MAO Formula: How to Calculate Your Maximum Allowable Offer

Written by

Alex Martinez — Founder & CEO, Real Estate Skills. Has wholesaled and flipped houses for over a decade, personally acquiring 33+ residential investment properties.

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Reviewed by

Ryan Zomorodi — Co-Founder & COO, Real Estate Skills. Reviewed and verified the formulas, calculations, and worked examples in this guide before publication.

✓ Updated June 2026 ✓ Fact-Checked 📄 Free Deal Calculator Inside Watch on YouTube

Publication history: Originally published July 20, 2021. Updated June 2026 with an interactive MAO calculator, a breakdown of both MAO formulas, the full cost stack behind a real offer, line-by-line ARV and repair-cost guidance, and an expanded FAQ. Formulas and worked examples verified by Ryan Zomorodi, Co-Founder & COO of Real Estate Skills.

Most people who lose money in real estate don’t lose it on the sale. They lose it the day they make the offer. They get excited about a deal, talk themselves into a number, and only find out months later — after the repairs ran over and the resale came in soft — that they paid too much before they ever swung a hammer. The MAO formula exists to stop exactly that.

Here’s the honest version of what it does. You don’t start with what the seller wants or what the house is listed at. You start with what the property will be worth fixed up, subtract everything it’ll cost to get there and the profit you need to make it worth your time, and whatever’s left is the most you can offer. You’re working backward from the end. That’s the whole idea — reverse-engineer the offer instead of guessing at it, so the deal is profitable before you ever sign.

Two things to know before we go further, because they trip up almost every beginner. First, that 70% you keep seeing is a starting point, not a law — seasoned investors slide it up or down depending on the market and who’s buying the deal, and I’ll show you exactly when and why. Second, there’s actually more than one version of this formula floating around, and most articles use them interchangeably without telling you they’re different. They give different offers. We’ll sort that out so you’re never confused about which one you’re looking at.

This guide walks the whole thing: what each piece means, how to pull the ARV and estimate repairs, the full breakdown of what “costs” actually includes, and a calculator you can run on any property without doing the math by hand. These are the same numbers I’ve used on every wholesale and flip deal for over a decade, and that our students use to make offers across the country. You can download our free Deal Calculator here and follow along.

How To Analyze A Wholesale Real Estate Deal (FREE Calculator!)

Watch me walk through how to analyze a deal step by step using the MAO formula — estimating ARV from comps, calculating repairs, and reverse-engineering the offer so the numbers work before you sign.

 

What Is the MAO Formula?

In plain terms, the MAO formula tells you the most you can pay for a property and still walk away with the profit you came for. It works backward. Instead of starting from the seller’s price, you start from what the property will be worth once it’s fixed up — the after-repair value — then strip out repairs, costs, and your profit until you’re left with the highest number that still makes the deal work. Whatever survives that subtraction is your offer ceiling.

That’s why it’s your filter. Every deal either clears it or it doesn’t. Offer at or below your MAO and the math protects you; offer above it and you’re betting on everything going perfectly — the repairs coming in on budget, the resale hitting your number, nothing going sideways. It rarely all goes perfectly. The formula is how you stop letting excitement or a good sales pitch from a seller push you into a number you can’t make money on.

Here’s the simplest version in action. Say a property will be worth $250,000 once it’s renovated, and it’ll take $40,000 in repairs to get there. Multiply the ARV by 70%, subtract the repairs, and you’ve got your number:

$250,000 × 70% − $40,000 = $135,000

So $135,000 is the most you’d offer. Anything above that starts eating into the margin the formula was built to protect. Stay disciplined, and the number keeps your deals profitable and predictable — which is the whole point.

The Two MAO Formulas (and Which to Use)

Here’s the thing nobody tells beginners: the two MAO formulas you’ll see online aren’t the same formula written two ways. They’re two different tools, and they can hand you different offers on the same house.

The first is the shortcut. You take the after-repair value, multiply by 70%, subtract repairs, and you’re done. The reason it works is that the 30% you’re leaving on the table is a catch-all — it’s meant to cover the buyer’s profit, the closing costs, the financing, the holding costs, all of it, in one clean number. It’s the math you can run on your phone in the driveway. That’s its whole value: speed. When you’re looking at twenty listings and trying to figure out which three are even worth a phone call, this is what you use.

The second formula stops assuming and starts counting. Instead of hiding everything inside that 30%, you subtract each cost on its own line — repairs, then your fixed costs, then the profit you need — so nothing’s buried. This is the one you run once a deal looks real, because it’s accurate down to the dollar instead of relying on a rule of thumb to be right.

Now the part that actually matters, and it’s the thing I wish someone had told me early: that 70% is not a rule. It’s a guess at what a cash buyer will accept, and real cash buyers don’t all use 70%. When I started talking to the people actually buying my deals, they’d tell me their real number — one buyer would take 82% of ARV minus repairs all day. Some want a steeper discount, some less. The 70% rule is just a safe stand-in for a conversation you haven’t had yet. Hit 70% of ARV minus repairs and almost any investor will buy that deal, which is exactly why it’s a good floor for a beginner — there’s so much margin built in that it’s hard to get hurt. But it’s a floor, not the answer.

What moves the number is who’s buying. A fix-and-flipper needs the biggest discount, because they’re chasing a 20–30% margin to make the flip worth it — that’s where the classic 70% comes from. A buy-and-hold landlord will pay more for the same house, because they’re not flipping for a one-time chunk; they’re holding it for rent, so a thinner discount still works for them. A developer eyeing the lot values it differently again. So the right percentage isn’t a fixed thing you look up — it’s set by your end buyer’s exit strategy. The more aggressive your buyer is willing to be, the higher you can offer and still win the deal.

So which do you use? Use the 70% shortcut to filter fast and decide what’s worth pursuing. Use the itemized version — the one we’ll build out next, with a calculator — to make the actual offer. And the moment you have real cash buyers, use their number over any rule of thumb, because the rule was only ever standing in for them.

How to Calculate MAO Step-by-Step

The formula is four numbers. The work is getting each one right — and the one beginners blow is “fixed costs,” because most guides leave it as a vague bucket and never tell you what’s inside it. So we’ll break all four down, then open up that bucket so you’re not flying blind.

1. After-Repair Value (ARV): This is what the property sells for once it’s fully fixed up — the number everything else hangs on. Get this wrong and the whole calculation is wrong, so it’s worth doing carefully. You find it by pulling comparable sales, which gets its own section below.

2. Repair Costs: What it’ll cost to bring the property to that ARV — labor, materials, permits, the works. Also its own section below, because there’s a fast way and a precise way, and you need both.

3. Fixed Costs: Here’s the bucket nobody opens. “Fixed costs” isn’t one number — it’s a stack of them, and on a real deal it’s bigger than beginners expect. Done properly, it includes:

• Financing Costs: If you or your buyer borrows to do the deal, the money isn’t free. There’s interest and usually points (an upfront fee), and it runs the whole time you hold the property. This is the line beginners forget entirely, and it’s often the biggest one. Leave it out, and your offer will be too high.
• Holding Costs: Everything you pay just to own the property while it’s being fixed and sold — property taxes, insurance, utilities, and HOA dues if there are any. These accrue every month you hold it, so they scale with how long the project takes.
• Closing Costs, Both Ends: You pay to buy it (title, escrow, recording — roughly 1% of the purchase price on a cash deal, more on a low-priced one) and you pay again to sell it.
• Resale And Agent Costs: When the rehab’s done and it goes back on the market, selling it isn’t free either — listing and buyer-agent commissions plus resale closing costs typically run 5–8% of the sale price, and that’s usually the single largest chunk of fixed costs.

One real trap inside holding costs: property taxes. The tax figure you see on Redfin or Zillow is usually the previous owner’s assessment. Plenty of counties reassess the moment a property sells, so if the last owner bought decades ago, that listed number can be a fraction of what you’ll actually owe. The fix is simple — look up your area’s property tax rate and multiply it by your purchase price, not the old one.

4. Desired Profit: Your target return — and the one number entirely in your hands. Most flippers want at least 10–20% of ARV. A rule of thumb I lean on: on a typical deal, aim to make at least what you’re putting into repairs. Put $40,000 into the renovation, want $40,000 out of it. You won’t hit that every time — sometimes more, sometimes less — but it’s a sane anchor instead of pulling a number from the air. And remember the seesaw: the higher your desired profit, the lower your MAO, which makes your offer less competitive. The more flexible you are, the more aggressively you can bid.

Here’s why opening that bucket matters, with numbers. Say a property has a $200,000 ARV, needs $25,000 in repairs, and you want a $10,000 wholesale fee. List price is $150,000. Add it up — purchase, repairs, holding, closing, your fee — and your buyer’s all-in around $188,000 on something worth $200,000. Looks like $12,000 of profit, right? Not so fast. Selling it costs another $10,000 or so in agent commissions and resale closing. Now there’s about $2,000 left — roughly a 1% return for three months of risk and work. You’d do better leaving the money in a savings account. The deal looked fine until you counted the costs that the vague “fixed costs” line was hiding. That’s the whole reason we itemize.

So the simple formula gets you a fast offer. The itemized version — the one that actually counts financing, holding, both closings, and resale costs — gets you a safe one. That’s exactly what the calculator below does: plug in your ARV, repairs, and the few cost inputs, and it runs the full stack so nothing stays hidden in a bucket.

Stop Guessing. Calculate Your Exact Offer in Seconds.

Reverse-engineering a deal is a numbers game. If your math is off by even a few percent, your profit disappears. Don’t risk your spread on back-of-the-napkin math. Download our Free Deal Calculator Spreadsheet to instantly determine your Maximum Allowable Offer (MAO), factor in closing costs, and lock in your profit before you ever make an offer.

How to Calculate ARV (After-Repair Value)

ARV is the number everything else in the formula depends on, so it’s worth getting right. It’s not a guess, and it’s not whatever an agent throws out — it’s what the data says the house will sell for, fixed up, based on what comparable homes nearby have actually sold for. Those comparable sales are called comps, and the entire skill is knowing which sales count as comparable and which don’t.

Here’s the comp criteria I’ve used for over a decade, and it’s not arbitrary — it mirrors how an appraiser values a home. That last part is the key insight most beginners miss, so hold onto it: when your buyer eventually sells the renovated house, the end buyer’s lender sends an appraiser, and that appraiser decides what the house is worth using almost exactly these rules. So when you comp this way, you’re not inventing a method — you’re valuing the property the same way the market will value it at resale. Get this wrong, and you’re guessing at a number the appraiser will later overrule.

The comp criteria:

• Sold in the last 6 months: Recent sales reflect the current market. Older ones drift out of date.
• Within a half-mile radius: Close enough to share the same neighborhood forces. On the MLS, Redfin, or Zillow you can literally draw a circle around the property.
• Same zip code, ideally same neighborhood: Cross a city or zip line and you pick up different school districts, tax rates, and demand — differences you’re trying to eliminate, not introduce.
• Within about 20% of the square footage: A 1,200-square-foot house compares to roughly 960–1,440 square feet. Bigger or smaller than that and you’re not comparing like for like.
• Same bed and bath count: A three-bed, two-bath comps to other three-bed, two-baths — not to a five-bed.

The principle underneath all of it is apples to apples. You’re matching property type too — a single-family house comps to single-family houses, not to a duplex or a condo. The mistake beginners make is comparing oranges to apples: a 750-square-foot one-bed that sold for $150,000 against a 1,200-square-foot three-bed, then wondering why the ARV won’t come together. It won’t, because those aren’t comparable properties.

Do it right, and the numbers cluster. Say your subject is a 1,200-square-foot three-bed, two-bath, and you find three renovated comps nearby that sold for $540,000, $545,000, and $550,000. They’re tight — average them and you’re at $545,000, and you can say with real confidence that’s where your property lands once it’s fixed up. That’s your ARV.

One habit worth stealing: check every comp on Google Maps before you trust it. Pull up the address and look around. Is it really in the same kind of spot, or did that one sell $50,000 low because it backs the railroad tracks? A comp can pass every filter on paper and still be a bad match for a reason you only see on the map. Between the MLS or Redfin for the sales data and Google Maps for the gut-check, you can ARV a property accurately without ever leaving your desk — which is exactly how virtual and out-of-state deals get done.

And what if there are no comps — nothing renovated nearby that matches? That’s usually the market telling you something. If a fix-and-flipper can’t see what the finished house is worth, they can’t judge the risk, and most won’t touch it. Sometimes there’s a creative angle — say your subject is a two-bed in an area full of three-beds, and there’s room to add a bedroom; now you comp it as a three-bed and it might pencil. But more often than not, no comps means it’s not a deal. Don’t force it.

How to Estimate Repair Costs

Repairs are the second number the whole formula depends on, and the good news is you don’t need to be a contractor to estimate them well. You need a method. There are three, and they range from fastest to most precise — you’ll use different ones at different stages.

The fast method: dollars per square foot. Take the square footage and multiply by a per-square-foot rate. This is how you analyze a deal in seconds instead of hours, which matters more than it sounds — the biggest time-killer for beginners is over-analyzing properties they never end up offering on. A rough guide: a cosmetic refresh (paint, flooring, fixtures — a house that’s sound but dated) runs lower; a place that needs everything runs much higher. Stan Gendlin, our fix-and-flip lead, frames it by condition — light cosmetic work around $10 a square foot, a mid-level renovation around $30, and a gut job where everything goes around $60. In practice, for an all-cosmetic fixer, I tend to use somewhere in the $35–45 range, and a quick example: a 1,100-square-foot cosmetic fixer at $35 a foot is about $38,500 — round it up and call it $40,000.

But here’s the part you can’t skip: that per-square-foot number is not universal. It varies by your market and, more than anything, by the specific cash buyer’s crew. A buyer who does a hundred flips a year with his own contractors might renovate at $35 a foot; one who’s done two deals and hires retail might be at $60 for the same work. So the right move is to get the number from your cash buyers — ask three to five of them what they use, and you’ll land on a range you can trust for your area. The figures above are starting points to get you moving, not gospel.

And the square-foot rule only covers cosmetic work. The moment a property has structural problems, you price those separately and add them on top. A cracked slab might be a $20,000 fix; a new roof $10,000–$15,000. So a $40,000 cosmetic estimate on a house that also needs a slab repair is really a $60,000 job. Estimate the cosmetic with the rule of thumb, then add the big-ticket structural items separately.

The precise method: a line-item scope of work. When a deal gets real, you walk the property and build a scope — a list of everything that needs doing — and put a price on each line. You can call different subcontractors for each piece (three electricians bidding against each other on the rewire, say) to get the sharpest pricing. This takes longer and works best once you’ve got relationships with contractors, but it’s the most accurate number you’ll get.

The credibility method: a general contractor quote. Have a licensed GC walk the property and give you a written estimate. New investors should lean on this, and there’s a benefit beyond accuracy that almost nobody mentions: a contractor’s written quote is negotiating leverage. When you go back to a seller asking for a price reduction, “my contractor’s estimate says $50,000” is hard to argue with — it’s a licensed professional’s number, not a buyer’s lowball. An agent or seller can wave off what they assume is a self-serving guess; they can’t wave off a real quote.

Whichever method you use, add a contingency buffer. No inspection catches everything — there’s always something behind a wall you couldn’t see until you opened it. So pad the estimate: a minimum of 10% on a light renovation, up to 25% on a full down-to-the-studs gut. The bigger and deeper the project, the more that can go wrong, so the bigger the cushion.

A word of caution that’s saved beginners a lot of pain: don’t underestimate repairs to make a deal work. It’s tempting — the numbers are tight, so you shave the rehab budget and tell yourself the contractor will figure it out. They won’t. A budget that’s too low doesn’t make the work cheaper; it just means you find out you were wrong after you’ve bought the house. And related — if you’re doing your first deal, pick a cosmetic fixer, not a gut job. The more walls you open, the more surprises you find. Bite off a $200,000 renovation as your first project, and you’re inviting exactly the hidden problems that sink new investors. Start where the risk is visible. (If financing the rehab is part of your plan, factor the cost of that capital in too — here’s how hard money lenders typically price it.)

How to Estimate Rehab Costs on ANY House (STEP-BY-STEP)

Stan Gendlin breaks down all three methods — contractor quotes, the square-foot method, and a line-item scope of work — plus the budgeting mistakes that cost investors money.

 

5 Common MAO Formula Mistakes (and How to Avoid Them)

The MAO formula is only as good as what you feed it. Every one of these mistakes does the same damage — it makes your offer too high — and every one is avoidable.

1. Overestimating the ARV: This is the most expensive mistake, because ARV anchors everything else. Assume the house resells for $350,000 when the real comps say $310,000, and you’ve just inflated every other number downstream. Beginners do this by leaning on the rosiest comp, a Zillow estimate, or hope.
 

Quick fix: use 3–5 recently-sold, renovated comps inside a half-mile, same zip, similar size and bed/bath — and sanity-check each on Google Maps. Real sold data, not best-case guesses.

2. Underestimating repair costs: The classic version isn’t an honest miscalculation — it’s wishful. The deal’s tight, so you quietly shave the rehab budget to make the math work and figure the contractor will sort it out on site. They won’t. A budget that’s too low doesn’t make the work cheaper; it just guarantees you find out you were wrong after you own the house. What you penciled as a $25,000 rehab becomes $50,000 the moment the foundation or the wiring shows up.
 

Quick fix: build a real estimate — square-foot method for the first pass, a line-item scope once it’s serious — and add a contingency buffer of at least 10%, up to 25% on a heavy gut.

3. Leaving out fixed costs: The quiet killer. Investors fixate on ARV and repairs and forget the stack underneath — financing, holding costs, taxes, insurance, both ends of closing, and the agent commissions to resell. And one specific trap: the property-tax figure on a listing usually reflects the prior owner’s assessment. Many counties reassess at sale, so a number that looks small can multiply once you actually buy.
 

Quick fix: count the whole stack. Look up your area’s tax rate and apply it to your purchase price, and budget 5–8% in resale costs. A deal can look like it clears $12,000 and actually net $2,000 once you count what the “fixed costs” line was hiding — that’s a 1% return, worse than a savings account. Count first.

4. Skipping the profit margin: New investors fall for a property and squeeze their own profit to “make it work.” That’s backward — the profit is the point, and it’s the first thing the formula protects. Squeeze it to zero, and you’ve taken on all the risk for none of the reward.
 

Quick fix: set a non-negotiable profit target before you run the deal — a sane anchor is at least what you’re putting into repairs, or 10–20% of ARV. If the deal doesn’t work at that number, it’s not your deal. Walk.

5. Not adjusting for the market or the buyer: Running the same 70% on every deal in every market ignores the thing that actually sets the discount. The right percentage isn’t fixed — it’s driven by who’s buying and where. A fix-and-flipper needs a steeper discount than a buy-and-hold landlord; a hot market lets you offer higher than a slow one.
 

Quick fix: treat the percentage as a dial, not a rule. Adjust it (roughly 65–80% of ARV) based on the market and, above all, your end buyer’s actual criteria. When you know what your buyer will accept, use their number over any rule of thumb.

The thread running through all five: discipline beats optimism. The investors who last aren’t the ones who find the most deals — they’re the ones who hold to their MAO when a deal gets tight and walk when the number says walk. The ones who get hurt are almost always the ones who talked themselves past it.

Does the MAO Formula Work for House Flipping?

The MAO formula isn’t a wholesaling-only tool — it’s how flippers protect their profit too. The math is identical. You work backward from the after-repair value, subtract repairs, fixed costs, and the profit you want, and what’s left is the ceiling on your offer. Go above it and you’re betting on everything going perfectly, which it rarely does.

It’s the same idea behind the 70% Rule a lot of flippers use as shorthand, just done with real numbers instead of a single percentage. The shortcut is fine for a quick gut-check; the full formula is what you use before you actually commit, because a flip has no wholesale fee to cushion a bad estimate — if you overpay, the loss is yours to keep.

Here’s how it runs on a flip. Say the after-repair value is $350,000, fixed costs come to $25,000, the renovation is $60,000, and you want to clear at least $45,000:

$350,000 − $25,000 − $60,000 − $45,000 = $220,000

So $220,000 is the most you’d offer. Pay more, and you’re cutting straight into that $45,000 you set aside as your reason for doing the deal in the first place. That’s the value of the formula on a flip: it draws a hard line before emotion or competition can push you past it.

One flipper’s rule worth borrowing: on a typical deal, aim to make at least what you’re putting into the renovation. Sixty thousand in repairs, sixty thousand in target profit. You won’t hit it every time, but it keeps your profit tied to the risk you’re taking on rather than to whatever number gets the deal done.

How Do You Calculate MAO in Wholesaling?

Wholesaling adds one line to the formula: your fee. As a wholesaler, you’re not buying the property to fix it — you’re putting it under contract and assigning that contract to a cash buyer, who pays you a fee for the deal. So your MAO has to leave room for two profits, not one: the buyer’s and yours.

You build your fee right into the calculation. Start from the after-repair value, subtract repairs, fixed costs, the profit your cash buyer needs, and then your wholesale fee. Whatever’s left is the most you can offer the seller and still have a deal everyone says yes to.

Here’s how it runs. ARV of $250,000, repairs at $30,000, fixed costs at $20,000, $15,000 of profit for your buyer, and a $10,000 fee for you:

$250,000 − $30,000 − $20,000 − $15,000 − $10,000 = $175,000

Get it under contract at $175,000 or less, and the deal works for everyone — the buyer gets their margin, and you get paid.

A word on the fee itself, especially starting out. Ten thousand dollars is a common target, but it’s a target, not a floor you must hit on every deal — sometimes more, sometimes less. The mistake beginners make is swinging for a $30,000 or $50,000 fee on a first deal, which forces a lowball offer that loses to more competitive buyers. It’s better to make $5,000 and close than to chase a home run and close nothing. The fee comes down to one thing more than any other: what your cash buyer is willing to pay. The better you know their criteria, the more precisely you can set both your offer and your fee.

That’s the wholesaling math at a glance. The wholesale process itself — finding deals, the contracts, how the fee actually gets paid at closing, and the state-by-state rules — is its own subject, and we cover it in depth in our complete guide to the real estate wholesale formula. If you’re focused on wholesaling specifically, start there.

Key MAO Terms (Glossary)

MAO Formula FAQs

Final Thoughts on the MAO Formula

You make your money in real estate when you buy, not when you sell — and the MAO formula is how you make sure you bought right. It’s not complicated math. It’s the discipline of working backward from what a property will be worth, counting every real cost, and refusing to offer a dollar more than the number that protects your profit.

The investors who last aren’t the ones with the most capital or the hottest market. They’re the ones who know their numbers cold, so when a deal gets tight — the seller pushes back, a competing offer comes in higher, the clock’s running — they know exactly where their ceiling is, and they hold to it. The ones who get hurt are almost always the ones who let excitement talk them past their MAO and found out months later, after the repairs ran over and the resale came in soft.

So treat the formula as a filter, not a suggestion. Get the two numbers that matter most as accurate as you can — the ARV from real comps, the repairs from a real estimate — count the full cost stack underneath, and let the math tell you the most you can pay. When it says walk, walk; there’s always another deal, and overpaying on this one is how you lose the money to do the next.

Here’s your next step. Take the formula and run it on a real property today — pull up a listing in your area, estimate the ARV from a few comps, ballpark the repairs, and calculate the MAO. Do it on the calculator above so the full cost stack is handled for you. The first one takes thirty minutes; after a handful, it takes ten. That’s how guessing turns into a skill, and how a skill turns into deals.

About The Author

Alex Martinez

Founder & CEO, Real Estate Skills

Alex Martinez is the Founder and CEO of Real Estate Skills. With more than a decade of investing experience and 33+ residential properties acquired, he has personally wholesaled and flipped houses across the country. Through Real Estate Skills, Alex and his team have helped thousands of students learn how to analyze deals, calculate their numbers, and close profitable real estate transactions.

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Real Estate Skills is not a law firm or a financial advisor, and the information in this article is provided for educational purposes only — it does not constitute legal, tax, or financial advice. The MAO formula and the figures in this guide are illustrative; actual numbers, costs, percentages, and outcomes vary by market, deal, and over time. All real estate investing carries risk, and past results do not guarantee future returns. Always run your own numbers and consult a licensed real estate, tax, or financial professional before making any investment decision.