How this calculation works
The 70% Rule Real Estate MAO Calculator computes the exact Maximum Allowable Offer (MAO) a real estate investor or wholesaler should make on a distressed property to ensure a safe 30% margin for profit, carrying costs, and closing expenses.
Mathematical formula and logic
Flipper MAO = (ARV × 0.70) - Estimated Repairs. Wholesaler MAO = (ARV × 0.70) - Estimated Repairs - Wholesale Fee.
Worked example
For an ARV of $350,000 with $55,000 in repairs: Flipper MAO is ($350,000 × 0.70) - $55,000 = $190,000. For a wholesaler securing a $10,000 assignment fee, the contract offer to the seller must be $180,000.
Calculation assumptions
- The 30% margin accounts for investor profit (~15%), financing holding costs (~5-8%), and buying/selling closing commissions (~6-8%).
- ARV must be verified using recent comparable sales within 0.5 miles over the last 90-180 days.
Frequently asked questions
What does the 70% rule protect against?
The 70% rule provides a 30% safety cushion that absorbs unforeseen rehab cost overruns, extended holding times, market price drops, and seller closing commissions.
Is the 70% rule applicable in high-cost competitive markets?
In competitive high-priced markets (like California or New York), investors often adjust the rule to 75% or 80% due to higher absolute dollar margins on million-dollar ARVs.
What is After Repair Value (ARV)?
ARV is the estimated market value of a distressed property once it has been fully renovated to top-tier neighborhood standards.
How do wholesalers use the 70% rule?
Wholesalers subtract their desired assignment fee (e.g. $10,000) from the investor's MAO to determine the maximum contract price they can offer the motivated seller.
What if the seller rejects my MAO offer?
Never overpay on the purchase price. In real estate investing, 'you make your money when you buy'—stick to your calculated MAO to avoid losing capital.