Maximum Allowable Offer: the real formula, not just 70%
Maximum Allowable Offer (MAO) is the highest price an investor can pay for a property and still hit a target profit or return. Most calculators online stop at a single flat percentage. Here is the full formula, why the 70% shortcut can mislead you, and a worked example.
The simple formula (the “70% rule”)
MAO = (ARV × 70%) − Repairs
This shortcut assumes closing costs, holding costs and your profit together eat up about 30% of the after-repair value. It is fast, and it is a fine gut-check — but “30%” is not a law of physics, it is an average that happens to fit some deals and badly misfit others.
The comprehensive formula
- After-Repair Value (ARV)
What the property is worth once renovated, from comps.
- − Rehab budget
Materials, labor and a contingency — ideally itemized room by room.
- − Closing costs, acquisition
Title, recording, lender fees, inspection on the way in.
- − Closing costs, disposition
Transfer tax, agent commission, title on the way out (or refi costs for a BRRRR).
- − Holding costs
Property tax, insurance, HOA and debt service for every month you own it.
- − Target profit
What you actually want to make — a fixed dollar floor, or a % of ARV.
Every one of those five deductions is state- and county-specific. Closing costs alone can range from near-zero in a no-transfer-tax state like Texas or Arizona to well over 2% of price in New Jersey or Illinois. Holding costs depend on whether the state reassesses property tax at sale (California, Michigan, Florida all do, at different rates and caps). None of that shows up in a flat 70%.
Where the 70% rule breaks down
Debt service is circular, not fixed.
If you finance the deal, the loan amount depends on the purchase price, and the monthly payment depends on the loan — so holding cost depends on the very number you are solving for. A flat 30% ignores this feedback loop entirely.
Reassessment states punish a static tax assumption.
Using the seller’s current property tax bill instead of the post-sale reassessed bill can understate your holding cost by hundreds of dollars a month in states like California, Michigan or Florida.
Competitive markets need a variable, not a constant.
Investors in hot markets often bid at 75–80% of ARV to win deals — meaning they are consciously choosing where on the risk/margin curve to sit, not using a single fixed number.
Skip the manual math
Enter an address and a target margin. The full waterfall — closing, holding and reassessment included for that specific county — runs in under a minute.
FAQ
What is the Maximum Allowable Offer (MAO) formula?+
The comprehensive formula is MAO = After-Repair Value (ARV) minus rehab costs minus fixed costs (closing costs on both the purchase and the sale, plus holding costs during the renovation) minus your target profit. The simplified 70% rule (MAO = ARV × 70% − Repairs) is a rough shortcut for the same idea.
Is the 70% rule an accurate way to calculate MAO?+
It is a reasonable starting estimate in an average market, but it bakes in one fixed assumption for closing costs, holding costs and profit margin combined — roughly 30% of ARV. In a low-property-tax state with no transfer tax that 30% is generous; in a high-tax, high-transfer-tax state it can understate your real costs and shrink your actual margin below plan.
Should I use 70% or a different percentage?+
In competitive markets, investors often move to 75–80% of ARV to win deals, accepting a thinner margin. The percentage itself is not the point — it is a stand-in for (closing + holding + profit) ÷ ARV, and that ratio is different for every state, strategy and hold period.
How is MAO different for a rental (buy-and-hold) versus a flip?+
A flip solves for a one-time net profit margin at resale. A buy-and-hold deal instead solves for a target cash-on-cash return or cap rate, using the property’s ongoing rent, financing and operating costs instead of a one-time sale — the same waterfall logic, different target metric.
Does MAO account for property tax reassessment after I buy?+
It should, but the simple formula usually doesn’t. In reassessment states like California (Prop 13) or Michigan (Proposal A), your holding-cost property tax line should reflect the tax bill after the sale resets the assessment, not the seller’s current bill — that difference alone can be thousands of dollars over a six-month hold.
See the exact rules for your state
Estimates for planning purposes, not investment, tax or legal advice. Buying a home to live in instead? Read the homebuyer version