How to run the numbers on a wholesale deal (the MAO formula explained)

Every wholesale deal comes down to one question: what's the most I can pay the seller and still have a cash buyer take it off my hands with my fee on top? That number has a name — the maximum allowable offer, or MAO — and the formula for it fits on a napkin. The hard part isn't the math. It's getting the two inputs right.

Here's the formula, where each number comes from, and the mistakes that make new wholesalers either overpay or scare sellers off.

The formula

MAO = (ARV × 70%) − repairs − your fee.

That's it. Take what the house will be worth fixed up, multiply by 0.7, subtract what it costs to fix, subtract what you want to make, and what's left is the most you can offer the seller.

The 70% is doing a lot of work in that line, so it's worth understanding. It's the rule of thumb most fix-and-flip buyers use for their own all-in number: they want to be into a house — purchase plus rehab — at no more than 70% of what it'll sell for. The other 30% covers their holding costs, selling costs, the risk that something goes wrong, and their profit. If you hand them a deal where they're all-in at 70% or less, they can say yes fast. Hand them one at 85% and they pass without telling you why.

Input one: ARV

After-repair value is what the house will sell for once it's fixed up. Not what the seller thinks it's worth, not what Zillow says, not what a house three neighborhoods over sold for. What this house, renovated, would sell for to a regular buyer in this neighborhood.

The way you get it is comps: recent sales of similar houses nearby. Similar means close in size, beds, baths, age, and condition-after-repair; nearby means within about half a mile; recent means the last few months. Take the price per square foot those houses sold for, multiply by your house's square footage, and you've got a number you can defend.

In DispoLab, Comps & ARV does exactly that. Type the address and you get the nearby sales and the value, and if the seller tells you the square footage is different from the record, you change it and the number updates. Buyers are going to pull their own comps, so yours need to hold up — an inflated ARV is the number one reason deals don't sell.

Input two: repairs

This is the number new wholesalers get wrong most, almost always in the same direction: too low. You look at photos, see a dated kitchen and some worn carpet, and call it $20,000. A flipper looks at the same photos, sees a 1970s roof, an original HVAC, galvanized plumbing, and a kitchen that needs to be gutted, and calls it $55,000. Your deal doesn't pencil at their number, so they pass.

Two ways to get better at this. The slow way is to walk houses with a contractor until you've internalized what things cost. Do that eventually. The fast way is the Repair Estimator: upload the photos, add the basics, and get a low / most-likely / high number with the line items behind it — roof, HVAC, kitchen, baths, flooring, paint — and a list of big-ticket items to verify. Use the most-likely number in your MAO, and mention the range to the seller and to your buyer. An itemized number you can explain beats a round number you guessed.

Input three: your fee

Your assignment fee is whatever the spread allows. Most first deals land somewhere between $5,000 and $15,000; it depends on the market and the deal. Build in what you actually want to make, not the minimum. If the numbers only work with a $2,000 fee, it's not a deal — it's a favor.

Work an example

A 3/2 in Tampa. Comps say $241,000 ARV. Photos and a repair estimate say about $38,500 in work. You want $10,000.

$241,000 × 0.7 is $168,700. Minus $38,500 in repairs is $130,200. Minus your $10,000 fee is $120,200. That's your MAO. If the seller will take $120,000, you've got a deal that a flipper can buy at $130,000 and be all-in around $168,500 — right at 70% of ARV. They're happy, you're paid, the seller's done.

If the seller wants $150,000, you don't have a deal. Not a worse deal — no deal. The most common expensive mistake in wholesaling is talking yourself into a contract above MAO because the seller was nice or you needed a win. A contract you can't assign costs you your earnest money, your time, and your reputation with the buyers you shopped it to.

When 70% isn't the number

The 70% rule is a starting point, not a law. In hot markets with tight inventory, some buyers go to 75% or even 80%. In slow markets, or on expensive houses where 30% is a huge dollar amount, buyers may want to be at 65%. Landlords buying rentals think in terms of cash flow rather than ARV and can sometimes pay more than flippers for the same house.

The way to find out what your market's buyers actually want is to ask them — or to look. When you drop a deal into DispoLab's Find a Buyer, the reasons on each match tell you how the price fits what that buyer does, and the buy-box criteria on each row show you their real numbers. After a few deals you'll know whether your market is a 70% market or a 75% market, and you'll adjust. (That's why the seller-call walkthrough prices this same Tampa house at 75%: there the buyer pays $140,000 and the seller signs at $130,000. Same house, same math, different market assumption.)

Do it on the call

The whole point of having a formula is that you can run it in two minutes while the seller is still on the phone. Get the address, pull comps, ask for photos, run the repair estimate, do the subtraction, and say the number out loud with the reasoning behind it: here's what it's worth fixed up, here's what the work costs, here's what that leaves. Sellers say yes to math they can follow, and they say it on the first call — here's how that conversation goes.