What is the maximum allowable offer?

The highest purchase price at which a deal still produces your required profit after rehab, financing, holding and selling costs. It is a ceiling you calculate before bidding, not a target price.

What is the MAO formula?

The common shorthand is ARV multiplied by 0.70, minus the rehab budget. The fuller version subtracts financing costs, holding costs, both sets of closing costs and your required profit from the ARV directly.

Is the 70% rule the same as MAO?

The 70% rule is one way of estimating MAO quickly. It bundles financing, holding, selling costs and profit into a single 30% haircut, which works in typical conditions and misleads at the extremes of the price range.

Should you ever offer above your MAO?

No. MAO is the point at which the deal stops paying you for the risk. If a property is worth more than your MAO to somebody else, it is their deal. Discipline here is most of what separates investors who last.

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Maximum allowable offer: setting your ceiling before you bid

MAO is the highest price at which a deal still works. Calculate it before you see the asking price, because the asking price will move your number.

July 24, 2026 · 4 min read

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

Same property. ARV $300,000, rehab $50,000, six month hold, $200,000 loan at 12% with two points.

ARV: $300,000
Less rehab: −$50,000
Less selling costs at 6%: −$18,000
Less buy-side closing at 2% of an assumed $160,000 purchase: −$3,200
Less financing, points and interest: −$16,000
Less holding costs at $700 a month for six months: −$4,200
Less required profit: −$40,000

MAO ≈ $168,600.

The 70% shorthand gave $160,000 for the same deal. The two land within about five percent of each other here, which is why the rule survives. They diverge sharply when the hold is long, when the price point is low enough that fixed costs dominate, or when your required profit is not the roughly 13% of ARV the rule quietly assumes.

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. Six months versus ten on the example above is roughly $7,000 of interest and carry, straight out of your ceiling. 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 deal calculators run 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. Written terms in 24 to 48 hours.

Common questions

What is the maximum allowable offer?: The highest purchase price at which a deal still produces your required profit after rehab, financing, holding and selling costs. It is a ceiling you calculate before bidding, not a target price.
What is the MAO formula?: The common shorthand is ARV multiplied by 0.70, minus the rehab budget. The fuller version subtracts financing costs, holding costs, both sets of closing costs and your required profit from the ARV directly.
Is the 70% rule the same as MAO?: The 70% rule is one way of estimating MAO quickly. It bundles financing, holding, selling costs and profit into a single 30% haircut, which works in typical conditions and misleads at the extremes of the price range.
Should you ever offer above your MAO?: No. MAO is the point at which the deal stops paying you for the risk. If a property is worth more than your MAO to somebody else, it is their deal. Discipline here is most of what separates investors who last.

Have a deal like this

Run your numbers.

The calculators charge the costs this piece describes: points, interest over the hold, closing on both sides, carry, and the cost to sell. It takes about a minute.

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