How to Calculate Your Maximum Allowable Offer (MAO) on a Fix and Flip Property
Walk into any room of experienced fix and flip investors and ask them what kills the most deals. The answer is almost never bad contractors, surprise foundation problems, or a slow market. The answer is almost always the same: overpaying at the offer stage.
The Maximum Allowable Offer — MAO — is the single number that prevents that. It tells you the absolute highest price you can pay for a distressed property and still walk away with a meaningful profit after purchase costs, renovations, carrying costs, and selling expenses are all paid.
This guide breaks down the formula from scratch, walks through a complete worked example, shows you how to adjust it for your specific market, and explains exactly how fix and flip lenders evaluate the same math when they review your deal.
What Is the Maximum Allowable Offer?
The MAO is a ceiling on what you should pay for an investment property. It is not a recommendation to offer exactly that number — it is the point above which the deal stops making financial sense.
The logic behind it is straightforward. When you flip a house, your profit is not determined by the sale price alone. It is determined by the gap between what you paid for everything (purchase + renovations + carrying costs + closing costs) and what you sold it for. The MAO formula works backwards from your target sale price to figure out the maximum purchase price that still leaves that gap wide enough to be worth the risk.
Used correctly, the MAO formula turns deal evaluation from a gut feeling into a repeatable discipline. It is the same math that every professional fix and flip investor — from individual flippers to large institutional buyers — runs on every property before making an offer.
Step 1 — Find Your ARV (After Repair Value)
The MAO formula starts with ARV: the estimated market value of the property after all planned renovations are complete. Your MAO is only as good as your ARV estimate. If you get the ARV wrong, the rest of the math is built on a shaky foundation.
How to find ARV
ARV is determined by pulling comparable sales — properties similar to your subject property that have sold recently, in the same neighborhood, after similar renovations. The strongest comps share these characteristics:
Location: Within 0.5–1 mile in urban or suburban markets; within 1–3 miles in rural markets
Size: Within 20% of your subject property's square footage
Bedroom and bathroom count: Same or within one bedroom
Condition: Fully renovated (not distressed or mid-renovation)
Age: Sold within the past 90 days; 180 days maximum in slow markets
Use at least three comps. If the comps cluster tightly (for example, three sales between $245,000 and $255,000), you have a reliable ARV range. If they're spread wide, go deeper — pull more data, talk to a local agent, or use a tool that aggregates MLS data for that zip code.
PRO TIPS
The Simple Deals platform gives you access to comps and market data across 30,000+ zip codes. Once you're signed up, you can pull ARV estimates and neighborhood heat maps for any address before you ever step inside the property.
One common mistake: using active listings as comps instead of closed sales. A property listed at $280,000 is not a comp. A property that sold at $267,000 last month is. Listings reflect hope; closed sales reflect reality.
Step 2 — Apply the MAO Formula
Once you have a reliable ARV estimate, the basic MAO formula is:
THE MAO FORMULA
MAO = (ARV × 70%) − Estimated Repair Costs
Where ARV = After Repair Value and repair costs = the full cost to complete planned renovations
The 70% figure is the core of the formula. It means you are targeting a purchase price that is no more than 70% of what the property will be worth after renovation. That 30% buffer covers:
Your target profit margin (typically 10–15%)
Buying and selling closing costs (typically 6–9% combined)
Holding / carrying costs — loan interest, taxes, insurance, utilities (typically 3–6% depending on hold time)
A contingency buffer for unexpected renovation overruns
The 70% rule is not an arbitrary number. It was established through decades of real-world fix and flip experience as the threshold at which a well-executed project reliably produces a meaningful profit after all costs are paid — even when things go slightly wrong.
Worked Example With Real Numbers
Let's run through a complete MAO calculation on a realistic deal. Our subject property is a 3-bedroom, 2-bathroom single-family home in a mid-size Sun Belt market.
DEAL INPUTS — 3BR / 2BA Single-Family, Sun Belt Market
ARV (from 3 comps, all sales within 90 days)
$260,000
ARV × 70%
$182,000
Estimated repair costs (kitchen, 2 baths, flooring, paint, HVAC)
− $42,000
Maximum Allowable Offer (MAO)
$140,000
In this scenario, you should not offer more than $140,000. If the seller is asking $160,000, the deal does not work at face value — either the seller needs to come down, your renovation scope can be reduced, or you move on to the next deal.
Now let's look at where the profit actually lands if you buy at MAO and execute well:
Projected deal P&L — purchased at $140,000
Sale price (at ARV)
$260,000
Purchase price
− $140,000
Renovation costs
− $42,000
Closing costs (buy + sell, ~7%)
− $18,200
Holding costs (loan interest + taxes + insurance, 5 months)
− $7,500
Estimated net profit
$52,300
That's a gross return of roughly 37% on cash deployed — a strong outcome for a 5-month project. And notice that even if renovation costs run $5,000 over budget or the property sits on market an extra month, the deal still works. That buffer is exactly what the 30% headroom is designed to create.
Step 3 — Know Your Real Holding Costs
The basic MAO formula works because the 70% multiplier implicitly accounts for holding costs in aggregate. But experienced investors often calculate holding costs explicitly — especially when using leverage — because they vary significantly by deal.
Holding costs typically include:
Loan interest: For a fix and flip loan at 10–12% annualized, a 5-month hold on a $140,000 loan costs roughly $5,800–$7,000
Loan origination fees: Typically 1–3 points on the loan amount at closing
Property taxes: Prorated for the hold period (varies by state and county)
Insurance: Vacant property or builder's risk policy, typically $100–$300/month
Utilities: Power, water during renovation — $100–$300/month depending on scope
COMMON MISTAKE
Many first-time flippers calculate their profit margin assuming a 3-month renovation and sale, then find themselves 7 months in with the property still listed. A longer hold doesn't just hurt your annualized return — it increases your loan interest, taxes, insurance, and utilities in a way that can turn a good deal into a break-even or worse. Always model a best-case and a realistic-case hold timeline.
The Advanced MAO Formula
Once you get comfortable with the basic formula, you can graduate to a more precise version that plugs in your actual cost estimates rather than relying on the 70% multiplier to account for everything:
ADVANCED MOA FORMULA
MAO = ARV − Repair Costs − Holding Costs − Closing Costs − Desired Profit
Use this version when you know your actual costs and want to calculate a precise maximum rather than a rule-of-thumb estimate
Using the same deal above with explicitly modeled costs:
Advanced MAO — same property, explicit cost modeling
ARV
$260,000
Repair costs
− $42,000
Holding costs (5 months)
− $7,500
Closing costs (buy + sell)
− $18,200
Desired minimum profit
− $30,000
Advanced MAO
$162,300
The advanced formula gives you a higher MAO ($162,300 vs. $140,000) because you're setting a floor on profit rather than relying on the 30% buffer to cover everything. In this example, if you purchased at $162,300 and everything went as modelled, you'd walk away with $30,000. The basic formula's $140,000 ceiling builds in more cushion — which is why it remains the standard for most investors, especially beginners.
When to Adjust the 70% Rule
The 70% rule is a starting point, not a law. Experienced investors adjust it based on market conditions, property type, and their specific cost structure. Here's a practical guide:
Market Condition | Suggested Multiplier | Why |
|---|---|---|
Hot market, low inventory, fast sales | 72–75% | Lower days-on-market reduces holding costs; more competition for deals |
Standard / balanced market | 70% | The default — appropriate for most residential flips in most markets |
Slow or uncertain market | 65–68% | Longer hold period and higher price-reduction risk require more margin |
High-value property ($500K+ ARV) | 65–70% | Fewer buyers at the top of the market; slower absorption; higher absolute closing costs |
Cosmetic-only renovation | 75–80% | Lower repair costs and faster completion reduce risk profile |
Heavy structural / foundation work | 60–65% | High overrun risk; longer timeline; permitting delays add to carrying costs |
The adjustments above are not rules — they are judgment calls informed by experience. When you're new to a market, staying at 70% or below gives you the most protection while you calibrate your local cost structure and days-on-market.
How Fix and Flip Lenders Evaluate the Same Deal
Understanding the MAO formula doesn't just help you buy smarter — it also helps you present deals more effectively to lenders. Most fix and flip lenders run the same math you do, just from a slightly different angle.
Rather than MAO, lenders think in terms of two ratios:
LTC — Loan to Cost
This is the loan amount divided by your total project cost (purchase price + renovation budget). Most fix and flip lenders will fund up to 85–90% LTC — meaning for every dollar of total project cost, they'll lend up to $0.90. This ratio determines how much cash you need to bring to the deal.
LTV (or LTARV) — Loan to ARV
This is the loan amount divided by the after-repair value. Most lenders cap this at 70–75% of ARV — which is where the 70% rule and lender underwriting directly overlap. If your deal passes the MAO formula, it will almost always pass a lender's LTV test, because they're measuring the same thing: how much margin exists between what's owed and what the property will be worth.
Metric | What It Measures | Typical Lender Limit |
|---|---|---|
LTC (Loan to Cost) | Loan ÷ (Purchase + Rehab) | Up to 90% LTC |
LTV / LTARV (Loan to ARV) | Loan ÷ After Repair Value | Up to 75% of ARV |
MAO (your calculation) | ARV × 70% − Repairs | 70% of ARV (investor's ceiling) |
When you present a deal to a lender, they want to see the same three inputs you used to calculate your MAO: a defensible ARV (backed by comparable sales), a detailed renovation budget, and a realistic timeline. A well-prepared deal package that includes these three elements will move through underwriting faster than one that doesn't.
Simple Deals funds fix and flip projects up to 90% LTC and 75% ARV, with closings in as little as 7 days. The deal analysis tools in the Simple Deals platform are designed to produce exactly the format lenders want to see — so when you're ready to apply, the work is already done.
7 Common MAO Mistakes (and How to Avoid Them)
1. Using listing prices instead of closed sales for ARV
This is the most common error and the most dangerous. An active listing at $280,000 tells you nothing about what a buyer will actually pay. Use only closed sales from the past 90 days. If inventory is thin, go to 180 days and adjust for market movement.
2. Underestimating the repair budget
New investors consistently underestimate renovation costs, especially on older homes where opening walls reveals hidden problems. Add a 10–15% contingency to every renovation estimate before it goes into your MAO calculation. If you don't use the contingency, the extra margin is a bonus — not an entitlement.
3. Forgetting acquisition and disposition costs
Closing costs on the buy side (origination fees, title, attorney, inspection) and sell side (agent commission, transfer taxes, seller concessions) can total 6–10% of the transaction value. These need to be inside your 30% buffer, or explicitly modeled in your advanced MAO calculation.
4. Not modeling holding costs based on your loan
If you're using a fix and flip loan at 11% annualized interest on a $140,000 balance, you're paying roughly $1,280 per month in interest alone. A 3-month delay on your timeline costs an extra $3,840 — often the difference between a good deal and a marginal one. Know your monthly carrying cost before you make an offer.
5. Applying the 70% rule the same way in every market
As covered above, the appropriate multiplier varies by market, property type, and renovation scope. A cosmetic flip in a fast-moving suburban market can support a higher multiplier than a full gut-rehab in a slow rural market. Adjust accordingly.
6. Letting emotion override the math
You've driven by the property three times. You can see exactly what it could be. The MAO says $140,000 but the seller wants $160,000. This is the moment where deals go wrong. The math does not negotiate. If the deal doesn't work at MAO, it doesn't work — full stop. Move to the next one.
7. Not having financing lined up before you make the offer
An accurate MAO means nothing if you can't close the deal when the seller accepts. Having your financing pre-arranged — with a lender who can close in 7–10 days — lets you make competitive offers with confidence. Pre-qualifying with Simple Deals takes under 24 hours and puts you in a position to move fast on deals that meet your MAO criteria.
Frequently Asked Questions
What is the maximum allowable offer formula?
The MAO formula is: MAO = (ARV × 70%) − Estimated Repair Costs. ARV is the after-repair value — what the property will be worth once renovated — and the 70% multiplier preserves enough margin for closing costs, holding costs, and your target profit.
What does ARV stand for in real estate?
ARV stands for After Repair Value. It is the estimated market value of a property after all planned renovations are complete, determined by comparing recently sold properties with similar characteristics in the same neighborhood.
Is the 70% rule always the right multiplier for fix and flip?
Not always. In fast-moving markets with low inventory and quick sale timelines, investors sometimes use 72–75% to stay competitive. In slower markets or on heavier structural renovations, dropping to 65% or lower is safer. The 70% rule is a reliable default, not a universal constant.
What's the difference between MAO and the 70% rule?
They are closely related. The 70% rule says your all-in cost (purchase price + repairs) should not exceed 70% of ARV. The MAO formula uses 70% of ARV as its ceiling, then subtracts repair costs to give you your maximum purchase price specifically. The MAO formula is the 70% rule solved for the acquisition price.
How do fix and flip lenders evaluate a deal?
Lenders primarily use LTC (loan to total project cost) and LTARV (loan to after-repair value). Most fund up to 90% LTC and cap at 75% of ARV. A deal that passes the MAO formula will almost always pass a lender's ARV test, because both are built around the same 70% ceiling.
Where can I run MAO calculations without building my own spreadsheet?
The Simple Deals platform includes deal calculators that compute flip profit, max-offer price, and DSCR ratios instantly. You can also pull comps and market heat maps to verify your ARV before running the numbers.
Run your MAO and deal analysis in seconds
Simple Deals' deal calculator lets you plug in purchase price, rehab budget, and holding costs to instantly calculate flip profit and max-offer price — no spreadsheets, no manual math.
