What Is MAO in Real Estate?
MAO stands for Maximum Allowable Offer. It is the highest price you can pay for a property while still achieving your minimum acceptable profit on a specific exit strategy.
MAO is not a target price. It is a ceiling. Your actual offer should almost always be below MAO — MAO is the number above which you walk away. The formula changes depending on your exit strategy because different exits have different cost structures and profit requirements.
The 70% Rule — And Why It Is Incomplete
Many investors learn MAO through the 70% rule: MAO = (ARV x 70%) minus Repair Costs. This works as a quick filter but has two major problems.
First, it uses a fixed percentage that does not account for your actual costs — holding costs, closing costs, financing costs, and desired profit vary by deal, market, and investor. Second, it only works for fix and flip. Using the 70% rule to evaluate a wholesale deal, a BRRRR, or a buy and hold will give you wrong numbers. The correct approach is exit-specific MAO calculation.
MAO by Exit Strategy
Wholesale MAO
MAO = (ARV x 65-70%) minus Estimated Repairs minus Your Assignment Fee, where 65-70% is a common rule-of-thumb range; confirm yours
Your assignment fee is your profit. Build it into the MAO calculation so you know exactly what you can pay and still make your fee after your buyer closes.
- ARV: $200,000
- Repairs: $40,000
- Desired assignment fee: $10,000
- MAO = ($200,000 x 70%) minus $40,000 minus $10,000 = $90,000
Fix and Flip MAO
MAO = ARV minus Repairs minus Holding Costs minus Closing Costs minus Financing Costs minus Desired Profit
- ARV: $200,000
- Repairs: $40,000
- Holding costs (6 months): $8,000
- Closing costs (buy and sell): $12,000
- Financing costs: $6,000
- Desired profit: $30,000
- MAO = $104,000
BRRRR MAO
MAO = (ARV x 75%) minus Rehab Costs minus Closing Costs minus Holding Costs minus Desired Capital Buffer
The 75% figure stands in for the lender's maximum LTV on a DSCR refinance; use your lender's actual limit. Your MAO must ensure the refinance proceeds cover your total cash invested.
Buy and Hold MAO
Buy and hold MAO is driven by cash-on-cash return targets rather than ARV percentage.
MAO = (NOI minus Capital Reserve minus Target Cash-on-Cash Return x Closing Costs) / (Target Cash-on-Cash Return x Down Payment Percentage + Loan Constant x (1 minus Down Payment Percentage))
NOI here is figured before the capital reserve. The loan constant is a year of principal and interest per dollar borrowed at your rate and term. The formula finds the price at which cash flow, which is NOI less the capital reserve and debt service, divided by your cash in, which is the down payment plus closing costs, equals your target.
- NOI before the capital reserve (hypothetical): $15,240
- Capital reserve: $1,290
- Closing costs: $5,400
- Down payment: 25%, with a hypothetical loan at 7.15% over 30 years, a loan constant of 0.081049
- Target cash-on-cash return: 5.85%
- MAO = ($15,240 minus $1,290 minus 5.85% x $5,400) / (5.85% x 25% + 0.081049 x 75%) = $13,634.10 / 0.07541175 = $180,795.43, rounded down to $180,700
Check it at $180,700. The loan is $135,525, a payment of $915.35 a month or $10,984.20 a year. Cash flow is $15,240 − $1,290 − $10,984.20 = $2,965.80, cash in is $45,175 + $5,400 = $50,575, and $2,965.80 ÷ $50,575 = 5.86%, at or above the 5.85% target. At $180,800 the same check gives 5.849%, below it, which is why the result rounds down.
If you work from a target cap rate instead, MAO = NOI / Target Cap Rate, with NOI figured before the capital reserve so it compares with quoted cap rates. That prices the property, not your deal; run the cash-on-cash version above to see what the price leaves you under your financing.
The Most Important Input: ARV
The wholesale, fix and flip and BRRRR formulas all start with ARV, and the buy and hold formula starts from NOI. If your ARV is wrong, those three MAOs are wrong, and so is your offer. ARV — After Repair Value — is what the property will be worth after renovations are complete, based on comparable sales in the same market.
- Recent sales: within 90 days
- Proximity: within 0.5 miles in urban markets, 1 mile in suburban markets
- Comparability: same property type, similar square footage, similar bed and bath count
- Condition adjustment: account for the difference in condition between your subject property post-rehab and each comp
A $10,000 error in ARV changes your MAO by $7,000 on the wholesale formula at 70%, by $7,500 on the BRRRR formula at 75%, and by the full $10,000 on the fix and flip formula, which subtracts costs from ARV dollar for dollar. Those percentages are the hypothetical figures from the formulas above; confirm yours. A $20,000 error doubles each figure. Get your comps from MLS data, not automated online estimates.
The Repair Estimate Problem
The second most important input is repair costs — and it is an easy number to get wrong. Drive-by estimates are not repair estimates. A drive-by might tell you the roof looks old and the kitchen is dated. It will not tell you the HVAC is failing, the electrical panel needs upgrading, or there is moisture damage behind the bathroom walls.
Add a contingency to your line-item repair estimate; many investors use 10 to 15%, so set the figure your own experience supports. Rehab projects often reveal additional work once walls open up. Your MAO needs to absorb that variance without killing the deal.
How to Use MAO in Negotiations
MAO gives you a walk-away number before you ever start negotiating. Start your offer below MAO. That leaves room to negotiate up while still staying below your ceiling. If the seller counters above your MAO, you walk.
This is where new investors often go wrong. They calculate MAO correctly, then ignore it when a seller counters above it. The discipline to walk away from deals that do not hit your MAO is what keeps you building wealth instead of just staying busy.
How Appraize Calculates MAO
Appraize calculates MAO automatically for all 8 exit strategies simultaneously. Enter a property address, get ARV from real MLS comps, input your repair estimate, and Appraize returns your MAO for wholesale, fix and flip, BRRRR, buy and hold, subject-to, seller finance, lease option, and novation — all on one screen.
Calculate MAO on your next deal at Appraize. See all 8 exit strategies and their MAO in under 30 seconds.
The Bottom Line
MAO is not a complex concept. It is a discipline. Know your ARV. Know your repair costs. Know your exit. Run your MAO. Make offers below it. Walk away above it. That is the entire framework for buying investment properties at the right price every time.
