MAO Calculator

How to read this result

The headline is the maximum allowable offer. With the defaults — $265,000 ARV, a $45,000 rehab and a $25,000 target profit — it is $164,450. That is the highest price at which the deal still leaves $25,000 after selling and holding costs.

The breakdown also shows the 70% rule offer ($140,500) and where the $155,000 asking price sits against the headline number: $9,450 below it. It then shows the profit implied at the asking price ($34,450) and at the rule offer ($48,950), so the two methods can be compared rather than chosen between blindly.

The 70% rule, in one line

Maximum allowable offer = ARV × 70% − Rehab budget

The rule assumes the remaining 30% of the after-repair value covers everything between the purchase and the sale: selling commissions, seller closing costs, holding costs, financing, and the profit the project is supposed to produce. On the default deal, 30% of $265,000 is $79,500. Selling costs at 7% take $18,550 and holding and financing take $12,000, leaving $48,950 of implied profit.

That is the number the rule actually encodes. It is not a magic percentage; it is a shortcut for a cost-and-profit calculation whose inputs were typical when the rule was coined. Once the costs are written out, the shortcut can be checked.

The same question, with the costs written out

Target-profit offer = ARV − Rehab − Target profit − Selling costs − Holding costs

On the defaults: $265,000 − $45,000 − $25,000 − $18,550 − $12,000 = $164,450. Because the target profit ($25,000) is lower than the profit the rule leaves ($48,950), the target-profit offer is $23,950 higher than the rule offer.

Neither offer is wrong. They answer different questions: “what does the rule of thumb allow?” and “what price leaves the profit I want?”. The first is a screening tool, the second is the actual constraint.

The percentage is the whole argument

The 70% in the name is not a market constant. Changing it changes the offer and the profit it leaves, in opposite directions:

A 60% rule is a conservative screen: it demands a large margin and will disqualify most retail listings. An 80% rule is aggressive: it leaves $22,450 of profit on this deal, which a cost overrun or a slow sale can erase. The right percentage is the one whose implied profit you would actually accept after the costs in your market.

A case where the two methods disagree

The default deal is comfortable: the asking price is below both offers. Change the target profit and the methods can point in opposite directions. Keep the $265,000 ARV and $45,000 rehab, but set the asking price to $160,000 and the target profit to $15,000.

At a $160,000 asking price, the rule says the deal is $19,500 too expensive, while the target-profit calculation says it clears a $15,000 target with $14,450 to spare. Both are correct. The rule simply assumes a much larger profit — $48,950 at its own offer — than the $15,000 you asked for.

That is the honest way to use the two together. The rule encodes a particular margin; the target-profit version lets you state yours. If your required profit is higher than the rule implies, the rule is too generous for you. If it is lower, the rule is too conservative.

What the rule does not subtract

The 70% rule subtracts the rehab budget and nothing else, because everything else is supposed to come out of the 30% allowance. Three costs routinely do not fit:

• Purchase closing costs. Buying the property costs money — title, lender fees, recording — and the rule has no line for it. On a $140,500 offer at 2%, that is another $2,810 taken out of the implied profit.
• Rehab contingency. The rule subtracts the number you enter. A budget without a contingency produces an offer that is too high by whatever the contingency turns out to be.
• Your own time. Sweat equity is not a cash cost, so it is not in the rule, but it is still spent. A deal that only works because the labour is free is not comparing like with like.

The target-profit version does not fix all of this automatically: it subtracts selling and holding costs, but purchase closing costs still have to be accounted for somewhere. The cleanest approach is to add them to the target profit figure, which lowers the offer by the same amount.

Where the rule breaks down

Four situations make the shortcut unreliable, and all four are visible in the target-profit version:

• Expensive markets with thin margins. The rule is a percentage of ARV, so in a market where selling costs and holding costs are a larger share of value, 70% leaves less profit than it did when the rule was coined.
• Light rehabs. A cosmetic project has a small rehab budget, so the rule produces a high offer relative to the work required. The target-profit version captures the same thing, but seeing the line makes it obvious.
• Overstated ARVs. The rule multiplies whatever ARV you enter by 70%. At that percentage, every $10,000 of ARV optimism becomes $7,000 of extra offer.
• Unusual holding periods. A six-month project and an eighteen-month project can have the same ARV, rehab and rule offer, but very different holding costs. The rule has no way to know.

A ceiling, not an offer

The maximum allowable offer is the price at which the deal stops working under these inputs. It is not a recommendation to pay that price, and it is not where an offer usually starts. An offer below the ceiling leaves room for the things the inputs cannot see: the inspection findings, the contractor's first number, the permit delay.

What the ceiling does is make the walk-away point explicit. If the seller's price is above it, the same arithmetic produces a lower profit, and no amount of negotiation skill changes that. An investor can still choose to pay more — for a property they value for another reason, or in a market where the assumptions do not hold — but the decision is then a judgment, not a calculation.

Using MAO with the full flip model

An offer is a hypothesis until the whole project is priced. The fix-and-flip calculator takes the purchase price, rehab, holding period, financing and selling costs and returns profit, ROI and a break-even ARV. The MAO here is the input; that page is the test of what happens at it.

The 70% rule guide covers the origin of the heuristic, how investors adjust it, and the specific cases where it produces a bad answer.