How to Determine Maximum Allowable Offer on a Flip

Start from the outcome, work backward

The 70% Rule is a fast approximation. For a specific deal, a more precise Maximum Allowable Offer (MAO) starts from the profit you actually want and subtracts every real cost, rather than assuming a flat 30% margin covers everything:

MAO = ARV − Selling Costs − Holding Costs − Financing Costs − Repair Costs − Purchase Closing Costs − Target Profit

Worked example

A property with a $250,000 ARV, needing $40,000 in repairs, a 5-month hold, and a target profit of $35,000:

• Selling costs at 7% of ARV: $17,500
• Estimated holding costs (taxes, insurance) over 5 months: about $2,500
• Estimated financing costs (points and interest on a typical hard money loan for this deal size): about $9,000
• Purchase closing costs: about $3,000
• Repair costs: $40,000
• Target profit: $35,000

MAO = $250,000 − $17,500 − $2,500 − $9,000 − $40,000 − $3,000 − $35,000 = $143,000. The 70% Rule shortcut on the same numbers — (ARV × 0.70) − Repairs — gives $135,000. In this case the full calculation supports a higher offer, because this deal's actual costs (financing, holding, closing) came in lighter than the 70% Rule's implicit 30% margin assumes.

Why this method is worth the extra steps

The 70% Rule bakes in one fixed margin regardless of deal size, financing type, or market — which is exactly why it over- or under-shoots in high-value and low-value markets. Building MAO from actual quoted costs and your real target profit adapts to the specific deal instead of applying a generic assumption, which matters most once you're seriously considering an offer rather than just screening listings.

Where the estimates come from

Selling costs: get an actual commission rate from a local agent. Financing costs: get real terms from your lender. Holding costs: estimate from the actual property tax rate and an insurance quote over your expected timeline. Repair costs: a real contractor walkthrough, not a guess — see the rehab budgeting guide. The more of these numbers are real quotes instead of estimates, the more the resulting MAO can actually be trusted.

Once you have a target MAO, run it through the House Flip Calculator along with the rest of the deal to confirm the projected profit and ROI match what you were solving for.