Quick Answer
MAO (Maximum Allowable Offer) is the highest price a real estate investor should pay for a property. Calculated as ARV × 70% minus repair costs, MAO ensures enough margin for profit, carrying costs, and contingencies — it's the cornerstone formula for wholesaling and fix-and-flip offers.
What is Maximum Allowable Offer?
Maximum Allowable Offer (MAO) is the absolute ceiling price an investor should offer on a property to preserve a profitable deal. It is derived directly from ARV using the 70% rule: multiply ARV by 70% and subtract estimated repair costs. The 30% buffer built into the formula covers the investor's profit margin (typically 10–15%), closing costs and transaction fees (3–5%), holding and carrying costs during renovation (2–4%), and a contingency reserve for unexpected repairs. MAO is the critical guardrail that prevents investors from overpaying under emotional pressure or from sellers who inflate their asking price. In wholesaling, the MAO also accounts for the assignment fee the wholesaler will charge the end buyer — meaning the actual acquisition target is often 5–10% below the formal MAO to leave room for the fee. While MAO provides a fast, reliable starting point, sophisticated investors refine it further by using detailed rehab scopes, local market conditions, and deal-specific holding cost projections.
Real Deal: Indianapolis Fix-and-Flip — Saved by Sticking to MAO
Indianapolis, IN (ZIP 46222) — Anonymized investor account
An investor was evaluating a dated 4-bed/2-bath, 1,650 sqft colonial in a working-class Indianapolis neighborhood. The seller was asking $115,000 and emotionally attached to the price. After running comps, the investor pegged ARV at $190,000. A contractor walkthrough produced a $45,000 renovation scope: kitchen gut ($14,000), two bathroom updates ($9,000), roof replacement ($11,000), HVAC ($8,000), and cosmetics ($3,000). Plugging those numbers into the MAO formula: ($190,000 × 0.70) − $45,000 = $133,000 − $45,000 = $88,000. The seller rejected the $88,000 offer and countered at $105,000. The investor held firm. Two weeks later, the seller accepted $91,000 — above MAO, but within the acceptable variance on a deal where the investor had high conviction in the comps. Final outcome: purchase at $91,000, renovation came in at $47,200 (slight overrun), sold at $192,500. Profit after all costs: $38,700. Holding at $105,000 would have cut profit to under $25,000 and eliminated the contingency buffer.
Actual Purchase Price
$91,000
Net Profit (after all costs)
$38,700
Takeaway
The seller's $105,000 counter would have cut the margin to the bone. MAO gives you a principled, math-backed reason to walk away from emotional counteroffers. Knowing your number before negotiation starts — and not moving past it without rethinking the rehab or ARV — is the discipline that separates profitable investors from break-even ones.
