Maximum allowable offer: setting your ceiling before you bid

The maximum allowable offer is the highest price at which a deal still works. Not the price you hope to pay, and not a starting position for a negotiation. A ceiling.

Its entire value comes from calculating it before you know what the seller wants. A number produced after you have seen the asking price is not an independent check, it is a rationalisation, and it will land suspiciously close to whatever the seller asked.

The short version

The shorthand most investors use:

MAO = (ARV × 0.70) − rehab budget

A property that will be worth $300,000 finished and needs $50,000 of work gives $300,000 × 0.70 = $210,000, minus $50,000, so $160,000.

That 30% haircut is doing an enormous amount of work. It is standing in for your financing costs, your holding costs, both sets of closing costs, selling costs, and your profit, all at once. Where those assumptions roughly hold, the formula is a good screen. Where they do not, it is wrong in ways worth understanding, and the 70% rule has its own post covering exactly when it lies to you.

The long version, which is the one to actually use

Build MAO from the components rather than from a rule of thumb. Start at the finished value and subtract everything that stands between it and your pocket.

Start: ARV. What the property sells for finished, from three genuine comparable sales, ideally the same street or subdivision, adjusted honestly. This is the number that most often gets inflated, and every dollar of inflation flows straight into your offer. The method is in how to calculate ARV.

Subtract: rehab. Itemised by trade, with a real contingency of ten to fifteen percent. Not a per-square-foot number from the internet. See rehab cost per square foot.

Subtract: selling costs. Commission plus seller-side closing. Six percent of ARV is a reasonable working figure in this region and it is a real cost, not an optional one.

Subtract: buy-side closing. Title, transfer taxes, recording, your legal. Roughly two percent of purchase, though on small deals this is much larger as a share, which is why small deals need the actual dollar figures rather than a percentage.

Subtract: financing. Points at closing plus interest across the hold. On a $200,000 loan at 12% for six months with two points, that is roughly $16,000 before anything else. Full breakdown in what a hard money loan actually costs.

Subtract: holding costs. Taxes, insurance, utilities, every month of the hold. Covered in holding costs on a flip.

Subtract: your profit. Decided in advance, as a number, before you saw the property. This is the step people skip, and skipping it is how profit becomes whatever is left over rather than something you were paid.

What remains is your MAO.

Worked through with the calculator

The maximum offer calculator solves for the purchase price while recalculating financing and purchase closing costs at that price. This avoids estimating closing costs on one offer and reporting a different final ceiling.

Use these planning assumptions, not a financing quote:

• ARV: $300,000. Rehab: $50,000, including your contingency.
• Target profit: $40,000 before income tax.
• Purchase financing: 90%. Rehab financing: 100%.
• Maximum loan as a share of ARV: 70%.
• Interest rate: 12%. Points: 2% of the loan.
• Purchase closing costs: 2% of the purchase price.
• Hold: six months. Non-financing carry: $700 per month.
• Selling costs: 6% of ARV.

The model produces a maximum offer of $169,688, rounded down to the nearest dollar.

The loan is $202,719.20: 90% of purchase plus the rehab budget, below the $210,000 ARV ceiling. Interest assumes rehab funds are drawn evenly, so the average outstanding rehab balance is half the budget. A lender charging interest on the full commitment, a different draw schedule, or extra fees would change the offer. Confirm the actual terms.

The 70% shorthand gives $160,000 for these ARV and rehab figures. Its difference from the detailed result comes from the financing, timeline and profit assumptions. Neither result guarantees the property will sell at ARV or that the financing will be approved.

Save the baseline, then test a longer hold or a lower sale value. Include additional known costs in the relevant budget rather than treating the maximum offer as a comfortable margin.

The three ways MAO gets corrupted

Reverse-engineering it. Deciding you want the property, then adjusting the ARV up and the rehab down until MAO clears the asking price. This is the single most expensive habit in flipping and it never feels like what it is at the time. Fix it mechanically: write down ARV and rehab before you look at the price, and do not revise them afterwards without a reason you could say out loud to somebody else.

Assuming a timeline you have never achieved. MAO is sensitive to the hold. A longer hold increases interest and carry and reduces the offer that preserves your target profit. Use the schedule you would defend, not your contractor's best case.

Leaving profit as the remainder. If profit is whatever survives, it will regularly be nothing, because every unplanned cost lands there first. Name the number at the start and treat it as a cost like any other.

When to walk

When the seller's floor is above your MAO, the deal is somebody else's. That is not a failure of negotiation and it does not mean your number was too conservative. Someone with cheaper capital, a captive crew, or a willingness to work for nothing may genuinely be able to pay more. Let them.

The investors who are still doing this in ten years are, almost without exception, the ones who were willing to be outbid.

Check yours

The maximum offer calculator runs this arithmetic with the carry included, so you can see where your ceiling actually sits rather than trusting a rule of thumb. Then work the full pre-application check in how to underwrite a fix and flip deal.

When a deal clears your own ceiling, send it over. Initial review of a complete submission is typically within 24 to 48 hours. Any terms are subject to underwriting and approval.