● BUY DEAL
Asking price ($165,000) is below your calculated MAO ($168,000). Strong wholesale margin.
+$3,000 Spread
Estimated ARV
$317,143
Based on 3 active comps
Max Allowable Offer (MAO)
$168,000
(ARV × 70%) - $42k - $12k
End-Buyer Equity Cap
$95,143
Projected gross flip margin
Wholesaler Margin
$12,000
Projected contract assignment

70% Rule Formula Breakdown MAO = (ARV × 0.70) − Rehab − Fee

1. Benchmark Renovated ARV (Active Comps Avg) $317,143
2. Target Investor Discount Percentage (70%) $222,000
3. Less: Estimated Rehab Budget − $42,000
4. Less: Desired Wholesale Assignment Fee − $12,000
Maximum Allowable Offer (MAO to Seller) $168,000
Target Property Asking / Contract Price $165,000
Offer Spread vs. Asking Price +$3,000 (Viable Direct Contract)

Alternative Scenario: Buy-and-Hold Investor Cash Flow 7.5% Int • 20% Down • 30-Yr Fixed

If selling to a rental portfolio buyer at Asking Price ($165,000) + Rehab ($42,000) = Total Project Cost: $207,000.

Net Monthly Cash Flow
+$214 /mo
After P&I, Taxes, Ins, Mgmt & Vacancy
Cash-on-Cash (CoC) Return
3.03%
Annual Net / Total Initial Cash Outlay
Total Cash Required
$85,200
20% Down + Full Rehab Out-of-Pocket
Gross Rental Income $1,750 /mo
Mortgage Principal & Interest (Loan: $132,000 at 7.5%) − $923 /mo
Property Management (10% of Gross) − $175 /mo
Vacancy Reserve (5% of Gross) − $88 /mo
Taxes & Insurance Escrow (Est. 1.5% and 0.8% annually) − $350 /mo
Estimated Net Monthly Cash Flow +$214 /mo
How to Determine an Accurate Renovated After Repair Value (ARV)

The After Repair Value is the single most critical variable in wholesale underwriting. Real estate flippers calculate ARV not by looking at average neighborhood listings, but by analyzing closed transactions of renovated, comparable properties (comps).

  • Radius & Micro-Market: Stick to 0.25 to 0.5 miles in suburban neighborhoods, and under 0.2 miles (or within the same subdivision) in dense urban areas. Never cross major geographic boundaries like highways, railroad tracks, or school district boundaries.
  • Recency: Comps should be closed sales within the past 3 to 6 months. In volatile rate environments, sales older than 90 days require market adjustment.
  • Size & Vintage: Comps should be within ±15% to 20% of the target property's square footage, have identical bedroom and bathroom counts, and match the foundation type (e.g. slab vs. crawlspace vs. full basement).
  • Renovation Grade: Comps must reflect retail-level renovations (granite/quartz countertops, updated HVAC, new roof, modern bathrooms, finished floors). Outliers that were sold "as-is" or distressed should be excluded from the ARV benchmark.
The Mechanics of the 70% Rule & Maximum Allowable Offer (MAO)

The 70% rule exists to safeguard the end flipper's profit margin, holding costs, transaction fees, and cost of capital.

MAO = (ARV × 0.70) − Estimated Rehab − Target Wholesale Fee

  • The 30% Buffer: Represents the end-buyer's acquisition closing costs (2%), holding costs like insurance, utilities, and hard money interest (8% to 10%), disposition realtor commissions and closing fees (8% to 10%), and net flip profit (10% to 15%).
  • Deal Verdict Criteria:
    • BUY: Asking Price ≤ MAO. You have sufficient margin to place the property under contract and assign it to an end-buyer with your wholesale fee intact.
    • NEGOTIATE: Asking Price is between MAO and 115% of MAO. The seller is within striking distance; a counter-offer citing contractor bids and comps can bridge the gap.
    • PASS: Asking Price > 115% of MAO. The spread is too thin, exposing either the wholesaler or the cash buyer to severe downside risk.
Evaluating the Buy-and-Hold Rental Exit Strategy

When a property doesn't have enough margin for a fix-and-flip investor, evaluating rental cash flow offers a secondary disposition avenue for buy-and-hold turnkey landlords.

  • Standard Investor Debt Terms: Most conventional investor loans require 20% to 25% down payment with interest rates typically 50 to 100 bps higher than primary residence mortgages (modeled here at 7.5% on a 30-year amortization).
  • Operating Expenses (OpEx): True net cash flow must budget for 10% property management fees, 5% to 8% vacancy loss, and property taxes/insurance escrow.
  • Cash-on-Cash Return: Computed as (Annual Net Cash Flow / Total Cash Outlay) × 100. A deal yielding >8% CoC in today's interest rate environment is considered attractive for passive long-term wealth building.