Maximum Allowable Offer (MAO) Calculator
Determine the highest price you should pay for an investment property.
How This Tool Works
The Maximum Allowable Offer (MAO) calculator is the first line of defense for real estate investors. It helps you calculate the highest price you can pay for a property ("strike price") while ensuring you have enough margin for renovations, holding costs, and profit.
The 70% Rule Formula
- Step 1: Determine After Repair Value (ARV) - what the house will sell for when fixed up.
- Step 2: Multiply ARV by 0.70 (the 70% Rule). This leaves a 30% margin.
- Step 3: Subtract your estimated Repair Costs.
- Result: This is your Maximum Allowable Offer.
Example Scenario
You find a distressed property that could sell for $300,000 fixed up (ARV). It needs a new kitchen and roof, estimated at $40,000.
- 300,000 x 0.70 = $210,000
- $210,000 - $40,000 (Repairs) = $170,000
Your max offer is $170,000. If you pay more, you eat into your profit margin.
Frequently Asked Questions
What is the 70% Rule in real estate?
The 70% Rule states that an investor should pay no more than 70% of the After Repair Value (ARV) of a property minus the necessary repairs. The remaining 30% margin covers the investor's profit, holding costs, and transaction fees.
Does the MAO formula include closing costs?
The basic 70% rule assumes closing costs are part of the 30% margin. However, this calculator allows you to explicitly subtract closing/fixed costs for a more conservative and precise offer price.
Should I always use 70%?
Not necessarily. In hot markets with lower inventory, investors might go up to 75% or 80%. In riskier markets, they might drop to 65%. The calculator allows you to adjust this percentage based on your local market conditions.