The MAO Formula: How to Calculate Your Maximum Allowable Offer
Maximum Allowable Offer (MAO) is the highest price you should pay for a property and still hit your profit target. It's the number you walk into negotiations with.
The MAO Formula
MAO = ARV − Repairs − Profit Margin − Closing Costs − Holding Costs
Let's break each component down:
ARV (After Repair Value)
The projected market value after renovations. This comes from analyzing sold comps — not Zestimates, not asking prices, not wishful thinking.
Repair Costs
Your estimated renovation budget. Use the three-tier system (cosmetic, moderate, gut) for screening, and contractor bids for final offers.
Profit Margin
Most flippers target 25% of ARV as their minimum profit. Wholesalers typically build in a 10-15% assignment fee.
Closing Costs
Budget 5% of ARV to cover both purchase and sale closing costs: title insurance, transfer taxes, attorney fees, recording fees, and agent commissions.
Holding Costs
Budget 3% of ARV to cover the time you own the property: mortgage payments, insurance, taxes, utilities, and maintenance.
MAO Example
Let's say you find a 3-bed/2-bath that needs a moderate rehab:
- ARV: $350,000
- Repairs: $55,000 (moderate rehab, 1,500 sqft × $37/sqft)
- Profit (25%): $87,500
- Closing costs (5%): $17,500
- Holding costs (3%): $10,500
MAO = $350,000 − $55,000 − $87,500 − $17,500 − $10,500 = $179,500
Your maximum offer is $179,500. Anything above that eats into your profit.
MAO vs. the 70% Rule
The 70% rule is a shortcut:
Quick MAO = (ARV × 70%) − Repairs = ($350,000 × 0.70) − $55,000 = $190,000
Notice the 70% rule gives you a higher MAO ($190,000 vs $179,500). That's because it bundles profit, closing, and holding costs into a flat 30% — which can be too generous in some markets.
The full MAO formula is more conservative and more accurate.
Key Takeaways
- MAO = ARV − Repairs − Profit − Closing Costs − Holding Costs
- The 70% rule is a quick filter, not a replacement for the full formula
- Always know your MAO before making an offer
- Adjust margins based on market speed and exit strategy