Glossary
MAO (max allowable offer)
MAO, or max allowable offer, is the highest purchase price that still leaves you your target profit after every cost. You solve it backward from the ARV.
MAO turns a deal into one number you can negotiate against. Offer under it and the deal works on paper. Offer over it and you are paying away your own profit.
How to calculate MAO
Start with the ARV and subtract everything that has to come out of it, including the profit you want:
MAO = ARV - selling costs - target profit - rehab - buy closing costs - financing and holding costs
- ARV
- $320,000
- Selling costs (5.5% commission + 1% concessions)
- -$20,800
- Target profit (12% of ARV)
- -$38,400
- Rehab with contingency
- -$50,000
- Buy closing costs
- -$4,000
- Points, fees, interest and holding (estimate)
- -$20,000
The [70% rule](/glossary/70-percent-rule) on the same deal gives $174,000 ($320,000 x 70% - $50,000).
Financing costs depend on the price, so the exact MAO is a loop. Run The Deal solves it by re-running the full deal at each price until it finds the highest one that meets your target, then rounds down to the nearest $500. By default the target is both $30,000 of profit and a 12% margin on ARV.
Common mistakes
- Solving MAO off an optimistic ARV. A $10,000 ARV miss is a $10,000 MAO miss.
- Leaving out holding time. A 9 month gut job carries far more interest than a 3 month refresh.
- Treating MAO as the opening offer. It is your ceiling.
Questions
Is MAO the same as the 70% rule?
No. The 70% rule is a shortcut for MAO. A full MAO prices your actual selling, financing and holding costs, so it can land above or below the 70% number.
What profit target should I use for MAO?
Many investors use a dollar minimum and a percent of ARV together. Run The Deal defaults to $30,000 and 12% of ARV, and you can change either.
Keep going
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