Accelerator: 3.6 MAO on the Table

Accelerator
3.6 MAO on the Table
Cheat Sheet

1. MAO (Maximum Allowable Offer)

1. MAO is putting together the best offer so that you can get paid as a wholesaler.
   • To derive the best offer, factor in the purchase price, cost of repairs, and your fee.
   • The formula is: (ARV x .7) – repairs – fee = MAO
2. Practice handling objections (found in the resource section) to answer the seller with confidence.
3. Keep watch on the market and make sure you and the buyer profit from the deal.

2. Preparation

1. When you submit the offer, advise the seller that you do not use banks, but you use private money instead.
2. The seller needs to know what you’ll be paying for. Advise the seller that you and your team will be responsible for the following:
   • Closing costs
   • Doc prep fee
   • Transfer taxes
   • Recording fees
   • Closing fees
3. Advise the seller that you will not be responsible for:
   • Liens
   • Property taxes
   • Utilities
   • Loan payments 
4. There are two types of purchase and sales agreement: 
   • The AB Contract is between you and the seller.
     1. The buyer on the AB Contract will be your name and not the end buyer.
     2. The seller is the person’s name or entity that’s selling the property.
     3. Add the property address, county, and state.
     4. List the purchase price.
     5. Enter the deposit amount of $500.
     6. Under the section labeled “Assignment,” this entitles you to assign the contract to someone else. If the seller asks why, you can respond by letting the seller know that you and your investor may form an entity and that you’ll reassign the contract to the new entity.  
     7. Both you and the seller must initial and sign the agreement. 
     8. Have an attorney review the contract.
   • The BC Contract is between you and the end buyer:
     1. Enter the property details at the top of the contract. 
     2. Enter the purchase price.
     3. Enter the closing date. 
     4. Enter the deposit amount of $2500.
     5. You will sign as the seller and the end buyer signs the contract as the buyer.
     6. Ensure how the end buyer will fund the deal, either cash, hard money, or private lending and list it on the contract. 
   • Understanding and creating the PSA, consists of several videos that show you how to draft and sign a sales agreement and send them electronically.
5. Within the wholesale model, it doesn’t make sense to complete the title work once the property is under contract. This is not a buy and hold model. Therefore, the title work starts after you secure an end buyer.

3. Buyer’s List

With wholesaling, you find the deal first and then you find the money.

There is a certain criteria for the buyer, before he or she even sees the property:

1. Buyers must be experienced.
2. Buyers may be flippers. 
3. Buyers may be a buy and hold investors. 
4. Buyers have previously purchased multiple deals. 
5. Buyer is not a low baller when it comes to price.
6. Send the buyer photos of the deal.
7. Let the buyer know the repair estimate costs.
8. Locate buyers using bandit signs you’ve placed in the area of the property.
9. Look on Craigslist for buyers.
10. Send out an email blast or mail out postcards to buyers who recently purchased properties within the past 6 months.
11. Network at real estate events and let people you meet know you’re a wholesaler.

4. Buyer Inspection

1. When a potential buyer sees the property in person, be sure that the owner is not present. 
2. Let the owner know that your funding partner(s) or investor will be coming to see the property alongside you. 
   • Ask the seller if you can directly coordinate viewings with the tenants. 
3. Do not talk about price while at the showing. 
4. When the property is tenant occupied, let the buyer decide if he or she prefers it vacant. 
   • This is contingent upon the amount of repairs needed. 
   • If the property needs to be repaired from the roof to the main floor, then the property should be vacant prior to closing.
   • If the tenant remains, then it’s your responsibility to negotiate a lower price with the seller. 
   • Also, you are the one to deal with the tenants, it’s not the responsibility of the end buyer.  
     1. Pay cash for keys. Meaning you’ll have to pay for one or more of the tenant’s expenses to move:
        • The cash for keys document is an agreement between you and the tenant, aka occupant. You are the landlord’s agent in this scenario. Both you and the tenant must sign and date.

5. Closing Process

1. Closing date with the seller. In your AB contract with the seller, have the closing date set for 45 days. 
   • You’ll have 14 days for the end buyer to back out of the deal and for you to find a new buyer. 
   • The title work typically takes a week to complete.
2. There is additional paperwork besides the AB and BC contract. There’s the Assignment Agreement between you and the end buyer. Allow an attorney to review to see which document is best suited for you. See the 3 available samples below:
   • Assignment Agreement 1
   • Assignment Agreement 2
   • Assignment Agreement 3
3. Try to work out an agreement between you and the end buyer. You want the end buyer  to pay you your fee before he or she attends the closing. If not, your fee will go to the settlement company.
4. Provide all contracts and the settlement agreement to the settlement company.
5. In regards to title work, use the end buyers title company as long as they’re familiar with the wholesaling process.
   • If they do not know how to complete title work for a wholesale deal, then refuse to use them; tell your end buyer that you’ll be using your own settlement company.

6. Closing Table

1. Once the title comes back clear, and your end buyer is lined up, then it’s time to coordinate the closing.
   • Pick a specific date to close.
2. Make sure you receive the HUD Settlement Statement:
   • This document provides a breakdown of all the numbers involved in the deal, and what you’ll need to bring to the closing table. 
   • The settlement company must prepare the HUD 24 hours before closing. 
     1. Make sure the settlement company knows where to send your assignment fee if the end buyer didn’t pay you upfront.
   • You must also see the HUD before the seller does, and be sure to check it for accuracy.
     1. Verify that the closing costs are listed on the buyer’s side of the document. 
     2. 24 hours after reviewing the HUD, review it again, but this time review it with the seller, and ask for a verbal agreement to avoid issues at closing:
        • Taxes (Property)
        • Liens 
        • Purchase price
        • Mortgage
        • Net to seller (The dollar amount that the seller will receive at closing)
3. Preferably, schedule the closing to be remote. 
   • If the closing must take place in person, then schedule for the closing to be hours apart:
     1. This is to avoid being asked questions by the seller. 
     2. Also, because you don’t want the seller and the end buyer to meet, to later cut you out of future deals or to discuss your fee.
     3. Schedule the buyer to come to the closing table first.
        • The buyer will sign their documents and pay their fee.
     4. Schedule the seller to come to the closing 3 – 4 hours later.
        • The seller will sign their documents and collect their check or cut a check.

Words of advice

• If in a buyer’s market, then multiply the ARV x .7 to find the MAO, but if in a seller’s market, then multiply the ARV x .60 or .65.
• Don’t let the seller pressure you into telling him/her how much you’ll make off the deal.
• Being that you’re new to wholesaling, avoid mistakes by not selling to newby investors. 
• When the end buyer has cash or hard money, the closing will take place quickly.
• If the end buyer finds a way to reach out directly to the seller, then end your business relationship with this person because they’re attempting to cut you out of the deal.
• It’s typical for wholesalers to get paid at closing and not before.

• There are settlement companies that may tell your end buyer that wholesaling is something they can not do. 
• If the closing costs are listed on the seller’s side of the HUD in error, you may lose the deal altogether.
• If you didn’t receive your assignment fee before closing, then you can include it on the HUD as a marketing fee, consulting fee or backend fee as a separate cost to the end buyer.

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