What is Maximum Allowable Offer (MAO)?
The Maximum Allowable Offer (MAO) is the highest price an investor can pay for a property and still achieve their target profit margin after accounting for repairs, holding costs, and selling costs. It is the single most important number for determining whether a deal works. If you pay more than the MAO, you're cutting into your profit or setting yourself up for a loss. If you pay less, you've created a cushion for unexpected costs and market shifts.
MAO is not a universal number. It changes based on the investor's exit strategy, risk tolerance, cost of capital, and the specific market conditions. A flipper's MAO is different from a landlord's MAO, which is different from a wholesaler's MAO. Understanding how MAO is calculated for each strategy is essential for both pricing your wholesale deals and evaluating deals for your own portfolio.
The standard MAO formula
MAO = ARV × Rule Percentage − Repair Costs − Wholesale Fee
The classic version uses the 70% rule:
MAO = ARV × 70% − Repairs
The 30% that's subtracted from the ARV is meant to cover the investor's profit, closing costs (buying and selling), holding costs (loan interest, taxes, insurance, utilities during the rehab period), and a risk buffer. For a $300,000 ARV property with $50,000 in repairs, the MAO at 70% is: $300,000 × 0.70 - $50,000 = $160,000.
If you're a wholesaler, subtract your assignment fee from that MAO to get your maximum offer to the seller. With a $10,000 assignment fee: $160,000 - $10,000 = $150,000 maximum offer to the seller.
When to use 65%, 70%, or 75%
The 70% rule is a starting point, not a law. The right percentage depends on several factors:
| Percentage | When to Use | Risk Level |
|---|---|---|
| 65% | Heavy rehab ($75K+), slow market, rural area, first-time flipper, hard money financing at high rates | Conservative |
| 70% | Standard rehab, average market, experienced investor with cash or conventional financing | Standard |
| 75% | Light cosmetic rehab, hot market with fast sales, low holding costs, very experienced investor | Aggressive |
| 80% | Rental buyers (no resale), minimal rehab, strong rental cash flow, institutional buyers with low cost of capital | Rental-focused |
The percentage essentially represents how much cushion the investor needs. More risk (bigger rehab, slower market, higher financing costs) means a lower percentage and thus a lower MAO. Less risk (cosmetic rehab, hot market, cash buyer) means a higher percentage is acceptable.
MAO by exit strategy
Fix and flip MAO
The standard 70% rule. Flippers need to account for purchase closing costs (1-2%), rehab costs, holding costs (4-6 months of loan interest, taxes, insurance, utilities), selling costs (6-8% for agent commissions and seller concessions), and their profit target (typically 15-20% of ARV or $30K+ minimum). The 30% margin from the 70% rule covers all of these.
Rental / buy-and-hold MAO
Rental buyers calculate MAO differently. Instead of backing into a purchase price from the resale value, they calculate forward from the ARR. A rental MAO is driven by the 1% rule (monthly rent should be at least 1% of total investment) or a target cap rate. If the ARR is $1,500/month, a 1% rule buyer would pay up to $150,000 all-in (purchase + repairs). If repairs are $30,000, their MAO is $120,000 regardless of what the ARV says.
BRRRR MAO
BRRRR investors need the MAO to satisfy two constraints simultaneously. The total investment (purchase + repairs) needs to be low enough that the refinance (typically at 75% LTV of the ARV) recovers most or all of their cash. And the rent needs to cover the new mortgage payment with positive cash flow. The MAO is the lower of the two calculations.
Wholesale MAO
As a wholesaler, your MAO to the seller is the end buyer's MAO minus your assignment fee. If the end buyer's MAO is $160,000 and you want a $12,000 assignment fee, your MAO to the seller is $148,000. The tighter you know your buyer's numbers, the more precisely you can calculate what to offer.
Detailed MAO calculation example
Let's work through a real example with actual numbers instead of just percentages:
Subject property: 3 bed / 2 bath, 1,600 sqft, built 1985
ARV: $280,000 (based on 4 comparable sales)
Repair estimate: $45,000 (moderate rehab)
Hold time: 5 months
Flipper's detailed calculation:
- Purchase closing costs: $280,000 × 1.5% = $4,200
- Rehab: $45,000
- Holding costs (5 months): loan interest $5,000, taxes $2,000, insurance $700, utilities $750 = $8,450
- Selling costs: $280,000 × 7% = $19,600 (agent commissions + concessions)
- Target profit: $280,000 × 15% = $42,000
- Total costs + profit: $4,200 + $45,000 + $8,450 + $19,600 + $42,000 = $119,250
- MAO: $280,000 − $119,250 = $160,750
Notice that the detailed calculation ($160,750) is very close to the 70% rule shortcut ($280,000 × 0.70 − $45,000 = $151,000). The 70% rule is slightly more conservative, which is by design -- it builds in extra cushion for the inevitable surprises.
Why MAO matters for wholesalers
As a wholesaler, you're the middleman between the seller and the investor buyer. Your deal only works if there's enough spread between what the seller accepts and what the buyer will pay. MAO is the ceiling on the buyer's side. If you contract a property above the buyer's MAO, no investor will buy it at a price that also covers your fee.
This is why running your own MAO calculation before making an offer to a seller is critical. You need to know what your buyers will pay before you commit to a purchase price. Working backward from the MAO keeps you from contracting deals that can't be disposed.
Use our free MAO calculator to run quick calculations, or let Deal Run's exit strategy analysis calculate MAO automatically based on your comps and repair estimates.