MAO calculator (70% rule)
Work out the most you can offer on a fix and flip or wholesale deal. Free, no sign up, and nothing you type leaves your browser.
Calculate your maximum allowable offer
The formula
MAO = ARV × 70% − repairs − assignment fee
The maximum allowable offer is the most you can pay for a property and still leave room for profit and costs. The 70% rule caps your all in price (purchase plus repairs) at 70% of the after repair value, leaving 30% of ARV for profit, holding, financing, closing and selling costs. Wholesalers subtract their assignment fee too, because the end buyer still needs the deal to work at 70%.
Worked example
| After repair value | $200,000 |
|---|---|
| × 70% | $140,000 |
| − Estimated repairs | $35,000 |
| − Assignment fee | $10,000 |
| Maximum allowable offer | $95,000 |
If the seller will not go below $95,000, the deal does not meet the 70% rule at these numbers. Either the repairs are lower than you think, the ARV is higher, or it is not the deal.
Getting the inputs right
- ARV should come from recent sales of similar, renovated homes nearby, not from the list price.
- Repairs move MAO dollar for dollar, so a $10,000 miss in the rehab budget is a $10,000 overpayment. Price the whole scope, including items that are easy to forget: permits, dumpsters, and systems you could not inspect.
- The percentage is a rule of thumb, not a law. Adjust it for your market and your real holding and selling costs.
Is 70% still the right number?
The 30% the rule holds back has to cover five things: your profit, holding costs (loan interest, taxes, insurance and utilities for as long as you own it), financing fees, closing costs on the way in, and agent commissions and closing costs on the way out. Whether 70% is right depends on how big those five are as a share of this property's ARV, not on the calendar year.
- Use a lower percentage, often 60 to 65%, when the ARV is low, the rehab is heavy, or the hold will be long. Commissions, closing costs and permits do not shrink with the price of the house, so on a cheap house they eat a bigger share of ARV, and a heavy rehab means more months of interest and taxes.
- A higher percentage, 75 to 80%, can work on a high priced house with a light rehab in a market where renovated homes sell fast, because the same dollar profit is a smaller share of ARV and the hold is short.
- Interest and time move it most. Price the loan you will actually use and the months you will actually hold. If those add up to more than the rule allows for, drop the percentage until they fit.
The honest way to settle it is to replace the percentage with your real numbers once: ARV minus repairs, minus your own holding, financing, closing and selling costs, minus the profit you need, equals your offer. If that comes out near 70% of ARV minus repairs, the rule works in your market. If not, use the percentage your own costs produce.
Wholesalers and flippers use the formula differently
Wholesalers subtract an assignment fee because they are pricing for the end buyer: the buyer still needs the deal to work at 70% after paying the fee. Since the buyer will re-estimate the repairs, a wholesaler who prices them light ends up with a contract nobody will take. Flippers can leave the fee at zero and are better served by the real-cost version above, because they know their own loan terms, timeline and sale costs.
Where the repair number comes from
Repairs are the input you control least and the one that moves the offer dollar for dollar. The guide to estimating rehab costs before you make an offer covers the walkthrough order, turning what you see into line items, pricing labor for your market, and sizing a contingency. Inside Estimara, the repair estimate and this formula run together, so a change in the scope changes the offer.
Common questions
What is the 70% rule in real estate?
The 70% rule says an investor should pay no more than 70% of a property's after repair value (ARV), minus the repair costs. The remaining 30% of ARV is meant to cover profit, holding costs, financing, closing and selling costs. Wholesalers also subtract their assignment fee.
How do you calculate maximum allowable offer (MAO)?
MAO = ARV x 70% - estimated repairs - assignment fee. For a house with a $200,000 ARV, $35,000 of repairs and a $10,000 fee, MAO is $200,000 x 70% = $140,000, minus $35,000 and $10,000, which is $95,000.
Is 70% always the right percentage?
No. It is a rule of thumb. Investors often use a lower percentage, such as 60 to 65%, for low priced houses, heavy rehabs or slow markets, where fixed costs eat a bigger share of the deal. In higher priced markets some use 75 to 80%, because the same dollar profit is a smaller share of ARV. Run your actual holding and selling costs before relying on any percentage.
Where does the repair number come from?
MAO is only as good as the repair estimate. You can use a contractor walkthrough, your own scope, or Estimara, which estimates repair costs room by room from property photos. Treat any estimate as a planning number until a contractor confirms it.
Estimara estimates the repair number from property photos and runs this same calculation inside the app. See how it works or the rehab labor cost index for how local labor prices vary.
Related
- How Estimara estimates rehab costs from photos: what goes in, what comes out, and what is left out of the total.
- How to estimate rehab costs: a step-by-step method for flips and wholesale deals, from the walkthrough to the offer.
- Estimara pricing and plans: free to start, then monthly plans by number of analyses.
- Estimara FAQ: how estimates vary, hidden risks, renovation goals, ARV and MAO.
- Rehab labor cost index: how renovation labor costs vary across 643 U.S. metros, from BLS wage data.
- About Estimara: who builds it, how estimates are made, and how to contact us.
Try it on a property you already know. Estimara is free to download and includes a limited number of free analyses.