What is a Maximum Allowable Offer (MAO) in Real Estate?
What is a Maximum Allowable Offer (MAO) in Real Estate?
The Maximum Allowable Offer (MAO) in real estate is the highest price an investor should offer for a property to ensure a profitable deal, after accounting for repair costs, holding costs, and desired profit. MAO is especially important for real estate investors who flip properties, as it helps them avoid overpaying and ensures they can make a return on their investment after all expenses.
The basic formula for MAO is:
MAO = (ARV × 70%) – Estimated Repair Costs
Where:
- ARV is the After Repair Value of the property (the value after renovations).
- 70% is a common multiplier used by investors to ensure a sufficient profit margin, though this percentage can vary depending on market conditions, investor goals, and other factors.
- Estimated Repair Costs refer to the anticipated cost of repairing and renovating the property to reach the ARV.
For example, if a property has an ARV of $200,000 and the estimated repair costs are $40,000, the MAO would be:
MAO = ($200,000 × 70%) – $40,000 = $100,000
This means the maximum offer an investor should make on the property is $100,000.
