow, and this works in pretty much every single market, but I'm just gonna pick a random market. We'll just find a random house, okay? Let's just do, I did Fort Wayne, I pulled the list there. I'm probably gonna find some deals here. So this would be a good place just to show you. Let's just go pick a random little neighborhood. Let's just say this right here. Let's just pick— let's see, let's do this house. Okay, perfect. So let's just say that this is a lead that came in. Wait, did this recently sell? Okay, no. I don't want to find a house that recently sold. Um, let's say that this lead just came in. Okay. This person, you know, my cold caller reached out to them, figured out that they want to sell. And let's just say that these pictures are accurate. Okay. Because obviously we would have the information about the property if you use the script that I give away for free that you guys can get in the link down below in the free resources. But let's just say that these pictures are accurate and this is the property. So the first thing we need to understand is it's 3 bedrooms, 1 bath, 1,000 square feet. Okay. And it was built— we don't have the year built. Okay. That's typically important because when we're looking for ARV, the way we're doing it is by looking for other properties in the same neighborhood that are similar, meaning they're about the same square footage, about the same bedrooms, bathrooms, and about the same year built. But we don't know. So this property we can see has a garage. It's 3 bedrooms, 1 bath, and it's just over 1,000 square feet. So what I'm going to do is I'm going to take this property. I'm going to search Google. I'm going to open up a new tab and I'm going to go look and I'm going to see what properties in this same neighborhood have sold for. Okay. Now let me double check where the hell that property is because I think I lost it on the map. All right. We are on Beacon and State. Beacon State. Okay, so this is the neighborhood. All right, so one thing I like to do when I'm doing this is I change the map to satellite so I can make sure that I'm staying in the same neighborhood. And really, we're gonna wanna look just basically in this little area, basically everything south of Vance Avenue, everything east of Anthony Boulevard, north of State, and west of Beacon Street. But we're gonna go to For Sale, we're gonna change this to Sold. We're not gonna mess with any of this, we just wanna look at houses. And then we only want properties that have sold in the last— we're going to start with 90 days and good. We have plenty of comparables, we have plenty of sales, so that's good. Now, if there weren't a lot of sales, right, there weren't a lot of comparable properties, we could move this back to 6 months. If there still weren't enough, we move it back another 12 months. If there are no good comparable properties more than 12 months away, I would just pass on the deal. Okay. Unless, you know, I kind of trust my gut and I know I'm getting it from an insane price. But the thing is, if there are no comparable properties that have sold, that means there's not a lot of investor activity in the area. And if there's not a lot of investor activity in the area, it's going to be very hard to find a buyer. And if you don't find a buyer, you're not going to make any money. So as I was saying, let's go back and we're going to try and find— I'm just going to sort this high to low and we're going to try and find a 3-bedroom, 1-bath house that's been remodeled. That's around 1,000 square feet. So right now I just sorted this by high to low. And also another thing you can do, especially when you're first getting started, is you can go ahead and draw a boundary. So like I said, we only are looking for houses that are in this little square right here. And if you just draw a boundary, it'll only show you properties that are in there. So just to make it easy, we'll do that. So let's look. The first thing I'm looking for is just a property that's 1,000 square feet. So here's a 3/1, 1,100 square foot property right here that sold for $202,500. Now, initially we could see it does have about 100 more square feet, but that's okay. And we're looking outside, it looks nice, right? The property from the outside looks good. This looks clean. Now, it's not remodeled, but it's clean, right? As you can see, this is all old shit in here. Okay. What I'm typically looking for is like that white and gray look, which we'll find a property and I'll show you what I'm talking about. But either way, this is a clean property that sold for $202,000. So this is a good data point for us to have. It also has a detached garage. So similar type property to when we looked at— if we kind of keep looking around, I'm still just kind of looking to see if there's any other similar properties. Here's a 3/2 that sold for $182,000. Smaller, also not updated or anything crazy. And there does not appear to be a garage. And then this one's really small. Okay, so this is the property that we're going to use to determine our ARV from. Now the important thing to note is that none of the— that this property is not fully remodeled, it's just clean. Okay, so when we're looking at our actual property, the one that we'd be making an offer on, we can see that number one these floors could be clean, right? This looks good. The paint looks fine. The cabinets and stuff. This looks fine, right? Meaning this property is probably not going to need a whole lot of repairs to get to be that $200-something thousand ARV, right? Like that property. And where's the one here? This property and this one, it's not going to take much to make it look like this. This one just really has nicer photos. Okay. And something I will mention, I'm kind of breaking some rules here. This property is kind of a two-story because it has rooms up here. You really only want to compare one-story properties to one-story properties. Okay. But we just don't have too many other great comps. And also, I've just done this a lot. I know this market, so I can kind of— this is where I'm saying that this is an art, not a science. Okay. Sometimes you have to bend the rules. Now, right now, I could just say, okay, ARV is going to be somewhere around $200,000, but I'm going to check. I'm going to see what's currently for sale. I want to see if we have any similar properties that are on the market right now. So I want to look at both of these even though they have one less bedroom. They're around the same size and they're for sale. So this one looks very similar to our property. This is a little bit nicer. This like laundry room, kitchen, where the fuck this is. Yeah, the kitchen. They've got some new cabinets in here and this is for sale for $155,000. So this is important for me to know because while our property does have another bedroom, if a buyer, or let's say like somebody who's actually buying the property, not a cash buyer, like somebody who's going to buy this property to live in it, our property and this property would be competitors, right? That if, if a person is going to see this property and ours had just been fixed up and we listed it, they would go to look at this property as well. So that's something to know. And this is for sale for $154,000, which is pretty cheap. Then we have this one, also would be a competitor for sale for $170,000. Again, clean. Okay, so here's the thing. When I came and I looked at these houses, they're listed for sale. I want to look at this as well. It's $1,500 price cut. Okay. Oh, another thing you can do, go to more and accepting backup offers and pending. Okay, that brought up some more. I want to see what these are that's pending. So 2/1, this is pending at $179,000. Interesting. Okay, so this is— it's weird. Why do they have these old pictures of the property? That's a bad look. Okay, so this is actually great to see. This property has been remodeled. Okay, now the, the cabinets are old and they just repainted, but these are new appliances, these are new countertops. But this property has been remodeled, but it's a cheap remodel. It has a— it has a garage. This is the property we want to use, especially since it's pending. $179,000. So I'm going to put the ARV at $180,000 because this is a very similar property to ours that has been remodeled, that's listed for sale. Now, ours is going to be nicer than this because it does have an additional bedroom and it does have a garage. Well, this one doesn't. So that's going to be about $10,000 that we're going to add on to it. So I'm going to say that the ARV of our property is $180,000. Now I have a little MAO calculator I use. It's super simple. It's not hard to make at all. I'll show you. In fact, you guys might be able to get it for free. I don't know if they have it set up, but if they do, then meaning like my people that run all my tech stuff, then you'll be able to get it for free using the link below. If it's not, then it's available in my communities. So like my inner circle, which by the way, anybody who's a member of my inner circle, we do this for you. Meaning if you find it when you talk to somebody who is interested in selling their property, we have a place you can submit it. And me or a member of my team, one of my full-time underwriters, will actually analyze the deal for you. All right. This is the Novation calculator. I'm going to hide that. You guys don't even need to worry about it. Don't ask me anything about it. But we're going to go here. We're going to plug in our numbers. So first, is $190,000 we have for ARV. Second is 1,000 we have for square footage. Now I know our property is 1,056, but that doesn't matter. I always just keep it a round number. Okay, now I know that in this market, because of the comps, that remodels are a little bit cheaper in this area. Okay, typically a full interior remodel is $45 a square foot in a nicer market somewhere like Arizona, bigger places in Texas, bigger places in Florida, major metropolitan areas, it's going to be around $45 a square foot to entirely remodel property. But I can just tell based on the conditions of these other comparable properties that it's going to be much closer to $35. And I'm going to even say $30 a square foot. So I think to get our property to be worth $190,000, it would cost $30,000. And I— one thing I want to say also is that I'm overestimating here. When it comes to underwriting a property, I always overestimate because I would rather be conservative here and get the property under contract for a cheaper price because it just means I have a better chance of selling the deal and making more money. Now, here is this calculator. Let me kind of explain some things we're looking at. This is the ARV, right? After Repair Value. This is selling costs, meaning remember what I told you is that we're going to look at the deal from the eyes of the person we're selling it for. So when— if we sell this to a real estate investor that is able to sell the property for $190,000, when they sell the property, they're going to be paying realtor fees and closing costs. So I'm backing out 5% right here, actually 6%, and then closing costs when they buy it from us. Okay. When they buy the property from us, they have to pay all the closing costs. So I'm going to back up that number as well. Then I'm going to back out the repair costs. As I've determined, it's going to be about $30 a square foot for remodel. If you're new, you should always just use $45 a square foot for a full remodel, $15 a square foot if it just needs to be cleaned out, meaning like put, you know, floors, paint, make it nicer. And if it needs a full remodel, $60 a square foot. Okay. But in smaller markets, rather than using $45, you should just use $35. Now, I know this can be closer to $30 just because I've done this a lot. But again, you want to err on the side of caution. Next is the investor profit. Remember, no cash buyer is going to buy this deal from you if there's no money in it for them. Now, I know in this area that somebody will flip a house to make $20 grand. Okay, so I've just put 10% here. It's typically going to be between 10 and 15% of the ARV, meaning that's all this is calculating. It's just taking whatever I put here, whatever percentage I put here, it's going to take that percentage of this number for the profit. I know somebody will flip this house for $20 grand, so I'm just going to leave it at $10,000. It backs out that, and then holding costs. As I said, they're going to be paying interest payments. It's going to take them about 3 months, probably a month and a half to actually do the remodel, a month and a half to sell the property. So it would be about $3,000 in interest there. And then boom, it tells me my disco price. It's saying that if this is true, if the ARV is $190,000 and it's going to be $30,000 in repair costs then I should be able to sell this property for $123,000. Meaning if I want to make $20,000, I need to offer them $103,000 max. So what I'm going to do now is if this was a lead, I would call them up and I would make them my offer. However, I'm not going to start at my max. I'm not going to offer them $103,372 because then I have no room to negotiate. Okay. So I'm actually gonna call and I'm very aggressive. I make really low offers. I would probably start at like $84,000 or some kind of random number like that. Another tip is I never offer like a clean number. I never say, "Hey, I'd like to offer you $84,000." I would offer them $84,372 because when you use a very specific number, people think there's like, "Oh, there's a lot of work, a lot of calculations that go into this." It's like a psychological thing, okay? And it feels like, "Oh, that's more exact," where if you just use a round number, That feels like, oh, we have some more play here. We have some more room to negotiate. Now, of course we do, but I wanna keep every possible advantage I can in the negotiation. So I use a very specific number. Now, I would offer that. If they say no, I would say, well, hey, listen, the good news is we've got the property approved. It's something we're interested in. Now it's just about making the numbers make sense. Let me go back, see what I can do. You know, is there somewhere we can meet in the middle? But basically I just start to negotiate, okay, knowing I would come up to as high as $103,000. All right, so that's how you underwrite a property. Again, this is a super simple calculator to make. I'm just going to go through and look at every single cell so you can actually see the calculations. Um, this should actually— I'm going to change this to 5. Okay, so you can actually see the calculations and you can make one of these yourself. I also have a much nicer one that's available in my Inner Circle. Um, I guess I'll just show you— Eric, here, let me go through and do this, but then I'll show you the sneak peek of the Inner Circle one that makes it insanely easy to do this. Not to mention, when you're a member of the Inner Circle, uh, we underwrite your deals for you. But I'm just gonna go through and do this so you can go ahead and copy these. And the rest that didn't click through just don't have calculations. But anyway, that's how you find ARV. That's how you find MAO, okay? And guys, one thing I also want you guys to understand, very important here— one sec, we're gonna make myself bigger so you really understand this— is when it comes to this, you don't need to worry about being perfect, okay? Because even if you mess up and you offer somebody too much and you're not able to sell the property, you can just cancel the contract. It's not a big deal, okay? Properties fall out of contract all the time, even with realtors and other kinds of stuff, okay? Now, obviously, your goal should not be to fuck it up, but if you do, it's not a big deal, okay? So go in there, start making offers, all right? It's done is much better than perfect. And also, a little tip, very, very often Now let me just show you this to put in perspective. My MAO, my DISPO price, is at 66% of the ARV. Okay. If I had just taken this number and multiplied it by 65, $181,600, just taking the Zestimate and multiplied it by 0.65, I would have gotten $118,000, made that my MAO. It's not perfect, but I still would be able to like make a profit because I'm at $118,000 and my dispo price is $125,000. It's not perfect, but there's still $7,000 in there. So when in doubt, offer them 65% and you should be fine. Okay, um, anyway, that's how you underwrite. I'm gonna show you a sneak peek real quick, um, of the Inner Circle. Where is my camera? Does anybody know where my camera is? Here we go. All right, so sneak peek of the Inner Circle. One thing is that, for instance, like when it comes to comping, um, sorry, just so many wins, just got a bunch of wins we have to go through first. Uh, but for instance, we have a service set up where you just have to get Offer Help. You post details about the property and then my professional underwriter will go through and record a video actually analyzing the deal for you and a screenshot of what your numbers are. Now, as you can see, this calculator looks a little bit different, and that is because we have a, uh, super beefed up one. Okay, let's see where it is. All right, so, whoops, it's in the document vault. I'm just leaking all of my Inner Circle right now. Where is it? Resources, Inner Circle document vault. Okay, anyway, here is Basically, you just put in your comps, you put in your ARV comps, your property, and boom, it does everything for you. And we also have information like on the level of repairs and what to do over here, right, to actually tell you a little bit more about that stuff. But you put it in, you just select. It's a little bit nicer, makes it super easy. But yeah, that's only available to Inner Circle people. We definitely don't give this away for free. Anyway, if you guys are interested in joining the Inner Circle, make sure that you fill out the application down below. But anyways, guys, I know— I'm sorry, this is a very technical video, not as fun and interesting as the most are, but this is super important to learn. Okay, if you guys have any questions about underwriting, questions about wholesaling, suggestions for videos I should make in the future, please leave a comment down below. If you haven't already, fucking subscribe to my channel and like the video, and we'll see you guys on the next one.