The Maximum Allowable Offer Formula, Exit by Exit

Here’s a conversation I’ve heard a hundred times:

“What should I offer?”

“What’s your exit?”

“…I’m not sure yet.”

Then you’re not ready to make an offer. The maximum allowable offer depends entirely on what you plan to do with the property. A house can be a great rental and a terrible flip at the same price. Or a fine flip and a disaster as a hold.

I’m Ben Lovro. I buy houses in the South Carolina Midlands and I flip, hold and occasionally sell to other investors. Here are the MAO formulas I use for each exit, written in words and letters so you can plug in your own market’s reality.

What MAO is (and isn’t)

Your maximum allowable offer is the highest price you can pay and still have the deal work for your chosen exit — after repairs, costs, risk and the margin you require.

A few things it isn’t:

• It isn’t your opening offer. Open below it so you have room to negotiate.
• It isn’t what the seller deserves. It’s what the deal can support. Those are different questions, and you can be honest about both.
• It isn’t permanent. If your ARV, repair estimate or exit changes, your MAO changes.

Every formula below has inputs. Garbage in, garbage out. So before any of these, you need an honest ARV from sold comps (how to calculate ARV) and a real repair estimate (how to estimate rehab costs).

MAO for a flip

The classic quick screen:

MAO = (ARV × 0.70) − R

Where: - ARV is the after repair value - R is total repairs, including contingency

The 0.70 reserves 30% of ARV for everything besides the purchase and the renovation — buying costs, financing, holding, selling, risk and your margin. That’s broken down line by line on the 70 percent rule page.

The long-form flip formula

Once you know your real costs, you can replace the shortcut with line items:

MAO = ARV − R − B − F − H − S − M

Where: - B = buying costs (closing, title, attorney) - F = financing costs (points, fees, interest for the full projected timeline) - H = holding costs (taxes, insurance, utilities, upkeep — your holding cost per day times your realistic number of days) - S = selling costs (commissions, seller closing costs, concessions) - M = the margin you require for the risk you’re taking

The long form is more accurate. The short form is faster. I use the short form to screen and the long form to decide.

MAO when you sell to another investor

If the end buyer is a flipper and you’re earning a fee in between, the deal has to work at their numbers:

MAO = (ARV × 0.70) − R − Fee

Where Fee is what you’re being paid for your part in the deal.

This is where a lot of deals die. The middle person uses an optimistic ARV, a light repair number and a big fee, and the end buyer’s math doesn’t work. Respect the buyer’s formula and the deal moves. Be greedy and it sits.

Important for South Carolina: marketing a property you don’t own yet is restricted under the 2024 revised Real Estate Practice Act. Before you consider any version of this exit in SC, read my plain-English breakdown of the SC law and sit down with a South Carolina real estate attorney. If you invest somewhere else, know that a number of states rewrote their rules from 2024 through 2026, and some now require a license, a registration or specific disclosures. Look up what your state requires today, and have a local attorney review your plan before you market any contract. More on how fees are set on the assignment fee page.

MAO for a rental

Rentals flip the logic. You don’t start from ARV. You start from what the property can earn.

Step 1: net operating income

NOI = gross rent − vacancy − operating expenses

Operating expenses include property taxes, insurance, repairs and maintenance, capital expenditure reserves, property management (even if you self-manage, budget for it), and any utilities or HOA you pay. Every line item is explained in rental property analysis.

Step 2: subtract what you need

Decide what you require after debt service — your minimum monthly cash flow per unit and any lender requirement, like a debt service coverage ratio. Work backward to the maximum debt payment the property can support.

Step 3: back into a price

From the maximum debt payment, your lender’s terms tell you the maximum loan. Add the down payment you’re willing to put in. That’s your total all-in budget:

MAO = maximum all-in budget − R − closing costs

It’s more steps than a flip formula, but it answers the right question: can this property pay for itself and pay me, under realistic assumptions?

The quick rental screen

A common screen is the 1% rule: monthly rent at or above 1% of the all-in cost. Treat it as a filter, not a verdict — it ignores taxes, insurance and capital expenses. See the 1 percent rule page.

MAO for BRRRR

If you plan to buy, rehab, rent, refinance and repeat, you need two checks:

1. The rental check — does the property cash flow at your refinance loan amount?
2. The refinance check — will the refinance return enough of your capital to meet your goal? That depends on an honest ARV and on the lender’s loan-to-value limit.

MAO = (ARV × lender’s loan-to-value limit) − R − all costs to get to refinance − capital you’re willing to leave in

If you plan to leave nothing in, that last term is zero, and the deal has to be bought very well. More on the BRRRR method.

When to tighten your MAO

Every formula above assumes your inputs are reliable. When they aren’t, tighten:

Tightening can mean a lower multiplier on a flip, a higher cash flow requirement on a rental, a bigger contingency on repairs, or all three.

From MAO to offer

Once you have your MAO:

1. Decide your opening offer below it.
2. Explain your number to the seller — honest, simple, no games.
3. If they’re above your MAO, don’t stretch. Leave the door open and follow up.
4. If circumstances change — for them or for you — re-run the numbers.

The money is in the follow-up. Plenty of my deals came from sellers who said no the first time.

Your next step

Pick one property and calculate MAO three ways: as a flip, as a rental and as a BRRRR. Notice how different the numbers are. That’s the lesson. For the full underwriting sequence, start at how to analyze a real estate deal. And if you want the one-page analyzer I use to run all three, it’s in my free investor playbook.