How to Calculate Your Max Allowable Offer (MAO) on a Fix & Flip

Ask ten experienced flippers how they price a deal and you'll get one answer: they work backwards from the after-repair value. The formula is called MAO — Maximum Allowable Offer — and it's the single most important number in any fix-and-flip transaction.

Getting MAO wrong is how new investors lose money on their first flip. Getting it right is how experienced investors hit 20-25% gross margins on every deal. Here's exactly how it works, and why the number you can pay for a house has almost nothing to do with the listing price.

The MAO Formula, Start to Finish

The standard industry formula is:

MAO = (ARV × 0.70) − Rehab Costs

Translated: your maximum allowable offer is 70% of the after-repair value, minus whatever you plan to spend on the rehab. The 70% figure is not arbitrary — it's designed to absorb the three categories of cost that eat into a flip's margin: acquisition costs, holding costs, and profit.

Here's a quick worked example. You're looking at a Baltimore row home in Patterson Park that will sell for $385,000 once rehabbed, and you estimate the rehab at $75,000.

• ARV: $385,000
• 70% of ARV: $269,500
• Minus rehab: $269,500 − $75,000 = $194,500

That's your MAO. You should not pay a dollar more than $194,500 for this property. Every dollar above MAO comes directly out of your profit.

Why 70%? Unpacking What That Covers

The 30% discount off ARV is doing real work. It needs to cover:

1. Acquisition costs (3-4% of purchase): title, lender points, inspection, appraisal, closing costs.
2. Holding costs (4-6% of ARV): interest on your bridge loan, property taxes, insurance, utilities for 4-8 months of construction and sale.
3. Selling costs (7-8% of ARV): agent commissions (5-6%), seller concessions, transfer taxes.
4. Profit (15%+ of ARV): the reason you're doing this.

Add those together and you're at roughly 30%. Cut the discount too thin and you're working for free. Most experienced flippers in competitive markets use 72-75%; in slower or riskier markets, they drop to 65% or lower.

The Three Inputs That Make or Break Your MAO

1. ARV — Don't Guess It, Comp It

Your ARV has to be defensible. Pull 3-5 sold comparable properties within the last 90 days, within a half-mile, similar square footage and finish level. Then adjust for differences (bed/bath count, garage, lot size, finished basement). If your rehab is going to produce a kitchen with quartz counters and LVP, don't compare to houses with builder-grade laminate.

Most first-time flippers overestimate ARV by 5-10%. That alone can wipe out half your profit. When in doubt, use the lower comp.

2. Rehab Budget — Add Contingency

If your contractor says $60,000, budget $72,000. Unknown conditions (bad framing, cast iron pipes, knob-and-tube wiring, mold) routinely add 15-20% to the scope on older properties. Veteran investors keep 10-15% contingency in their rehab number, not a separate line item.

3. Discount Multiplier — Adjust for Market Conditions

The 70% rule is a starting point, not gospel. Adjust it based on:

• Days on market for finished comps. If flips are selling in 10 days, 72-75% is fine. If they're sitting 60+ days, drop to 68%.
• Your holding-cost sensitivity. The longer your project takes, the more 70% makes sense. A 3-month cosmetic flip can stretch higher; a 9-month gut renovation should stay lower.
• Rate environment. Higher bridge rates eat margin through holding cost. When rates spike, discount more.

A Harder Example: When MAO Kills a Deal

Here's a deal we saw last month. A borrower was excited about a house listed at $265,000 with a comp-pulled ARV of $395,000 and an estimated rehab of $85,000.

• ARV: $395,000
• 70%: $276,500
• Minus $85,000 rehab: MAO = $191,500

The seller was asking $265,000 — that's $73,500 over MAO. If the borrower paid asking, they'd be working on thin-to-negative margin after a small budget overrun. The deal isn't a deal. They walked. Three weeks later the same property closed at $198,000 — right at MAO — and they bought it.

That's the discipline MAO creates. You stop chasing deals and start underwriting them.

When to Deviate from the 70% Rule

There are legitimate reasons to go higher than 70%, but all of them involve reducing one of the cost categories you're supposed to cover:

• You're the selling agent — saves 2-3% in commission, so you can pay 2-3% more.
• Quick cosmetic flip — 60-day turnaround instead of 6 months cuts holding costs materially.
• Off-market deal — no closing-cost competition, no contingencies.
• You're holding as a rental (BRRRR) — different math entirely; use your refi appraisal, not ARV.

What you should not do is deviate from 70% because "this one's going to be special." Every flipper who loses money thought their deal was special.

Putting It to Work

Every flipper we've financed who's scaled past five deals a year uses MAO as a hard ceiling. They run it before they ever walk the property, update it after the inspection, and hold the line in negotiations.

Memorize the formula: MAO = (ARV × 0.70) − Rehab. Run it on every deal you see. If the seller won't meet you there, move on. There's always another house.