The formula
MAO = (ARV × rule %) − repair costs − wholesale fee
- ARV — what the finished home sells for, from real comparable sales
- Rule % — 70% standard, 65–75% depending on market and confidence
- Repair costs — a detailed scope, not a guess
- Wholesale fee — if you’re buying through a wholesaler, subtract their assignment fee too
Worked example
- ARV: $320,000
- Repairs: $45,000
- Rule: 70%
MAO = ($320,000 × 0.70) − $45,000 = $179,000
The $96,000 gap between ARV and (MAO + repairs) is your buffer for everything else plus profit.
Where flips go wrong
- Optimistic ARV. One or two aggressive comps and the whole deal tilts. Use closed sales, similar condition, same neighborhood, last 3–6 months.
- Repair estimates. Walk the property with a contractor. Add 15–20% contingency. Surprises live behind walls.
- Holding time. Every extra month is loan interest, taxes, insurance, and utilities. Model a longer hold than you expect.
- Selling costs. Commissions and concessions routinely run 7–9% all-in.
Flip or hold?
If the flip margin is thin, check whether the same property pencils as a BRRRR rental instead — you keep the asset and pull most of your cash back out on refinance.