Maximum Allowable Offer (MAO) is the highest price an investor can pay for a property and still hit a target profit. The base formula is MAO = (ARV × investor multiple) − repair costs − holding, closing, and assignment fees. Fix-and-flip investors use roughly 70% of ARV; institutional buyers push the multiple down to 60–65% to protect yield.
Key Takeaways
- MAO is a ceiling on price, not an opening bid; offer below it.
- Base formula: MAO equals ARV times a multiple, minus repair costs.
- MAO generalizes the 70% rule, which just fixes the multiple at 0.70.
- The multiple flexes from about 0.60 to 0.75 by exit strategy and rates.
- Every cost line is subtracted, not netted out of profit later.
- Wholesalers subtract the assignment fee inside the MAO.
- Institutional buyers use 0.60 to 0.65 to protect going-in yield.
What is the maximum allowable offer in real estate?
The maximum allowable offer is the most an investor can pay for a property and still clear a target profit once every cost is accounted for. It is a walk-away number, the price at which a deal stops making money, not the number you lead with.
That framing matters. A retail buyer asks what a home is worth today; an investor asks what they can pay so the numbers still work after rehab, carrying costs, and resale. MAO answers the second question by anchoring to the after-repair value (ARV), the price the finished property will command, and then working backward. Glossaries at Investopedia and BiggerPockets define ARV and MAO the same way, and deal-analysis tools like PropStream, DealMachine, and FlipperForce build the calculation into their software. Get MAO right and you protect the single most important decision in the whole deal, which is the entry price. Overpay at acquisition and no amount of rehab skill or marketing recovers the margin.
How do you calculate MAO?
The base MAO formula is short: MAO equals ARV multiplied by an investor multiple, minus repair costs. The fuller version subtracts each cost line explicitly instead of hiding them inside the multiple.
In the shortcut form, an investor using a 0.70 multiple on a $250,000 ARV property that needs $40,000 of rehab calculates 0.70 times $250,000, which is $175,000, then subtracts the $40,000 rehab to reach a $135,000 MAO. The explicit build-up unpacks the 30 percent haircut into its parts: MAO equals ARV, minus rehab, minus holding costs, minus financing costs, minus closing costs, minus desired profit, and for a wholesaler, minus the assignment fee. Both versions target the same thing, a defensible ceiling, and disciplined buyers run the explicit build-up on any deal where the costs are unusual, exactly the way our step-by-step underwriting framework does before a dollar is committed. The multiple you choose is where judgment enters, and it depends on your exit strategy and the rate environment.
MAO worked example at three exit strategies
The same property yields three different MAOs depending on how the buyer plans to exit. Take a house with a $250,000 ARV and a $40,000 rehab budget, and assume a wholesaler needs a $15,000 assignment fee. The table shows how the multiple and the fee move the ceiling.
| Exit strategy | Multiple | Formula | MAO |
|---|---|---|---|
| Fix-and-flip | 0.70 | (0.70 × $250,000) − $40,000 | $135,000 |
| Wholesale | 0.70 | (0.70 × $250,000) − $40,000 − $15,000 fee | $120,000 |
| Build-to-rent / institutional | 0.62 | (0.62 × $250,000) − $40,000 | $115,000 |
Read down the MAO column. The flipper can pay up to $135,000. The wholesaler must contract lower, at $120,000, because the $15,000 spread has to fit underneath the flipper's number so the end buyer still hits $135,000. The institutional buyer, underwriting to a required yield rather than a flip profit, uses a tighter 0.62 multiple and lands at $115,000. None of these is the offer; each is the ceiling, and prudent investors open a step below to leave negotiating room and a margin of safety. This is the same logic that governs a clean wholesale contract assignment, where the spread is only real if the acquisition price sits below the end buyer's MAO.
What is the difference between MAO and the 70% rule?
The 70 percent rule is a single, fixed version of MAO. It hard-codes the multiple at 0.70 and folds holding, closing, financing, and profit into that one 30 percent discount. MAO is the general formula the rule is a special case of.
Think of it as shortcut versus build-up. The 70% rule is fast and famous because it collapses every downstream cost into a memorable number, and for a standard cosmetic flip in a normal-rate market it lands close to reality. But it is blind to the specifics. A heavy rehab, a slow-selling submarket, or the higher financing costs that come with a Freddie Mac Primary Mortgage Market Survey rate near 6.43 percent in July 2026 all argue for a lower multiple than 0.70, while a light refresh in a fast market can support a higher one. MAO lets you flex. You can keep the shortcut when the deal is typical and switch to the explicit line-item build-up when it is not. That flexibility is why institutional desks underwrite on MAO logic rather than reciting a single rule, and why our full breakdown of how the 70% rule works frames it as a starting point, not the finish line.
What holding and closing costs go into MAO?
The explicit MAO build-up subtracts four cost buckets the 70 percent shortcut hides: rehab, holding, financing, and closing, plus your desired profit. Getting each line right is what separates a real ceiling from a hopeful one.
Rehab is a dollar figure from a scope of work, never a percentage of value; a cosmetic refresh might run $15,000 to $30,000 while a full gut can top $75,000, which is why disciplined buyers estimate rehab costs line by line. Holding costs are the monthly carry during the project, property taxes, insurance, utilities, and loan interest, commonly $700 to $1,000 per month on a single-family flip, so a six-month hold adds $4,200 to $6,000. Financing costs are the hard money points and interest; two points on a $150,000 loan is $3,000, and interest can add several thousand more over the hold. Closing costs cover both the purchase and the resale, including title, escrow, transfer taxes, and sell-side commissions, commonly 5 to 7 percent of ARV combined, or $12,500 to $17,500 on a $250,000 exit. The table below runs the full stack on the flip.
| Line item | Basis | Amount |
|---|---|---|
| After-repair value (ARV) | Comparable sales | $250,000 |
| Less: rehab budget | Scope of work | -$40,000 |
| Less: holding costs | 6 months at ~$800/mo | -$4,800 |
| Less: financing (points + interest) | 2 pts + ~10% on $150K, 6 mo | -$10,500 |
| Less: closing costs (buy + sell) | ~6% of ARV | -$15,000 |
| Less: desired profit | Target margin | -$30,000 |
| Maximum Allowable Offer (explicit) | Sum of the above | $149,700 |
Notice the explicit MAO of $149,700 sits above the $135,000 the 70 percent shortcut produced. On this particular cost stack the rule was conservative, which is common on light rehabs. Change the inputs, a longer hold, a heavier rehab, or costlier debt, and the explicit number can drop below the shortcut instead.
How does the assignment fee factor into MAO?
For a wholesaler, the assignment fee is subtracted inside the MAO, not added on top. The wholesale MAO equals ARV times the multiple, minus repairs, minus the assignment fee, so the end buyer still hits their own numbers after paying you.
Return to the worked deal. The flipper's ceiling is $135,000. If a wholesaler wants a $15,000 fee, they must tie up the property at $120,000 or less, because $120,000 plus the $15,000 assignment equals the $135,000 the cash buyer is willing to pay. Contract above $120,000 and the spread evaporates or the deal becomes unsellable to a disciplined end buyer. This is why experienced wholesalers underwrite to the buyer's MAO first and back into their own contract price, protecting the earnest money deposit and the transactional funding they may use to close. The mechanics of moving that spread cleanly are covered in our guide to wholesale contract assignment.
Can MAO be higher than 70% of ARV?
Yes, and the worked example already proved it. When actual holding, closing, financing, and profit total less than the 30 percent the rule assumes, the explicit MAO comes out above 0.70 times ARV.
The 70 percent rule bakes in a generous cushion for costs and profit. On a light cosmetic flip in a fast-selling market, where the hold is short and financing is cheap, those real costs can run well under 30 percent of ARV, so a full build-up justifies paying more than the shortcut allows. The reverse is also true. A gut rehab, a slow market, or the higher carrying costs tied to a 30-year mortgage rate around 6.4 percent in mid-2026 per the Federal Reserve's FRED mortgage series can push real costs above 30 percent, dropping the explicit MAO below 0.70 times ARV. The lesson is that the rule is a discipline anchor, not a ceiling on the ceiling. Use it to sanity-check, then trust the line-item math, the same way you would when you underwrite a rental property against its real operating numbers.
Why do institutional buyers use a lower MAO multiple?
Institutional buyers and build-to-rent operators typically use a 0.60 to 0.65 multiple because they underwrite to a required yield and cost of capital, not a one-time flip profit. A lower multiple protects the going-in cap rate across an entire portfolio.
The math scales differently at volume. A flipper cares about the profit on one project; a fund acquiring hundreds of homes cares about the blended yield and its exposure to rate moves. Shaving the multiple from 0.70 to 0.62 on the worked deal drops the ceiling from $135,000 to $115,000, a $20,000 cushion that absorbs stabilized operating costs, leasing downtime, and interest-rate volatility. Agencies such as Fannie Mae and Freddie Mac, whose housing forecasts guide the debt these buyers use, price capital off the same rate signals, so institutional MAOs move with the market. That conservatism is not timidity; it is how large operators protect yield when they cannot afford a single overpriced acquisition to drag the fund. It is the same instinct that leads disciplined buyers to layer financing on last and value the asset on its cash flow, which is why they read a market's cap rate before they trust any purchase price. When leverage is involved, comparing hard money against bridge financing further sharpens the cost line inside the MAO.
Frequently Asked Questions
What is the maximum allowable offer in real estate?
Maximum Allowable Offer (MAO) is the highest price an investor can pay for a property and still reach a target profit after all costs. It equals the after-repair value multiplied by an investor multiple, minus repair costs and minus holding, closing, financing, and any assignment fees. MAO is a ceiling, not an opening bid, so investors offer below it and treat it as the point where a deal stops making money.
How do you calculate MAO?
The base formula is MAO equals (ARV times the investor multiple) minus repair costs. A fuller build-up subtracts each cost line explicitly: MAO equals ARV minus rehab minus holding costs minus financing costs minus closing costs minus desired profit, and for wholesale, minus the assignment fee. On a $250,000 ARV property needing $40,000 of rehab, a fix-and-flip investor using the 70 percent multiple lands at $135,000, calculated as 0.70 times $250,000, then minus $40,000.
What is the difference between MAO and the 70% rule?
The 70 percent rule is one specific version of MAO that fixes the investor multiple at 0.70 and folds holding, closing, financing, and profit into the 30 percent haircut. MAO is the general formula. It lets the multiple flex between roughly 0.60 and 0.75 based on the exit strategy, the rate environment, and the actual cost stack, and it can subtract each cost line explicitly instead of relying on a single blended discount. Every 70 percent rule calculation is an MAO; not every MAO uses 0.70.
What repair percentage should I use in MAO?
Do not use a percentage for repairs. Estimate the actual rehab budget from a scope of work, because repair cost is a dollar figure specific to the property, not a share of ARV. A light cosmetic refresh may run $15,000 to $30,000, while a full gut can exceed $75,000. Investors who guess repairs as a flat percentage of value are the ones who overpay. Build the number from contractor bids or a per-square-foot estimate, then subtract it in full.
How does the assignment fee factor into MAO?
For a wholesaler, the assignment fee is subtracted inside the MAO so the end buyer still hits their own numbers. The wholesale MAO equals (ARV times multiple) minus repairs minus the assignment fee. On a $250,000 ARV deal with $40,000 rehab and a $15,000 fee at a 0.70 multiple, MAO is $120,000. The wholesaler contracts at or below that figure and assigns to a cash buyer for $135,000, keeping the $15,000 spread.
Can MAO be higher than 70% of ARV?
Yes. The 70 percent rule is a conservative shortcut, and a full cost build-up sometimes justifies paying more, especially on light rehabs in fast-selling markets with low holding and financing costs. When actual holding, closing, financing, and profit add up to less than the 30 percent the rule assumes, the explicit MAO comes out above 0.70 times ARV. It can also come out lower when rates are high or the rehab is heavy. The rule is a floor for discipline, not a law.
What holding and closing costs go into MAO?
Holding costs are the carrying expenses during the project: property taxes, insurance, utilities, and loan interest for the months you own it, often $700 to $1,000 per month on a single-family flip. Closing costs cover both the purchase and the resale, including title, escrow, transfer taxes, and agent commissions on the sell side, commonly 5 to 7 percent of ARV combined. Financing costs add hard money points and interest. Each is subtracted in the full MAO build-up rather than assumed inside a blended discount.
Why do institutional buyers use a lower MAO multiple?
Institutional buyers and build-to-rent operators often use a 0.60 to 0.65 multiple because they underwrite to a required yield and cost of capital rather than a one-time flip profit. A lower multiple protects the going-in cap rate, absorbs rate volatility, and leaves room for stabilized operating costs across a large portfolio. The discipline scales: shaving the multiple a few points per deal compounds into meaningful yield protection across hundreds of acquisitions.
The Bottom Line
The maximum allowable offer is the one number that decides whether a deal was ever going to work, because it sets the entry price everything else depends on. Compute it as ARV times a multiple minus repairs for a fast read, then switch to the explicit line-item build-up, subtracting rehab, holding, financing, closing, profit, and any assignment fee, whenever the deal is unusual. Treat the 70 percent rule as a discipline anchor rather than gospel: the multiple should flex with your exit strategy, your cost stack, and a rate environment that still hovers near 6.4 percent. Offer below your ceiling, never at it, and you build the margin of safety that lets you survive a bad comp or a rehab surprise. This is educational information, not investment, tax, or legal advice; confirm any deal's numbers with your own underwriting and advisors.
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Founder of Home Pros, operator across 48 markets, with 300+ investor transactions closed since 2021. Trevor writes on institutional real estate underwriting, capital placement, and market analysis. More about Trevor →