What is the Maximum Purchase Price Formula?
The Maximum Purchase Price formula is used to calculate the Maximum Purchase Price you should offer for a property. The formula uses a detailed analysis of all of the project costs including your Repair Costs, Buying Costs, Holding Costs, Selling Costs, & Financing Costs.
The Maximum Purchase Price formula is the most accurate calculation, because it requires you to think about, consider & calculate every single project cost on the project.
Maximum Purchase Price = After Repair Value - Buying Costs - Holding Costs - Selling Costs - Financing Costs - Repair Costs - Profit
Maximum Purchase Price Example
A flipper finds a distressed property that the seller is asking $85,000 in a neighborhood with $200,000 resale values. After performing a detailed analysis of all of the project costs the flipper calculates the following costs:
- Repair Costs = $65,000
- Buying Costs = $2,000
- Holding Costs = $3,750
- Selling Costs = $16,000
- Financing Costs = $7,500
- Desired Profit = $30,000
How much should the flipper offer using the MPP Formula?
Maximum Purchase Price = After Repair Value - Repair Costs - Buying Costs - Holding Costs - Selling Costs - Financing Costs - Profit
Maximum Purchase Price = $200,000 - $65,000 - $2,000 - $3,750 - $16,000 - $7,500 - $30,000
Maximum Purchase Price = $200,000 - $94,250 - $30,000
Maximum Purchase Price = $75,750
In this scenario, the seller is asking for $85,000 which is $10,000 more than the recommended purchase price of MPP Formula.
Deal Analysis Case Study
Learn how to Analyze a House Flip and Create a Professional Investment Report in less than 5 minutes!
In this Case Study, Dave will walk you through the analysis of an example house flipping deal and provide insight on how you can quickly analyze prospective deals in a matter of minutes.
When should I use the Max Purchase Price Formula vs the 70% Rule Formula?
The 70% Rule Formula
should be used to initially quickly analyze the validity of a deal to see if you should spend more time to fully evaluate the property using the Maximum Purchase Price formula.
If the deal meets your 70% Rule criteria, you can perform a full Maximum Purchase Price analysis to determine the actual purchase price you should offer for the property.Learn more about the 70% Rule
Now that you know how to analyze a flip deal, start finding and analyzing deals in your marketplace. The more you practice, the better you'll get at quickly valuing potential deals.
Notepads/Dirty Used Napkins
If you are the old fashioned pen-and-paper type, a pen and notepad or a used napkin will work just fine...
Good 'ole Trusty Calculator
Listen, there's no crazy calculus involved in calculating your purchase price, so you don't need a fancy 'Scientific Calculator'....you should be able to use any ordinary calculator or phone app to calculate the MPP.
If you are skilled with Microsoft Excel, building your own analysis spreadsheet can help you get a better understanding of the numbers & costs that go into analyzing a deal. Or there are free downloadable House Flipping Spreadsheet templates
you can download to help you get started.
NEXT: FORECASTING THE AFTER REPAIR VALUE
Or of course you can use our Flipper Force house flipping software which is pre-built with a step-by-step house flipping calculator
for analyzing all of the project costs you need to determine the MPP.