The MAO formula is simple enough to calculate on the back of a napkin, but most beginners skip it because they don't know it exists - or they don't want the math to tell them no. I get it. But the investors I know who've stayed in this business for 10+ years are religious about their MAO. It's the difference between a business and a gambling habit.
The Basic MAO Formula
For fix-and-flip deals, the classic MAO formula is:
MAO = (ARV x 70%) minus Repair Costs
Let's break that down:
ARV is the After Repair Value - what the property will sell for once it's fully renovated to neighborhood-appropriate standards. You get this from comparable sales.
70% is the standard investor target. This accounts for your profit margin, holding costs, closing costs, real estate commissions when you sell, and a buffer for surprises. The 70% rule is a rule of thumb, not a law.
Repair Costs is your estimated cost to get the property from current condition to sell-ready.
So in this example, $105,000 is the most you'd pay. Offer less if you can. But don't pay more.
Why 70%? And When to Adjust It
The 70% figure isn't arbitrary. It works backwards from a typical real estate investor's required returns.
When you sell a renovated property, you typically pay 6% in real estate commissions, 1-2% in closing costs, and 1-2% in holding costs (interest, taxes, insurance, utilities during the renovation period). That's roughly 8-10% off the top just to transact.
Then you need profit. Most experienced flippers won't touch a deal that doesn't have $25,000 or more in profit potential. On a $200,000 ARV deal, that's 12.5%.
Add those together: 10% costs plus 12.5% profit minimum equals 22.5%. Round to 30% buffer and you get to the 70% rule.
But 70% isn't right for every situation.
In expensive coastal markets with high commissions and carrying costs, some investors use 65%. In Midwest markets with low transaction costs and quick turnaround times, 75% might still work on a well-priced deal. In wholesale-only scenarios where you're assigning to a buyer who will flip it, you use a different calculation entirely.
MAO for Wholesalers
If you're wholesaling, you need to back out your assignment fee from the buyer's MAO, not add it on top. Your buyer calculates their MAO using the 70% rule. Your job is to buy below their MAO and leave yourself a fee.
This is critical. You can't put a property under contract at $105,000 and then try to assign it for $10,000 over that. Your buyer would be paying $115,000 for a deal that only supports paying $105,000. No experienced buyer takes that deal.
Paying too much and leaving no room for your buyer is one of the top wholesale deal killers - and it comes directly from not running the MAO correctly.
MAO for BRRRR Investors
BRRRR (Buy, Rehab, Rent, Refinance, Repeat) investors use a variation of MAO based on the refinance value rather than the sale price. The goal is to refinance at 75-80% of ARV and get as much of your capital back as possible.
In this case, you're looking to buy at or below $105,000. After renovating for $30,000, the property is worth $180,000. A 75% cash-out refinance gives you $135,000 back - which covers your purchase and renovation with some left over. That's how you "recycle" capital in the BRRRR strategy.
The BRRRR strategy works best when you understand exactly what price to pay upfront - and the MAO formula gives you that number.
Adjusting for Market Conditions
In a hot seller's market, you'll often find that deals at 70% ARV don't exist or go fast. Some investors chase deals and start using 75% or 80%. That's their choice - but they're accepting lower profit margins and less buffer for surprises.
In a buyer's market, the 70% rule is achievable or beatable. Motivated sellers have fewer options and more flexibility.
Regardless of market conditions, never lose sight of why the 70% rule exists. The moment you start making exceptions to your MAO because you "really like this deal," you're investing emotionally instead of analytically.
Calculating MAO Faster with DealBeast
Calculate MAO Instantly for Any Property
The MAO formula is simple when you have accurate inputs. The challenge is getting accurate ARV and realistic repair estimates quickly. DealBeast handles the ARV side automatically - you put in the address and it pulls comparable sales. You add your repair estimate and it spits out your maximum offer price and deal grade.
For investors evaluating multiple deals per week, that speed matters.
Getting your repair estimate right is the other half of the MAO formula - an accurate rehab number is just as important as an accurate ARV.
Learn how to run comps accurately so your ARV is reliable before you plug it into the MAO formula.
FAQ
What if the seller won't accept my MAO? Move on. Or find other ways to structure the deal - seller financing, subject-to, or a lease option - that change the math. But don't pay above MAO on a traditional purchase and expect the deal to work out fine.
Is the 70% rule universally applicable? No. It's a strong starting point for residential fix-and-flip deals in most U.S. markets. Adjust it based on your actual transaction costs, holding costs, and required profit in your specific market.
What if I get the repair estimate wrong? Your MAO absorbs some error via the built-in buffer, but large miscalculations can eliminate your margin entirely. Always add a contingency to your repair estimate - 10-15% on top of your best guess.
Does MAO apply to commercial real estate? Commercial real estate uses different valuation methods (cap rates, NOI, income approach) rather than the ARV approach. The MAO concept still applies - buy below what the deal justifies - but the formula looks different.
How do I handle properties where I can't get a reliable ARV? If you can't get a reliable ARV, you can't reliably calculate MAO. In markets with few comparable sales, add a bigger buffer or pass on the deal until you have better data.
Can MAO be negative? Yes. If ARV times 70% is less than the repair costs, your MAO is negative - meaning there's no price low enough to make the deal work with a full renovation at your standards. This can happen with severely distressed properties in low-value markets.