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Maximum Allowable Offer
$160,000
Maximum Allowable Offer vs After Repair Value (ARV)
Formula
Maximum Allowable Offer (MAO)
The MAO is the highest price you should pay for an investment property to achieve your target return.
The 70% Rule
MAO = ARV x 70% - Rehab Costs
This leaves a 30% buffer for profit, selling costs, and holding costs. Experienced investors may adjust the percentage based on the deal.
Adjusting the Percentage
Wholesale Adjustment
If buying from a wholesaler, subtract their assignment fee from the MAO to keep the deal profitable.
Esempio Risolto
ARV $300,000, rehab $45,000, 70% rule, no wholesale fee, $5,000 buying closing costs.
- 01ARV target: $300,000 x 70% = $210,000
- 02MAO: $210,000 - $45,000 - $0 - $5,000 = $160,000
- 03Total project cost at MAO: $160,000 + $45,000 + $5,000 = $210,000
- 04Estimated profit: $300,000 - $210,000 = $90,000
- 05Purchase as % of ARV: $160,000 / $300,000 = 53.3%
- 06Profit margin: $90,000 / $300,000 = 30.0%
Domande Frequenti
Why use 70% and not a higher percentage?
The 30% buffer accounts for selling costs (8-10%), holding costs (3-5%), and profit (15-20%). Using a higher percentage reduces your margin of safety. In competitive markets, some investors go to 75%, but this leaves less room for error.
Should I always use the 70% rule?
The 70% rule is a quick screening tool, not a replacement for detailed analysis. Always run a full deal analysis with actual holding costs, selling costs, and financing costs. The 70% rule gets you in the ballpark; detailed analysis confirms the deal.
How accurate are rehab estimates for MAO?
Rehab estimates are the biggest variable in MAO calculations. Overestimate rehab by 15-20% for safety. Walk the property with a contractor before making an offer. Inaccurate rehab estimates cause more flip failures than any other factor.