The house flipping formula...
DO YOU KNOW THE MAO or 70% RULE?
What is the MAO rule? Used by house flippers, The “Maximum Allowable Offer” (MAO) formula for flipping is based on the 70% rule. The 70% rule is the notion that an investor cannot pay more than 70% of the After Repaired Value (ARV) of the property after accounting for the cost of your funding, repairs, holding costs, and resale commissions and costs.
WHEN IS IT OK TO BREAK THE 70% RULE?
-When you have a guaranteed built-in buyer. No need to pay resale fees.
-When your cost of money is lower (e.g. a subject-to transaction) or access to cheap cash
-Or when you know repairs on the property are less than stipulated.
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