In this short video, Jay will teach you his formula for getting the most money he can pay for a house. This is called the MAO formula which stands for Maximum Allowable Offer.
Pointers to remember: Jay only uses the MAO formula when he pays all cash. And how does he pay all cash? By using Private Money.
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Jay Conner has been investing in Real Estate for over 15 years. He typically makes 2 deals a month. He has bought and sold over 400 homes.
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Chaffee-Thanh Nguyen started investing in Real Estate a decade ago. He dramatically changes and impacts the lives of thousands of people around the world as an Executive Success and Event coach with the likes of Powerteam International and Marshall Sylver’s Mind Power Inc. Chaffee also teaches at his own events.
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Producer: Scott Paton
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Scott Paton:
In a case like that, what will happen with that house? Well, the guy, the owner, just keep it until it falls apart
Jay Conner:
That's a good question. I don't know what's going to happen to it. It's already vacant. The owner is no longer in it. And so I think what's eventually going to happen is, I mean, somebody is going to buy it just for the land. I mean, I could buy it for the land, but that's not my cup of tea. I want to rehab a house. So,
Scott Paton:
So that's an important lesson. What you just said there. There is a shiny object, right? Which is a piece of land that the person was probably motivated to get rid of, but it's not, you know, when you focus on something, you get really, really good at that. If you focus on a hundred things, you never get really good at anything. So you, you've got a very clear set of parameters of what is a deal and what is not a deal for you, for someone else it's going to be different. And I think, I know me for a fact and many other people, it's kind of like, Oh, look at this, Oh, look at that. Oh, look at this. And then you spend all this time on something that if you had a very clear, yes, no list, right? This is my checklist. If it has to be destroyed and started from scratch, I don't want to touch it. And then that's a five-second decision. Whereas a lot of people will look at it. They'll hammer in the hall. Maybe they'll buy it. Maybe they'll start. And then they've got this mess.
Jay Conner:
Yeah. And another lesson that comes out of what I just said is this principle. And that is, the more I get out of my own way. The more money I make, what I mean by that is, you know, I didn't go look at that house this morning, that I'm waiting on the numbers to come back. I didn't go look at the house yesterday afternoon. Sometimes I do. But if I'm working on some other projects, then you know, I've got a team in place that I trust and I rely on their report because at the end of the day, it's the math that makes the decision as to what my offer's going to be. Or if there's going to be an offer and the emotions do not need to be in that formula. It's simply the math. So Scott, since we're talking math, I guess I should share with everybody what my math, what my formula is, on what's the most that I can pay for a house. And we call that the MAO Formula, which stands for Maximum Allowable Offer. Now we only use the MAO Formula when we're paying all cash and how do we pay all cash? Well, we pay all cash by using Private Money from our private lenders. So, you know, we can buy on terms. We can buy creatively and oops! Scott, I didn't tell you how to spell MAO. So, mayo is short for Mayonnaise, but MAO for Maximum Allowable Offer is MAO.
Scott Paton:
There you go. So, and where my mind went was where what's the Y stand for, but I didn't want to ask
Jay Conner:
It stands for Mayonnaise. So again, we're only going to use the Maximum Allowable Offer formula or the MAO formula when we're paying all cash for a property. And in the real world out there, most of the sellers are going to require all the cash. Now, if we can negotiate the purchase a house on terms, which means they're either going to sell to us with owner financing or seller financing, and they're going to carry the note or we're going to buy, for example, the house subject to the existing note, where the seller agrees to sell us their house, keep the mortgage in their name. And we agree to make their payments until we find an end buyer to cash a sale. But the MAO Formula when paying all cash is simply ARV which stands for After Repaired Value. And the definition of After Repaired Value is a house that you've completely fixed up.
And it's absolutely beautiful. So, the Maximum Allowable formula is After Repaired Value times 70% less repairs equals the Maximum Allowable Offer. So again, the MAO formula is After Repaired Value or ARV, which means the house is totally fixed up in beautiful condition. Times 70%, less repairs equals Maximum Allowable Offer. Now we typically, I don't offer the Maximum Allowable Offer number. I typically will throw in an extra $10,000 less than the offer for the unexpected. You know, we got this guy named Murphy that shows up and you know, he's named Murphy because you all know the old rule. If anything can go wrong, it will. It's Murphy's Law. So there's always the unexpected, no repairs always cost more than they are estimated to be. So really what my true maximum offer is going to be is ARV times, 70%, less repairs, less an additional $10,000. That's really going to be the maximum that I'm going to pay. But anyway, Scott, I'm not sure how we got off on all that, but I did want to talk a little bit about the Private Money and what happens when you're paying all cash.
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