The maximum allowable offer (MAO) is the highest price a real estate investor can pay for a property and still make a good profit after paying for repairs and selling costs.
If you've spent any time looking at investment properties, you've probably run across the term MAO. It stands for maximum allowable offer, and it's the highest dollar amount you can pay for a house and still make money once you fix it up and sell it. That number isn't a guess. It comes from a formula that accounts for what the home will be worth after repairs, minus all the costs you'll have along the way.
The idea behind MAO is pretty simple. You want to buy low enough that there's room for profit after you cover renovation costs, closing costs, and the everyday expenses of holding a property while you work on it. Investors who skip this step sometimes end up surprised when the money left over at closing barely covers what they spent.
This matters whether you're flipping homes for resale or buying rental properties through a rehab strategy. According to the National Association of REALTORS®, the median existing-home price sits at about $398,000 right now. At that price point, even a small miscalculation on your offer can cost you tens of thousands of dollars in lost profit. So getting your MAO right isn't optional. It's the foundation of a smart deal.
The standard MAO formula ties directly to something called the 70% rule. This is a guideline that says you should pay no more than 70% of a property's after-repair value (ARV), minus the cost of repairs. In practice, the math looks like this: MAO = (ARV x 70%) minus repair costs.
Why 70%? That remaining 30% is there to cover your closing costs, holding expenses, and profit margin. It's a buffer. If you pay more than 70% of the ARV, you start squeezing the cushion that protects you when something goes wrong, and something usually does. A contractor finds mold behind the drywall. The project takes two extra months. The market softens while you're mid-renovation.
The 70% rule is a guideline, not a law. In competitive markets where prices run high, some investors bump that number to 75% or even 80% and accept a thinner margin. In slower markets with more inventory, you might stick closer to 65%. The key is knowing your local numbers well enough to make that call with confidence. So how do you decide which percentage to use? It usually comes down to how well you know the neighborhood and how much risk you can handle.
A colleague on our team mentioned recently that newer investors tend to fall in love with a property and work backward from the asking price to justify the deal. That's the opposite of how MAO is supposed to work. You start with the ARV, apply the formula, and let the number tell you whether the deal makes sense. At AmeriSave, we see this play out a lot when borrowers come in ready to buy but haven't done the math first.
Every piece of the MAO formula has to be grounded in real data. If any one variable is off, the whole calculation falls apart. Have you ever wondered why some investors consistently make money on flips while others barely break even? It usually comes down to how carefully they handle each of these inputs.
ARV is what the property will be worth once all the repairs and upgrades are done. You figure this out by looking at comparable sales, or "comps," in the same area. You need homes that are similar in size, age, condition, and location that have sold recently. Most investors try to find three to five comps that closed within the last 90 days. If you don't have access to the multiple listing service (MLS), a real estate agent can pull a comparative market analysis for you. This gives you a realistic benchmark for what your renovated property can sell for. The ARV isn't a hope. It's a data point.
Every property has its own list of fixes. Some need cosmetic work like fresh paint and new flooring. Others need a full roof replacement or updated plumbing. The range can be wide. You might spend $20,000 on a light cosmetic rehab or $80,000 or more on a property that needs structural work, a new kitchen, and updated bathrooms. Get at least three contractor bids before you commit. This is where investors often underestimate costs. I was talking to someone on our operations team the other day about how a $5,000 surprise behind a wall can turn a good deal into a break-even job.
On top of repairs, you'll have closing costs on the buy side and the sell side. According to the Consumer Financial Protection Bureau, closing costs typically range from 2% to 5% of the home's price. For a $200,000 property, that could mean $4,000 to $10,000 just in transaction fees. Keep in mind, if you're flipping, you'll have closing costs when you buy and again when you sell, so you need to account for both sides of that equation.
Then there are holding costs. These are the expenses that pile up every month you own the property but aren't collecting income from it. Think mortgage payments, property taxes, insurance, and utilities. On a six-month flip, those monthly costs can add up to $10,000 or more depending on the property's value and your financing terms. That's money coming straight out of your profit. AmeriSave can help you figure out your monthly carrying costs before you commit to a deal.
This is how the math works in a real-life situation. Based on recent sales of similar homes in the area, you find a property with an ARV of $350,000. You think it needs $45,000 in repairs, such as a new HVAC system, a new kitchen, and cosmetic updates all over the place. Using the 70% rule, $350,000 times 0.70 equals $245,000. Then you take away the $45,000 you think it will cost to fix it. That means you have an MAO of $200,000.
You should only offer $200,000 at most. If the seller wants $230,000, this deal doesn't work with the 70% rule. You would have to either negotiate a lower price, find ways to lower the cost of repairs, or walk away. One of the most important things an investor can do is walk away from a bad deal. You can get better at spotting deals over time, but only if you're willing to say no.
Let's see how much money we made. Your total investment is about $261,000 if you buy for $200,000, spend $45,000 on repairs, pay about $10,000 in closing costs on both ends, and hold the property for four months. If you sell for $350,000, your gross profit will be about $89,000. That's a good return, and the formula is what helped you get there. It's hard to get a clear picture of where you really are without running these numbers first.
The biggest mistake is overestimating the ARV. If you use comps that don't match your property well, or you assume the market will keep climbing while you renovate, you can end up with a finished house that won't sell for what you planned. Underestimating repair costs is the second trap. It happens a lot. You budget $30,000 and the project hits $45,000 because you didn't account for the electrical panel, the termite damage, or the permitting fees. Either way, you end up with less money than you expected.
Ignoring holding costs is another one. Every month that project drags on, you're paying interest, taxes, and insurance. Those dollars come straight out of your margin. Why do so many first-time flippers overlook this? Because they focus on the purchase price and the renovation budget, but they don't have a clear picture of what they'll owe each month while the work gets done. AmeriSave's team can walk you through financing scenarios so you know those monthly numbers before you ever make an offer.
MAO is most important for fix-and-flip investors who buy distressed homes, renovate them, and resell for profit. But it can help anyone who's thinking about buying a property that needs work. Even if you're planning to live in the home or rent it out, understanding what the property will be worth after improvements helps you decide whether the numbers make sense. In hot markets around the country, investors sometimes feel pressure to bid above their MAO because competition is fierce. That's when the formula matters the most. It keeps emotion out of the decision. If you have your financing in place through AmeriSave, you can move quickly on properties that hit your MAO target without scrambling at the last minute.
Before you make an offer, do the math. Look for good comps. Get real bids from contractors. Add up all the costs you can think of, and then add a little extra. The MAO formula doesn't guarantee that you won't lose money when you invest, but it does help you make better choices. If the deal doesn't meet your needs, move on. There will be another home. AmeriSave can help you get your finances in order so that you're ready when the right deal comes along.
MAO is short for "maximum allowable offer." This is the most you can pay for an investment property and still make money after paying for repairs, closing costs, and holding costs. Investors use it as the highest price they will pay for something. If you're thinking about buying an investment property, AmeriSave's prequalification tool can help you figure out how much you can borrow before you start crunching the numbers on possible deals.
The 70% rule is what most investors use. Take the after-repair value (ARV) and multiply it by 0.70. Then, take away the amount you think it will cost to fix it. A house with an ARV of $300,000 and $40,000 in repairs would have an MAO of $170,000. Start with it. You could also take away your estimated holding costs and closing fees to get a lower number. ComeHome by AmeriSave can help you start looking into homes in your price range.
Not all the time. The 70% rule is a good rule of thumb for many markets, but experienced investors change it based on what is going on in their area. Some investors use 75% or even 80% in places where homes sell quickly and margins are small. In markets that move more slowly and give you more room to negotiate, 65% might be a better choice. Also, how comfortable you are with risk and how much experience you have with renovation projects matter. To see how financing costs might affect your numbers, look at AmeriSave's mortgage rates.
If you pay more than your MAO, your profit margin gets smaller. You might still make some money if everything goes perfectly. But if the repairs cost more than you thought they would, or the house takes longer to sell, or the market goes down, you could lose money on the deal. The whole point of figuring out MAO is to give yourself a cushion against those surprises. AmeriSave can help you look into your financing options so you know how much you can spend before you bid.
To find the ARV, you look at sales of similar homes in the same area. Look for three to five homes that have recently sold that are similar to what your home will look like after the renovations. Check out their size, age, condition, and where they are. You can get a good idea of the ARV by averaging those sale prices. You can get this information from a local real estate agent who has access to the MLS. With ComeHome by AmeriSave, you can start looking at homes in your area.
Yes, you can. MAO was made for fix-and-flip investing, but it can be used for any property that needs work. If you're buying a rental that needs work, knowing your MAO can help you decide if the price is low enough to cover repairs and still make a good return on your investment. The main difference is that rental investors often think about how much money the property could make in the future as well as how much it could sell for. At AmeriSave's Resource Center, you can find out more about your loan options.
The basic MAO formula with the 70% rule is meant to cover closing costs, holding costs, and profit in the 30% buffer. But it doesn't always take into account every single cost. Agent commissions on the sale side, property taxes during the hold period, insurance, utilities, and repairs that come up unexpectedly can all add up quickly. More experienced investors often take those costs out of their MAO right away to get a more accurate number. You can use AmeriSave's mortgage calculator to figure out some of those carrying costs.
You don't need one, but it helps to have a good agent. An agent who has access to the MLS can get sales data that is hard to find on your own. That information is what your ARV estimate is based on, and if your ARV is low, your MAO is also low. Over time, some investors learn how to run comps on their own, but if you're just starting out, working with a pro can help you avoid costly mistakes. ComeHome by AmeriSave is a great place to start your property search and get all your financing in one place.
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