By Mike Kaleikini
When you’re looking to invest and buy properties in real estate, what formula do you use to figure out whether something is a deal or not? Are you using the simple formula? You know, “I can buy it for this much and sell it for this much” formula? Great start to a rapidly declining real estate investment business.
I get inquiries all the time that involve someone thinking that it’s as simple as making an offer and just fixing the place up enough to sell it for $50,000 more than I bought it. I can’t tell you how fast your business can end up in the toilet doing that.
There is an acronym called M.A.O. It stands for Maximum Allowable Offer. Pay attention this will matter especially when it comes time to make that offer to a seller who will invariably rip you apart for making a ridiculous offer that you can’t justify. This will help you do just that.
Here’s how it works:
- 30% discount right off the bat (If they are solid on a price that leaves you 20% equity, WALK)
- Then the cost of rehab or remodel gets taken out
- Then the cost of holding money. (This is where many think they can get away with being cheap)
Let’s be clear: this is the LAST place things will be cheap. You’re borrowing money from people that are looking for a seriously aggressive return on their cash. If you think this is where you should be conservative with your numbers, think again. This is where you will need to be liberal.
If you want to succeed in this game of active investing, you’ll need to be aggressive with you offer at the right number. Or you stand to lose a lot in the long run by losing the actual equity you should be getting.
As an investor you have this wonderful power. Maybe you’ve heard of it. It’s the Power of “NO”.
If you get into a situation where you know it’s not going to net you at least 30%, walk away. You have that right. You win and so does the seller when you do. You haven’t lost an opportunity, you’ve saved your wallet from utter financial disaster.
Make sure your MAO is set right and you’ll find yourself making more rather than being frustrated with unexpected costs. Many of our borrowers understand this and they are doing great!
Now get out there and find an opportunity.
Written by Mike Kaleikini BA, ABETABA
He can be contacted by email: [email protected] or phone @702-918-0953.