How to Use the MAO Formula: 70% Rule Calculator & Guide
The Maximum Allowable Offer (MAO) is the highest price you can pay for an investment property and still make your target profit. It is not a subjective number or a gut feeling. It is a calculated figure based on the property's after-repair value, your estimated renovation costs, and the margin you need for holding costs, selling costs, and profit. Every experienced investor has a MAO formula they use to screen deals quickly and make offers with confidence. The most commonly cited version is the 70% rule, but there are important variations depending on your exit strategy and market conditions.
The Standard 70% Rule
MAO = ARV x 70% - Estimated Repairs
This is the formula that most wholesalers and fix-and-flip investors learn first. It is simple, memorable, and provides a quick way to calculate the maximum you should offer on a property.
Where Does 70% Come From?
The 30% spread between your offer and the ARV is intended to cover three categories of costs. Selling costs typically consume 8 to 10 percent of the sale price (agent commissions, closing costs, buyer concessions, and transfer taxes). Holding costs consume 3 to 6 percent depending on the length of the project and financing costs (mortgage/hard money interest, property taxes, insurance, utilities, HOA). Profit should be 15 to 20 percent to compensate for the risk, effort, and capital tied up in the project.
When you add these up (approximately 10% selling + 5% holding + 15% profit = 30%), the remaining 70% is what you have available to cover the purchase price and repairs. That is the 70% rule.
Example Calculation
A property has an estimated ARV of $280,000 and needs approximately $35,000 in repairs.
MAO = $280,000 x 0.70 - $35,000 = $196,000 - $35,000 = $161,000
If you can buy this property for $161,000 or less, the numbers work according to the 70% rule. Let us verify by running the full deal math.
- ARV (sale price): $280,000
- Purchase price: $161,000
- Repairs: $35,000
- Selling costs (9%): $25,200
- Holding costs (5 months at $2,500/mo): $12,500
- Buying costs: $5,000
- Total costs: $238,700
- Profit: $280,000 - $238,700 = $41,300
- Profit margin: 14.8%
The 70% rule produced a deal with roughly 15% profit margin, which confirms the rule's design intent.
Adjusting the Percentage for Market Conditions
The 70% rule is a starting point, not a commandment. The appropriate percentage varies based on several factors, and experienced investors adjust it for their specific situation.
When to Use 65% (More Conservative)
Slow markets with long days on market. If homes in your area are taking 60 to 90+ days to sell, your holding costs will be higher and your risk of price reductions is greater. Using 65% builds in a larger buffer.
High-cost financing. If you are using hard money at 12 to 14% interest, your holding costs eat more of your margin. A tighter percentage compensates for the higher financing cost.
Higher-risk properties. Properties with potential foundation issues, environmental concerns, or in declining neighborhoods warrant a larger margin to account for unknown risks.
Large renovation projects. When the repair budget exceeds $50,000 to $75,000, the risk of cost overruns increases. Using 65% provides extra buffer for a renovation that runs over budget or over schedule.
When to Use 75% (More Aggressive)
Hot markets with fast sales. If renovated homes in your area sell within 15 to 30 days, your holding costs are minimal and the risk of price reductions is low. You can afford to pay more.
Cash purchases. If you are buying with cash (no hard money interest payments), your holding costs are significantly lower, which means you can pay a higher percentage and still hit your profit target.
Light renovation scope. Cosmetic updates under $20,000 have less risk of overruns and shorter timelines than full gut renovations. The lower risk justifies a thinner margin.
Strong buyer demand. In markets with multiple buyer competition, you may need to offer more to win deals. Using 75% allows you to compete while still maintaining a reasonable profit margin.
When to Use 80% or Higher (Wholesalers)
Wholesalers do not renovate the property or pay holding and selling costs. Their margin comes from the assignment fee, which is the difference between their contracted purchase price and the price their end buyer pays. A wholesaler's MAO formula adds an additional subtraction for the assignment fee.
Wholesaler MAO = ARV x 70% - Repairs - Assignment Fee
If your target assignment fee is $10,000, and the flip investor's MAO is $161,000 (from our example above), then your offer to the seller should be $161,000 - $10,000 = $151,000 or less.
Some wholesalers simplify this by using a lower percentage. If the standard flip MAO uses 70%, a wholesaler might use 60 to 65% to build in their assignment fee. The exact percentage depends on the market and your target fee.
MAO for Different Exit Strategies
Fix and Flip MAO
MAO = ARV x (65-75%) - Repairs
This is the standard formula discussed above. The percentage adjusts based on market speed, financing costs, and renovation scope.
Buy and Hold (Rental) MAO
For rental properties, the MAO calculation is different because you are not selling. Instead, you need the property to cash flow after renovation costs and your target return on investment.
MAO = (Annual NOI / Target Cap Rate) - Repairs
For example, if a property will generate $12,000 per year in net operating income after renovation, and your target cap rate is 8%, the value of the property as a rental is $12,000 / 0.08 = $150,000. If repairs cost $20,000, your MAO is $150,000 - $20,000 = $130,000.
Alternatively, many rental investors use a simpler approach.
MAO = (Monthly Rent x Target GRM / 12) - Repairs
Or they back into the purchase price from their required cash-on-cash return, working backward from the rent to determine what they can pay.
BRRRR MAO
For BRRRR deals, the MAO is driven by the refinance. You want your total investment (purchase + repairs + holding costs) to be less than or equal to the amount you can borrow on a cash-out refinance.
MAO = (ARV x Refinance LTV%) - Repairs - Refinance Closing Costs - Holding Costs During Rehab
If ARV is $200,000, the refinance is at 75% LTV ($150,000), repairs are $30,000, refinance closing costs are $3,000, and holding costs during the 3-month rehab are $5,000, then MAO = $150,000 - $30,000 - $3,000 - $5,000 = $112,000. At this purchase price, you would recover all of your invested capital through the refinance.
Wholesale MAO
MAO = Flip Buyer's MAO - Your Assignment Fee
Always calculate from the end buyer's perspective. What would a flip investor pay using the 70% rule? Then subtract your fee. If you cannot get the property under contract at a price that leaves room for both the end buyer's profit and your fee, the deal does not work for wholesale.
Why the MAO Formula Fails (And What to Do About It)
The MAO formula is only as good as its inputs. Here are the most common failure points.
Inaccurate ARV. If your ARV is wrong, your MAO is wrong. Using the highest comp instead of the most comparable comp, using old comps in a declining market, or failing to adjust for differences between comps and your subject property all lead to inflated ARVs and inflated MAOs.
Underestimated repairs. Many investors estimate repairs from photos or a quick drive-by. Foundation issues, roof damage, plumbing problems, and electrical deficiencies are often invisible until a thorough inspection. Always walk the property and include a 10 to 15% contingency in your repair estimate.
Ignoring holding costs. The 70% rule assumes average holding costs. If your project takes 8 months instead of 4, those extra months of interest, taxes, and insurance can consume your entire profit margin.
Emotional attachment to a deal. When you have invested time in finding a deal and negotiating with the seller, it is tempting to fudge the numbers to make it "work." Experienced investors know that the best deals feel obvious from the numbers. If you have to strain to justify the MAO, it is not a good deal.
Using MAO in Negotiations
Your MAO is your ceiling, not your opening offer. In negotiations with sellers, start below your MAO and work up. A common approach is to open at 80 to 85 percent of your MAO and negotiate from there. This gives you room to make concessions while staying within your profitable range.
When a seller's price is above your MAO, do not negotiate against yourself. Explain your number clearly and factually: "Based on what comparable properties have sold for, what repairs the property needs, and the costs involved in closing, the maximum I can pay is [your MAO]. I understand that may not work for you, and that's okay. But that's the number that makes sense from my side."
Some sellers will reject your offer today and call you back in two weeks, two months, or six months when their motivation increases. Leaving a professional, honest impression is worth more than winning every negotiation.