How to Calculate Maximum Allowable Offer (MAO) on a Flip

How to Calculate Maximum Allowable Offer (MAO)

To calculate maximum allowable offer (MAO), take the after-repair value (ARV), multiply it by your target percentage (commonly 70%), and subtract your estimated repair costs. In formula terms:

MAO = (ARV × 0.70) − Repair Costs

That single line is the discipline that separates investors who profit from investors who buy someone else's problem. Everything below explains how to run each number correctly, where the 70% comes from, and how to adjust the formula for your actual costs instead of a rule of thumb.

Why MAO Exists

MAO is the ceiling — the most you can pay for a property and still hit your profit target after accounting for repairs, holding, financing, and selling costs. It is not your offer. It is the number you must never exceed.

The purpose is simple: protect your margin before you fall in love with a deal. If you back into a price by starting with what the seller wants, you inherit their expectations. If you start with ARV and work backward, the market sets your number.

Step 1: Nail Down the ARV

ARV is the resale value of the property fully renovated, based on recent comparable sales — not list prices, not Zestimates, not what the last flipper down the street "asked."

Best practices for a defensible ARV:

• Use 3–6 sold comps within the last 3–6 months, within roughly half a mile in dense areas.
• Match beds, baths, square footage (within ~15%), and lot type.
• Reject outliers — the flip that sold to a cash buyer at auction is not your comp.
• Adjust for condition; your comps should reflect finished quality similar to your planned rehab.

Garbage comps produce a garbage ARV, and a wrong ARV poisons the entire MAO. If you want a framework for weeding out misleading sales, read how to choose real estate comps that won't lie to you.

Step 2: Estimate Repairs Honestly

Underestimating rehab is the single most common way flippers blow their MAO. Walk the property with a scope: roof, HVAC, electrical, plumbing, kitchen, baths, flooring, paint, and exterior. Price each line, then add a 10–15% contingency for the surprises you can't see.

A fast, disciplined approach to scoping and pricing is covered in how to estimate rehab costs on a fix & flip. The number you plug into MAO should be your all-in construction budget, not a hopeful guess.

Step 3: Understand the 70% Discount

The 70% in the classic formula is not magic — it is a bundle. That 30% haircut off ARV is meant to cover:

• Holding costs — loan interest, property taxes, insurance, utilities.
• Selling costs — agent commissions, title, closing, concessions (often 6–8% of ARV).
• Financing costs — points and interest on hard or private money.
• Your profit — the actual reason you took the risk.

The deeper mechanics of the multiplier are broken down in what is the 70% rule in house flipping. The key insight: 70% is a shortcut, and shortcuts break in certain markets.

Step 4: A Worked Example

Assume a property with these numbers:

• ARV: $300,000
• Estimated repairs: $45,000

Using the standard formula:

• ARV × 0.70 = $210,000
• $210,000 − $45,000 repairs = $165,000 MAO

So $165,000 is your ceiling. Offer below it if you can; never chase above it.

When the 70% Rule Lies to You

The rule assumes average holding time, average financing, and healthy margins. Adjust the percentage when reality differs:

• High-ARV homes ($600k+): the fixed 30% often bakes in far more profit than you need. Investors frequently move to 75–78% because dollar margins are large even at a thinner percentage.
• Low-ARV homes (under $120k): fixed costs eat a bigger slice, so you may need 62–65% to stay safe.
• Slow markets or long rehabs: more months of holding cost means a lower percentage.
• Expensive money: hard-money points and interest can quietly consume 3–5% of ARV.

The better long-term habit is to abandon the single multiplier and build MAO from your actual line items:

MAO = ARV − Repairs − Holding − Selling − Financing − Target Profit

This itemized version is more work, but it is far more accurate than assuming 30% covers everything. For a full underwriting walkthrough, see how to analyze a fix and flip.

Common MAO Mistakes to Avoid

• Inflating ARV to justify a price the seller wants. The market doesn't care about your target.
• Forgetting selling costs. Commissions and concessions alone can be 6–8% of ARV.
• Skipping the rehab contingency. The wall you can't see behind is always the expensive one.
• Treating MAO as your opening offer. Start lower; leave room to negotiate up to — but not past — your ceiling.
• Ignoring days-on-market risk. Every extra month of holding shrinks your real margin.

Speed Matters — But Only With Real Numbers

A MAO is only as trustworthy as the ARV, rent, tax, insurance, and holding assumptions behind it. Guessing those by hand is slow and error-prone, which is exactly why the 70% shortcut became popular in the first place.

This is where tools like PropertyWiz AI earn their place: the moment you load a property, PropertyWiz AI pulls live, verified market data and pre-populates market value, comps, taxes, insurance, and holding assumptions, then stress-tests the deal and calculates an optimized max offer in seconds — real data instead of guesswork. That lets you make a confident, defensible offer while slower buyers are still building a spreadsheet.

The Bottom Line

Calculating MAO is not complicated — it is disciplined. Start with a defensible ARV, price the rehab honestly with a contingency, subtract every real cost plus your profit, and treat the result as a hard ceiling. Do that on every deal and you'll pass on the 90% of properties that don't work so you can pounce on the 10% that do.