TOOLS & RESOURCES

Rehab Maximum Allowable Offer Calculator

Wholesale Maximum Allowable Offer Calculator

Agreement for Purchase And Sale of Real Estate


MAKE OFFERS

As a real estate entrepreneur, you have to make a LOT of offers to be successful.

To do that, you have to get really comfortable with being uncomfortable. That's because many of the offers you make will be well below the seller’s asking price.

First, you have to figure out what you’re going to offer on a property. This is one step that can halt progress for a lot of newer investors. That's because they get stuck in analysis paralysis and never actually get out and make an offer. Or they end up trying to be too exact and are stuck trying to account for every minute detail.

Don't do that. Make sure you account for your big costs and then add in a profit margin for yourself. If you have enough room in there, even if you buy it and have a large expense come up, you can cover it and still make a buck or two.

For example, if you have $40,000 profit margin built into your calculation, then if a $20,000 foundation repair surprises you, you are still going to make a profit. Don’t take too much time trying to be too exact here. Come up with an offer that will work for you and can be a starting point to negotiate with the seller on. 

So get out there and start making some offers!

CALCULATE YOUR OFFER

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The first step in making your offer is to determine your Maximum Allowable Offer, or MAO. This is the maximum amount that you can pay for a property while still achieving your desired profit after you have taken out your expenses.

The formula for Rehabs that I use looks like this...

MAO = After Repair Value - Repair Costs - Other Costs - Desired Profit

Let's go through a quick example...

You came across a property, pulled comps, and determined that it has an ARV of $200,000.

After walking through the property with the seller you estimate it will cost you $50,000 to repair it.

From talking to lenders and doing some research, you believe other costs like financing costs and holding costs will cost you around $12,500.

Then you work in your desired profit of $40,000 for this project.

$200,000 - $50,000 - $12,500 - $40,000 = $77,500
ARV - RC - OC - DP = MAO


If you are wholesaling a property, you would do the same calculation as if you were going to rehab the property, but would also work in your wholesale fee as well. So it would look like this..,

MAO = After Repair Value - Repair Costs - Other Costs - Estimated Profit - Wholesale Fee

As you go through this exercise a couple times it will become second nature for you.

The key is to know your costs. It doesn't have to be exact, but do your research upfront so you know how many expenses you have to account for on each and every deal.

FILL OUT THE CONTRACT

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(Important Note! Before using any contracts or paperwork in your real estate business, I advise you to run it by a qualified real estate attorney in your area to make sure it meets your state and local laws and regulations. This includes all the documents included in the Real Estate Investing Tool Kit.)

Now that you know how much to offer it's time to fill out the offer contract, also known as the Agreement for the Purchase and Sale of Real Estate. You can download a copy of ours above. This is the document that you will fill out and deliver to the seller via email or in person. 

I have recorded a short video with a good friend of mine, and real estate attorney, Jeff Watson. Jeff is also an active real estate investor who invests full time in residential and commercial real estate. 

We break it down line-by-line in this video.

 


After you have filled out the Agreement for the Purchase and Sale of Real Estate, it's time to deliver the offer to the seller. 

MAKE YOUR OFFER 

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I've found that the best way to do this is to submit your offer via email and then follow up with them in person or over the phone to support your offer and answer any questions they may have. 

Here are two quick notes about making offers that I want you to hear. 

1. Your offer should make you uncomfortable.

Once you've calculated your Maximum Allowable Offer, it's almost always going to be less than what the seller is asking for the property and it's almost always going to make you feel a bit uncomfortable. 

That's OK. 

The fact of the matter is this; you have to make offers that make sense for you and your business.

Now I'm not saying go out there and low ball everyone and take advantage of them. Be fair in all your dealings, but know that it's ok to offer an amount lower than what they are asking. It's how you make a living and you should never be ashamed of that.

Besides, the worst they can say is, "no," and then you either make another offer, or move on to the next property. 

2. You are NOT negotiating. 

This might seem counterintuitive, but don't go into it with the mindset that you are negotiating a deal. Instead, you ARE making an offer backed by data. When you are ready to make an offer, you have already done the research and then done the math. You know what you can pay for the property, and why it is what it is. 

If you get in the mindset that you are making offers backed by numbers, it will be much easier for you to make the offers that you need to make to be successful. 

If they ask why it's so low, you can then go into how the property is well below the condition of what is selling in the market by showing them the comps and photos of what's selling. Then you can talk about how it's going to cost you $XX,XXX to repair it to bring it back to market condition and can even show them your Repair Estimate Sheet. You also have to work in a small profit for you to keep food on your family’s table and for the risk that you are taking. 

I'm not going to go through the closing process with you, because the title company will handle most of that and they will walk you through the whole process in detail. That's one reason having a great title company is essential. 

Now that we've made the offer (and hopefully got it accepted) it's time to move into Step 4: Fund The Deal.

 


DISCLAIMER

These documents and information contained herein are designed to provide accurate and authoritative information with regard to the subject matter being covered. It is given with the understanding that the authors and distributors are not engaged in providing legal, accounting, real estate or other professional advice.

If legal advice or other expert or professional assistance is required, the services of a competent professional person licensed in your area should be sought.