These 3 Formulas Will Make You a Smarter Investor

Alphabet Soup Series: ROI, CAP, and MAO decoded in plain English.

Author

Roger Blankenship
September 09, 2025 • Estimated Reading Time: 4 minutes

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Real Estate Math You Shouldn’t Be Googling

If you're still looking up these formulas every time you run numbers, you’re leaving money (and credibility) on the table. These are the three calculations every real estate investor should know cold.

1️⃣ MAO – Maximum Allowable Offer

Formula:

ARV × Discount % – Repairs = MAO

Example:

$250,000 × 70% – $30,000 = $145,000

Why it matters:

You don’t want to be the one saying “let me get back to you” while someone else gets the deal.

2️⃣ ROI – Return on Investment

Formula:

Profit ÷ Total Cash Invested × 100 = ROI%

Example:

$40,000 ÷ $80,000 = 50% ROI

Why it matters:

ROI tells you how hard your money is working—and whether a deal’s worth doing.

3️⃣ CAP Rate – Capitalization Rate

Formula:

NOI ÷ Purchase Price × 100 = CAP%

Example:

$12,000 ÷ $150,000 = 8% CAP Rate

Why it matters:

This is the fastest way to compare rental deals, apples-to-apples.

📌 Bottom line:

You don’t need a spreadsheet. You need these formulas in your brain. Master them and watch your confidence—and your deals—level up.

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