What Is MAO? (Maximum Allowable Offer)
MAO, or Maximum Allowable Offer, is the highest price an investor can pay for a property and still hit their profit target. It's calculated directly from ARV and rehab costs using the 70% rule — the single most important formula in fix-and-flip investing.
What Is MAO?
Maximum Allowable Offer (MAO) is the absolute ceiling price you can pay for an investment property and still walk away with a profit after repairs, holding costs, and selling costs. It's not a suggestion — it's a hard limit that protects your deal.
MAO is derived from two inputs: the property's After Repair Value (ARV) — what it will sell for once renovated — and the estimated rehab cost to get it there. Every dollar you overpay for a property is a dollar taken directly out of your profit.
Why MAO Matters
Most investors who lose money on flips don't lose it on the rehab — they lose it because they overpaid at acquisition. MAO gives you a disciplined, formula-driven ceiling that removes emotion from the offer process.
The 70% Rule Formula
The industry-standard formula for calculating MAO is known as the 70% rule. It's the first thing every serious fix-and-flip investor memorizes:
The MAO Formula
The formula is deliberately conservative. The 70% ceiling builds in room for profit, unexpected costs, financing fees, and the natural friction of a real estate transaction.
Why the 30% Buffer Matters
The 30% spread between 100% of ARV and the 70% MAO cap is not arbitrary — it's a real cost center. Here's where that 30% typically goes on a standard flip:
Investor Profit (10–15%)
The whole reason you're doing the deal. On a $300K ARV property, that's $30K–$45K gross profit before taxes.
Selling Costs (6–8%)
Real estate agent commissions (typically 5–6%), title insurance, transfer taxes, and closing costs on the sale side add up fast.
Holding Costs (3–5%)
Property taxes, insurance, utilities, and hard money loan interest accumulate every month you own the property. A 6-month flip can easily rack up 3–4% of ARV in holding costs.
Financing/Acquisition Costs (1–3%)
Hard money origination points, appraisal fees, and closing costs on the purchase side eat into margins before the renovation even begins.
Contingency / Market Risk (2–5%)
Markets shift, timelines slip, and surprises happen. The buffer absorbs a soft market, longer days on market, or a price reduction needed to sell.
Important: In expensive markets (California, NYC, Pacific Northwest), transaction costs are higher — consider using 65% instead of 70% to maintain adequate margins.
Flipper MAO vs Wholesaler MAO
MAO means something slightly different depending on your exit strategy. Flippers and wholesalers both use the formula — but the numbers plug in differently.
Fix-and-Flip MAO
Wholesaler MAO
Wholesalers must build their fee into the MAO calculation — otherwise the end buyer (the flipper) can't hit their numbers and the deal falls apart. A wholesaler who understands MAO is a wholesaler who closes.
Practical Example with Real Numbers
Let's walk through a complete MAO calculation on a real-world scenario:
Deal Scenario: 3/2 Ranch in Atlanta
When MAO Is Below Asking Price
This happens on almost every deal you analyze. The seller wants $195K, your MAO is $172K. Here's how experienced investors handle this gap:
Walk Away — Immediately
The most powerful tool in an investor's arsenal is the ability to pass. If the numbers don't work at the asking price and the seller won't negotiate, move on. There's always another deal.
Educate the Seller
Walk the seller through your numbers. Show them your ARV comps, your rehab estimate, and your total costs. Many sellers don't realize the full cost of selling to a cash investor vs. listing retail. A transparent conversation often bridges the gap.
Recheck Your ARV and Rehab
Before passing, double-check both inputs. Are you using the most favorable (but defensible) comps? Could a different renovation scope get you the same ARV at lower cost? A $5K reduction in rehab estimate equals $5K more you can offer.
Creative Terms
Sometimes a higher purchase price works if the seller accepts favorable terms — seller financing, a delayed close, or subject-to. These structures can change the math enough that a deal works at a higher price point.
Frequently Asked Questions
Can I use 75% or 80% instead of 70%?
Yes — in lower-cost markets with thin transaction costs, some investors use 75%. In expensive markets or with thin rehab margins, some use 65%. The 70% figure is a starting heuristic, not a law. Just make sure your math still supports your profit target when you adjust the percentage.
Does MAO include the purchase closing costs?
No — MAO is the offer price itself. Closing costs on the buy side (typically 1–2%) come out of your profit margin, which is why the 30% buffer needs to be large enough to absorb them.
What if I'm buying with conventional financing?
The MAO formula doesn't change, but your holding costs drop significantly since conventional rates are much lower than hard money. Some investors using low-cost debt stretch to 72–75% of ARV as a result.
Is MAO the same as the maximum bid price at auction?
Essentially yes, with one caveat: at foreclosure auctions you can't inspect the property, so your rehab estimate carries more uncertainty. Conservative investors add a 10–20% buffer on top of their rehab estimate when bidding at auction to account for unknowns.
What's the biggest mistake investors make with MAO?
Inflating the ARV to justify a higher price they want to pay. MAO is only as good as your ARV estimate. Use conservative, defensible comps and be honest about your rehab scope. The formula can't protect you if you feed it bad numbers.
Calculate Your MAO in Seconds
Enter an ARV and rehab estimate and our free calculator instantly shows your Maximum Allowable Offer using the 70% rule
Related Guides
What Is ARV?
How to calculate After Repair Value using comparable sales
Read GuideWhat Are Real Estate Comps?
How to find, filter, and use comparable sales to value any property
Read GuideRehab Cost Per Square Foot
Realistic cost ranges for light, medium, and heavy renovations
Read Guide