What is a maximum allowable offer?
Your maximum allowable offer (MAO) is the most you can pay for a property and still cover the repairs, your costs and your profit. It is a ceiling, not an opening offer: you work it out before you talk to the owner, so the number in your head is the right one.
(If you want the math done for you, the free MAO calculator runs it for a flip, a wholesale deal or a BRRRR. And if you want to know how much of your list you can actually reach before you run numbers on any of it, the free Pipeline Grader reads it. Theirs reads a dropdown, ours reads your list. We never store it, sell it, or message anyone on it.)
The MAO formula
MAO = (ARV × a percentage) − repairs − your fee
- ARV is the after-repair value: what the house sells for once it is fixed.
- The percentage is the share of ARV you can spend on the purchase and the repairs together. The other share pays for holding the house, closing twice, selling it, financing, and your profit.
- Repairs is your full repair estimate.
- Your fee applies if you are assigning the contract instead of buying it yourself.
The usual starting percentages: 70% for a flip (the "70% rule"), the same 70% for a wholesale deal with your fee taken out, and about 75% for a BRRRR, because that is roughly what many lenders will refinance.
A worked example
Say a house will be worth $300,000 once it is fixed, and it needs $45,000 of work.
Fix and flip. $300,000 × 70% = $210,000. Take out $45,000 of repairs: $165,000. That is the most you pay.
Wholesale. That same $165,000 is your end buyer's ceiling. Take your fee out of it, say $10,000, and you contract at $155,000.
BRRRR. $300,000 × 75% = $225,000 for the purchase and the repairs together. Take out the $45,000 and the most you pay for the house is $180,000, if you want most of your cash back out at the refinance. Then check that the rent covers the payment, because a refinance you cannot carry is not a deal.
The two numbers that hurt you, and which one hurts more
Every MAO rests on two estimates: ARV and repairs. They do not hurt you equally.
A repair miss costs dollar for dollar. If the work on that house is really $60,000, not $45,000, the flip MAO drops from $165,000 to $150,000. Every dollar you underestimated comes straight out of your margin.
An ARV miss costs about 70 cents on the dollar. If the house is really worth $280,000, not $300,000, the flip MAO drops from $165,000 to $151,000. A $20,000 miss on value moved your ceiling by $14,000.
Both still hurt. But if you only have time to tighten one estimate, tighten repairs: walk the house, open the basement, and price what you can see before you guess at what you cannot.
Where the 70% rule breaks
The 70% rule is a starting point, not a law. It breaks in predictable places.
Cheap houses. On a house worth $100,000 after repairs with $30,000 of work, 70% gives you $40,000. The 30% left over is only $30,000, and closing, title, holding and selling costs do not shrink just because the house is cheap. Many investors work cheaper houses at 60 to 65%. At 65%, the same house is $35,000.
Expensive markets. On a $500,000 ARV with $60,000 of work, 70% gives you $290,000 and leaves a $150,000 spread. In markets like that, plenty of buyers work at 75 to 80%, and at 75% the same house is $315,000. Holding to 70% there can mean you never win a deal.
Long or heavy rehabs. Holding costs grow every month the house sits. A six-week cosmetic job and a nine-month gut job should not get the same percentage.
Rentals and BRRRR. The real limits are the appraisal, what the lender will refinance, and whether the rent covers the payment. A good percentage on a house that does not cash flow is still a bad buy.
Creative deals. On subject-to or seller-financed deals, MAO matters less directly. The question there is whether the rent covers the payment with room to spare.
Distressed and pre-foreclosure houses. What the owner owes, any second liens, and in some states a redemption period after a foreclosure sale can all change the real number, or decide whether there is a deal at all. Find those before you trust any formula.
Why the formula is not the deal
At face value the formula is right. In practice it is rarely that simple, and the investors who get burned usually did the math correctly on the wrong numbers.
People make the formula match. The common mistake is not the percentage. It is inflating the ARV and shaving the repairs until the number works. If you catch yourself adjusting the inputs to reach the price the seller wants, the deal is telling you something.
Your fee and your buyer's profit both have to survive. If you are wholesaling, your fee comes out of the end buyer's ceiling, not on top of it. Plenty of wholesalers offer the seller's number plus a little and eat the buyer's margin instead. That buyer loses money once and never buys from you again. The deals that keep buyers coming back are the ones with enough in them for everyone.
Being able to close is worth more than the highest number. An owner facing a deadline needs someone who will actually perform. An offer you cannot close is worth nothing to them, however big it is.
Distressed deals run on different math. When a lender has to approve the sale, as in a short sale, the price is set by what the lender will accept against what is owed, not by 70% of ARV. My partner works those well below 70%, because the repairs, the timeline and the lender's approval all have to fit.
The real number comes from the owner's problems. The formula gives you a ceiling. It does not tell you what the owner needs: time to move, a place to live, debts settled, family members who all have to agree. My partner once had an owner turn down every offer before her auction because she did not know what she would do with the money. The deal that worked set aside a year of rent, moving costs and a car out of her proceeds. The price barely moved. The problem got solved.
Common questions
What is the MAO formula? MAO = ARV × a percentage − repairs − your fee. Flippers usually start at 70%; wholesalers use the same number and take their fee out of it; BRRRR investors often use about 75%.
Is the 70% rule still accurate? As a starting point. In expensive markets many investors work at 75 to 80%; on cheaper houses, 60 to 65%. Change the percentage to fit the market and the project.
Should my first offer be my MAO? No. MAO is your ceiling. Most investors open below it and leave room to negotiate.
Run your own numbers in the free MAO calculator. And before you buy another list to run them on, the free Pipeline Grader shows how much of the one you have can actually be reached. Theirs reads a dropdown, ours reads your list. We never store it, sell it, or message anyone on it.
The formula is the easy part. The estimates are the job.