Maximum Allowable Offer: Full Guide
The maximum allowable offer (MAO) is the highest price you should pay for an investment property while still achieving your target return. It is the guardrail that prevents overpaying and protects your profit on every deal. This guide covers MAO formulas for flippers, wholesalers, and rental investors, with worked examples for each strategy.
MAO for fix-and-flip investors
The standard flip MAO uses the 70% rule:
MAO = ARV × 0.70 − Repair Costs
Example: ARV is $280,000 and repairs are $45,000.
MAO = $280,000 × 0.70 − $45,000 = $196,000 − $45,000 = $151,000
At $151,000, the all-in cost is $196,000 ($151K + $45K repairs). Selling at $280,000, the 30% margin ($84,000) covers holding costs ($10K-$15K), selling costs ($22K-$28K), and leaves $41K-$52K in profit.
MAO for wholesalers
Wholesalers subtract their target assignment fee from the flip buyer's MAO:
Wholesaler MAO = ARV × 0.70 − Repairs − Assignment Fee
Using the same property: $280,000 × 0.70 − $45,000 − $12,000 fee = $139,000
The wholesaler contracts at $139,000, assigns to the flipper at $151,000, and collects a $12,000 assignment fee. The flipper's deal still works at 70% of ARV minus repairs.
MAO for rental investors
Rental MAO is driven by cash flow targets rather than resale value. The most common approach uses a target cap rate or cash-on-cash return:
MAO (cap rate method) = Net Operating Income ÷ Target Cap Rate
Example: NOI = $14,400/year | Target cap rate = 8%
MAO = $14,400 ÷ 0.08 = $180,000 (total all-in including repairs)
If the property needs $25,000 in repairs, the maximum purchase price is $180,000 − $25,000 = $155,000.
Adjusting MAO for market conditions
The standard 70% multiplier is a starting point. Adjust based on your market and risk level:
| Situation | Multiplier | Why |
|---|---|---|
| First-time investor | 65% | Extra margin for mistakes |
| Heavy structural rehab | 65% | Higher cost overrun risk |
| Standard cosmetic flip | 70% | Typical costs and timeline |
| Hot market, fast sales | 72-75% | Lower holding costs, strong demand |
| Selling without agent | 73-75% | Saving 2.5-3% in commissions |
The MAO is your walk-away number
Never exceed your MAO. Every dollar over your maximum offer is a dollar taken directly from your profit. If a seller will not accept your MAO, walk away. The next deal is always coming, and discipline on purchase price is what separates profitable investors from those who lose money.
Run every property through the MAO calculation before making an offer. Make it a habit, and you will never overpay.
Related articles
- The 70% Rule in Real Estate Explained
- How to Calculate ARV: Complete Guide
- Fix and Flip Calculator Guide
- Cap Rate: The Complete Guide
- Rental Property Analysis: Step by Step