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Every house flipper needs one number before they make an offer. Not the asking price. Not the repair estimate. Not the ARV. All of those matter — but what you really need is the number that tells you the most you can rationally pay and still make money.

That number is the MAO: Maximum Allowable Offer.

If you know the ARV (After Repair Value) and the estimated cost of repairs, the MAO formula gives you your ceiling:

ARV × .70 − Repairs = Maximum Allowable Offer

Say a house will be worth $200,000 when you're finished and needs $50,000 in work. Your MAO is $90,000. Offer less if you can. Never offer more.

It isn't. Here's the math that explains why.

That 30% margin built into the formula isn't profit — it's protection. Repairs aren't your only expense. Add taxes, insurance, holding costs, and the commission you'll pay when you sell, and the best deals with zero surprises net around 20%. Then factor in your business overhead — deal marketing, office costs, the infrastructure required to find and close properties — and that margin shrinks further. Layer on top of that the inevitable rehab surprise hiding behind a wall that no inspection could have caught, and suddenly 30% doesn't feel generous. It feels necessary.

Most flippers who've been doing this long enough will tell you: even when everything goes right, the margin is thinner than it looks from the outside.

This is where investors talk themselves into bad deals. The pressure to stay busy, to justify the time spent, to prove the business is working — it's real. So is the pressure from whoever charged you $50,000 to teach you this business.

Before you shade your number up, ask yourself two questions. Which is worse — nine months of activity that produces zero profit, or doing nothing while producing zero profit? And which is better — nine months of activity to earn 4% on your money, or a passive investment paying 10%?

F.A. Hayek called it the "Fatal Conceit" — the belief that you can override the logic of a system through sheer will or positive thinking. Some investors walk into bad deals convinced they can make the numbers work anyway. They can't. The numbers that protect thousands of successful investors before you aren't wrong just because they're inconvenient. Just ask whoever ran Zillow's iBuyer program — or any of the iBuyers, for that matter. Collectively they lost billions discovering what every seasoned flipper already knew and the numbers didn’t care how much technology massaged them.

We once sat down to lunch with a new investor who had paid a nationally known guru $65,000 to learn the house flipping business. They had just completed their first deal — one they knew going in was overpriced, but they wanted to try and make it work. They lost $10,000. Their comment: "But we learned a lot."

Comical. And heartbreaking. Didn't they just pay $65,000 to learn a lot?

Don't be them. Pass on most of the deals that come your way. Be selective to the point where people think you're not serious. Even then, no one wins every time. But you'll win a lot more often — and you'll still be in business two years from now.

Exceptions? You bet. That’s a Tip for another day. But until you know creative financing structures, know your MAO. Stick to it.

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