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
Most 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
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 represents the maximum LTV on a typical DSCR refinance. 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 = (Annual Net Operating Income / Target Cash-on-Cash Return) minus (Down Payment Percentage x Purchase Price)
Most investors use a target cap rate or CoC return and work backward from there.
The Most Important Input: ARV
Every MAO formula starts with ARV. If your ARV is wrong, your MAO is wrong, and your offer is wrong. 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 a fix and flip. A $20,000 error changes it by $14,000. Get your comps from MLS data, not Zillow estimates.
The Repair Estimate Problem
The second most important input is repair costs — and it is the number investors most consistently 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.
Always add a 15% contingency to your line-item repair estimate. Rehab projects almost always 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 10-15% below MAO. This gives you room to negotiate up while still staying below your ceiling. If the seller counters above your MAO, you walk.
This is where most new investors fail. 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 separates investors who build wealth from investors who stay 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 free at Appraize — no credit card required. 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.
