How to Calculate MAO, ARV, and Rehab Costs Before Making an Offer

The Three Calculations That Drive Every Profitable Deal

Strip away all the complexity of real estate investing and you'll find three core calculations at the center of every successful deal: the After Repair Value (ARV), the estimated repair cost, and the Maximum Allowable Offer (MAO). Get all three right and you have a profitable deal. Get any one of them wrong and the math falls apart.

These aren't abstract concepts. They're the specific numbers you need before you call a seller, before you submit an offer, and before you sign a purchase agreement. An investor who can calculate all three quickly and accurately — even in the field, with limited information — has a significant competitive advantage.

ARV: What Is It and How Do You Calculate It?

After Repair Value is the estimated market value of a property after it has been fully renovated to current market standards. It is not the current value. It is not the seller's asking price. It is not what the investor hopes to sell for. It is what the market — specifically, what recent comparable sales — suggests a buyer will pay for a renovated property in that specific location.

To calculate ARV accurately: pull recently sold properties (closed sales within 90 days) within a quarter to half-mile radius of your subject property. Look for properties with the same bedroom and bathroom count, within 15% of your property's square footage, and in similar condition to what yours will look like after renovation.

Calculate the median price per square foot from your 3-5 best comps. Multiply by your subject property's above-grade square footage. The result is your baseline ARV. Adjust downward if your property is on a busier street, has a smaller lot, or lacks amenities that the comps had. Be conservative — your buyer will challenge an aggressive ARV.

Rehab Cost: The Calculation Most Investors Get Wrong

There is no shortcut to accurate rehab estimation. But there is a framework. Experienced investors use a condition-tier model: cosmetic-only repairs (fresh paint, flooring, cleaning) run $8-$18 per square foot. Moderate condition (kitchen update, bathroom refresh, some systems work) runs $20-$32 per square foot. Heavy rehab (full gut, new systems, structural work) runs $35-$65+ per square foot.

Apply the appropriate tier to your above-grade square footage to get a rough starting number. Then add specific line items for any known large expenses: roof replacement ($8,000-$18,000 typical), HVAC replacement ($4,000-$12,000), electrical panel upgrade ($2,000-$5,000), foundation work (highly variable). These line items are added on top of your per-square-foot base, not included in it.

Always add 10-15% to your total as a contingency. Assume you will find surprises once work begins. Budget for them before you start, not after.

MAO: The Formula That Protects Your Margin

The Maximum Allowable Offer is the highest price you can pay for a property while still generating your required return. The standard formula is the 70% Rule: MAO = (ARV x 0.70) - Estimated Repairs.

The 30% buffer built into this formula covers the buyer's profit (typically $25,000-$50,000 minimum), closing costs on both the acquisition and sale side (typically 2-4% each), and holding costs for the duration of the project (financing, taxes, insurance, utilities).

For rental properties, the MAO formula is different — you're solving for the purchase price that generates your target cash-on-cash return given the property's projected rents and operating expenses. For STR properties, replace projected long-term rent with projected STR net income.

A Worked Example: Walk Through the Full Calculation

Property: 3-bedroom, 2-bathroom single-family home, 1,400 square feet. Condition: moderate (needs kitchen update, one bathroom update, new flooring throughout, fresh paint, minor landscaping).

ARV calculation: Three comparable sales in the neighborhood within 90 days averaged $163 per square foot. 1,400 sqft x $163 = $228,200 ARV. After adjusting slightly downward for a busy street, ARV is $220,000.

Repair estimate: Moderate condition at $25/sqft = $35,000 base. Add $6,500 for HVAC replacement (unit is 18 years old). Subtotal: $41,500. Add 12% contingency: $41,500 x 1.12 = $46,480 total estimated repairs.

MAO calculation: ($220,000 x 0.70) - $46,480 = $154,000 - $46,480 = $107,520 MAO.

If the seller is asking $125,000, you're over your MAO by $17,480. If you can negotiate the seller down to $107,000 or the repairs come in lower than expected, the deal may work. If neither is possible, walk away.

Why Discipline at the MAO Is Non-Negotiable

The most expensive words in real estate investing are 'I'll make it work.' Investors who routinely pay above their MAO are running a feelings-based business, not a numbers-based one. Markets shift. Contractors miss deadlines. Unexpected repairs appear. ARV comps weaken. Every one of these variables erodes margin — and margin is the only thing that separates a profitable deal from a loss.

Stick to your MAO. If a deal doesn't pencil at your number, the next deal will. The discipline of walking away from overpriced deals is what keeps your capital available for deals that actually work.

Using InvestorVI to Automate the Calculation

InvestorVI's Deal Analyzer performs the full MAO, ARV, and rehab calculation automatically once you enter basic deal data. The AI layer flags scenarios where inputs look inconsistent — for example, a rehab estimate that appears low for a property of that age and square footage, or an ARV that seems aggressive relative to the market.

The result is a deal score, a profit projection, and a suggested offer range — all available in seconds. Save the deal to your pipeline, generate a seller outreach script, and move to the next lead. The entire sequence — analysis, decision, and outreach — takes under five minutes.