What Is Max Allowable Offer (MAO)?

Your Max Allowable Offer is a number that you have calculated that is the highest you are willing to pay for an investment property, taking all costs into consideration. Most investors will calculate their Max Allowable Offer but still begin to negotiate with a lower amount, knowing that this calculated amount is their offer limit. 

Before you can calculate your MAO (Max Allowable Offer), you do have to have your After Repair Value (ARV) identified.

The ARV is the value of a property that you come up with after studying nearby comparables and taking into consideration that your property will completely renovation and in excellent condition.

Once you calculate the After Repair Value, you subtract all the costs of the renovation and overall transaction such as Realtor commissions, renovation budget, closing costs, hard money costs if you intend to utilize hard money, holding costs, and more importantly, the amount of profit you would like to make on this deal.

Once you subtract all the costs, you have the Max Allowable Offer (MAO) amount.

Again, at this point you have safely and conservatively calculated the most you can offer for this deal to make most sense. It is okay to begin negotiations at a lower amount. When we first started investing we would actually hold true and stick firmly with our Max Allowable Offer number. We would write offers, and we would not budge if we have to increase above and beyond that Max Allowable Offer.

Looking back, I do think we missed out on a few deals for not having a little bit of flexibility in order to be the winning bid and acquire the property.

I remember one specific Condo/Townhouse we had submitted an offer for in Maryland. We ended up increasing our Max Allowable Offer to $99,000. It was a lot for us, we were recently married and just returned back to the area after Fabian finished his contract in the Marines.

Our Realtor at the time came back to us and said, the bank wants $105,000, and I remember we said no!

To this day, that is a property I wish I would have purchased. Six years later and those properties remodeled are selling for $310,000. At the time the property would have cash flowed us around $300/m which is really good.

If you think about it, that $5,000 increase is not a big deal over the span of 30 years. $5000 divided by 30 years, divided by 12 months, means it would have been an increase of $14 each month on our mortgage.

We were beginner investors and at the time it felt like a gigantic risk. Knowing what I know now, it is okay to stray away from that Max Allowable Offer (MAO) number.

Utilize the Max Allowable Offer as a guide, a reference point, but don't loose out on a property over a few thousand dollars. Take the market inventory and competitiveness into consideration as you are making offers.

ARV (After Repair Value)
- Rehab Costs
- Realtor Commissions
- Purchase & Selling Closing Costs
- Desired Profit
= MAO (Max Allowable Offer)