How to Calculate Maximum Allowable Offer (MAO) for Wholesale Deals

One of the most critical skills in real estate wholesaling is knowing exactly what to offer for a property. Offer too much and you won't be able to sell the deal to an investor profitably. Offer too little and you'll lose the deal to a competitor. The Maximum Allowable Offer (MAO) formula gives you a disciplined, repeatable framework for calculating precisely what a property is worth to you as a wholesaler.

The MAO Formula

The standard MAO formula is:

MAO = (ARV × Investor's Target Margin) − Repair Costs − Wholesale Fee

Let's break down each component:

Step 1: Determine After Repair Value (ARV)

ARV is what the property will be worth after it's fully renovated and brought to market condition. To estimate ARV accurately:

• Pull recent comparable sales (comps) from the MLS or Zillow within 0.5 miles and the past 6 months
• Match square footage, bedroom/bathroom count, lot size, and condition as closely as possible
• Adjust for differences: add $5,000–$15,000 per bedroom, $3,000–$8,000 per bathroom, $20–$30 per square foot for size differences
• When in doubt, be conservative — overestimating ARV is one of the most common and costly errors in wholesaling

Step 2: Apply the Investor's Target Margin

Most house flippers and buy-and-hold investors work with an acquisition target of 65–75% of ARV. This means:

• Conservative market: ARV × 65%
• Standard market: ARV × 70%
• Hot market (low competition): ARV × 75%

For example, on a property with a $250,000 ARV in a standard Texas market: $250,000 × 0.70 = $175,000.

Step 3: Subtract Estimated Repair Costs

Repair costs are the biggest variable in the formula. Categories to evaluate:

• Structural: Foundation, roof, framing (high cost, $5,000–$40,000+)
• Systems: HVAC, electrical, plumbing ($2,000–$15,000 each)
• Cosmetic: Paint, flooring, fixtures, landscaping ($8,000–$25,000 for a full cosmetic rehab)
• Kitchen and bathrooms: $5,000–$20,000 each depending on scope

Until you develop your own reliable estimates, walk properties with an experienced contractor or use a cost-per-square-foot estimate: light rehab = $15–$25/sqft, medium = $30–$50/sqft, heavy = $60–$80+/sqft.

Step 4: Subtract Your Wholesale Fee

Your assignment fee is typically $5,000–$20,000 depending on the deal size and market. Build this into your MAO calculation so your fee doesn't come out of the investor's margin.

Worked Example

Property in Houston, TX: 3-bed/2-bath, 1,400 sqft, needs medium rehab.

• ARV: $220,000 (based on comps)
• Target margin: 70% → $220,000 × 0.70 = $154,000
• Repair estimate: $45,000 (medium rehab at $32/sqft)
• Wholesale fee: $10,000
• MAO = $154,000 − $45,000 − $10,000 = $99,000

If you can get the property under contract at or below $99,000, the deal works. At $99,000, the end investor acquires at $109,000 (your $99K + your $10K fee) and has a $154,000 cap before repairs, leaving $45,000 for rehab — exactly covering costs at 70% of ARV.

Common Mistakes to Avoid

Never skip a professional repair estimate on your first 10–20 deals. Overestimating ARV and underestimating repairs will kill your deals and your reputation. Build in a 10–15% buffer on repair estimates to account for surprises.

Review our deal analysis resources and use our MAO calculator tool to streamline your underwriting process on every property you evaluate.