Fix-and-flip investing can be one of the most rewarding strategies in real estate—both financially and personally. But the key to flipping successfully isn’t just finding a good property. It’s knowing exactly how much you can afford to pay for it while still turning a profit. That’s where your Maximum Allowable Offer (MAO) comes in.
Let’s break it down.
What Is a Fix and Flip?
A fix and flip is when an investor buys a distressed property, renovates it, and sells it at a profit—typically within a few months. The goal is speed and margin: buy low, rehab smart, and sell high.
But it’s easy to lose money on a flip if you don’t run your numbers right. Many investors get burned because they overpay or underestimate repair costs. That’s why the MAO formula is crucial.
What Is Maximum Allowable Offer (MAO)?
The Maximum Allowable Offer is the highest price you should pay for a property to ensure you meet your desired profit margin after accounting for repairs, holding costs, and selling expenses.
The MAO Formula:
MAO = (ARV × % of ARV) – Repair Costs
- ARV = After Repair Value (What the property will sell for once fixed)
- % of ARV = Typically 70% (to leave room for profit and expenses)
- Repair Costs = Total renovation budget
Example: Let’s Run the Numbers
You find a property listed at $160,000. After researching comps, you determine that the ARV is $300,000. You estimate the repairs will cost $40,000.
Now, plug it into the formula:
MAO = ($300,000 × 70%) – $40,000
MAO = $210,000 – $40,000
MAO = $170,000
So, your maximum allowable offer should be $170,000. If the seller won’t go that low, you either walk away or negotiate.
Why 70%?
The 70% rule is a general industry standard. It allows 30% of the ARV to cover:
- Your profit (typically 10–20%)
- Holding costs (insurance, utilities, taxes, loan interest)
- Closing costs and real estate commissions
Depending on your local market or strategy, you might adjust this number:
- Hot market with low inventory? You might stretch to 75%.
- Risky area or expensive rehab? You might drop to 65%.
Visual Illustration:
[ARV: $300,000]
↓ 70%
[Baseline Investment: $210,000]
- Repairs: $40,000
= MAO: $170,000
Other Fix & Flip Factors to Consider
1. Repair Cost Accuracy
Underestimating rehab costs is one of the most common mistakes. Get contractor quotes, walk the property carefully, and build in a 10–15% buffer for surprises.
2. Holding Time
The longer you hold, the more money you lose to taxes, insurance, interest, and utilities. Aim for flips that take 4–6 months from purchase to resale.
3. Exit Strategy
What if the market shifts mid-flip? Can you refinance and rent the property instead of selling? Always have a backup plan.
4. Funding Source
Using hard money? Factor in interest payments and points (loan fees) as part of your total cost. A hard money lender may also help you refine your MAO.
Final Thoughts
Fix and flips can create significant wealth, but only when approached with clear math and discipline. The MAO formula keeps emotions out of your decision-making and ensures your numbers lead the way. Remember: it’s not about getting every deal—it’s about getting the right deal.
Need help evaluating your next flip or calculating your MAO? Contact us—we’ll help you run the numbers and explore financing options tailored to your project.