MAO Calculator Formula

Understand the math behind the mao calculator. Each variable explained with a worked example.

Use the MAO Calculator

Formulas Used

Maximum Allowable Offer

max_offer = mao

Estimated Profit at MAO

profit_at_mao = implied_profit

Total Project Cost at MAO

total_cost = total_cost_at_mao

Purchase as % of ARV

purchase_pct_arv = arv > 0 ? mao / arv * 100 : 0

Profit Margin (% of ARV)

profit_margin = arv > 0 ? implied_profit / arv * 100 : 0

Variables

VariableDescriptionDefault
arvAfter Repair Value (ARV)(USD)300000
rehab_costEstimated Rehab Cost(USD)45000
arv_pctARV Percentage Target(%)70
wholesale_feeWholesale Fee (if applicable)(USD)0
closing_costs_buyBuying Closing Costs(USD)5000
arv_targetDerived value= arv * arv_pct / 100calculated
maoDerived value= arv_target - rehab_cost - wholesale_fee - closing_costs_buycalculated
total_cost_at_maoDerived value= mao + rehab_cost + closing_costs_buy + wholesale_feecalculated
implied_profitDerived value= arv - total_cost_at_maocalculated

How It Works

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

  • 65%: Conservative (higher-risk areas, uncertain rehab)
  • 70%: Standard (most flip scenarios)
  • 75%: Aggressive (low-risk areas, experienced flipper)
  • 80%: Buy-and-hold (rental investors with lower profit target)

    • Wholesale Adjustment

    If buying from a wholesaler, subtract their assignment fee from the MAO to keep the deal profitable.

    Worked Example

    ARV $300,000, rehab $45,000, 70% rule, no wholesale fee, $5,000 buying closing costs.

    arv = 300000rehab_cost = 45000arv_pct = 70wholesale_fee = 0closing_costs_buy = 5000
    1. 01ARV target: $300,000 x 70% = $210,000
    2. 02MAO: $210,000 - $45,000 - $0 - $5,000 = $160,000
    3. 03Total project cost at MAO: $160,000 + $45,000 + $5,000 = $210,000
    4. 04Estimated profit: $300,000 - $210,000 = $90,000
    5. 05Purchase as % of ARV: $160,000 / $300,000 = 53.3%
    6. 06Profit margin: $90,000 / $300,000 = 30.0%

    Frequently Asked Questions

    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.

    Ready to run the numbers?

    Open MAO Calculator