Step 5: The Math — ARV, Repairs, and MAO

Step 5.1 — ARV: the value after the work is done

After-repair value is what the finished house will sell for, proven by the comps you ran in Step 4. It is not the seller's asking price, not a website estimate, and not what you hope a hot market might pay. Use the conservative end of your comp range when the evidence is thin. Every dollar of invented ARV becomes a dollar of invented offer, and the market collects that debt at resale with interest. Write the ARV and the comps behind it at the top of every deal worksheet, so anyone reviewing the deal can challenge the foundation first.

Step 5.2 — Repairs: price the house that exists

Estimate repairs on the house as it stands, in tiers: cosmetic (paint, flooring, fixtures, cleanup), mid-grade (kitchens, baths, systems work), and full renovation (roof, foundation, layout, everything). Walk it or get eyes on it whenever you can, photograph every system, and price with per-square-foot tier ranges plus line items for the big five — roof, HVAC, electrical, plumbing, foundation. Add a contingency you actually respect: surprises live inside walls. A repair number built from hope is how a good ARV still produces a bad deal. Step 11 goes deep on running the rehab itself.

Step 5.3 — MAO: the most you can offer

The maximum allowable offer protects the margin the deal needs to survive. The classic screening form is the 70% rule: MAO equals 70 percent of ARV minus repairs. On an illustrative example only — a house with a $200,000 ARV and $30,000 in repairs — that is $140,000 minus $30,000, for a $110,000 maximum offer. The held-back 30 percent is not greed; it covers holding costs, selling costs, financing, and profit. Treat the result as a ceiling for screening, then refine it with real holding and selling costs on any deal you pursue. Above the ceiling, the honest move is to renegotiate or walk.

Step 5.4 — Run the same math the same way, every time

Use one worksheet for every deal: ARV, repairs, holding costs, selling costs, financing, desired margin, offer. Consistency exposes your own errors — if one deal's numbers look mysteriously better, the worksheet shows which input changed and whether the change is evidence or optimism. Run the numbers before the seller conversation shapes them, and re-run them whenever new information arrives: a roof quote, a comp you missed, a timeline that stretches. Numbers are allowed to change when facts change. They are not allowed to change because you fell in love with a house.

Step 5.5 — Use the free calculator, then check it by hand

The 70% Rule Calculator linked on this page runs the screening math instantly, and the First-Deal Math Pack gives you the paper version. Use them — then, on your first several deals, also do the arithmetic by hand once. The point is not distrust of the tool. The point is owning the logic so completely that you can spot a fat-fingered input at a glance and explain every line to a seller or a buyer without notes. Fluency with these three numbers is what makes every later step fast.

Do this step now

Do not just read this step — work it. Open the 70% Rule Calculator and run one real or practice property through it, then read the full guide for this step: The Math of a Flip. Write down what you produced — a number, a list, a decision — in a deal file you will keep. Every later step assumes that artifact exists. If a term on this page is new to you, the glossary defines it with a worked example, and the topic hubs gather everything on the subject in one place. Progress in this business is mostly finished paperwork and honest numbers, repeated until they compound.

How you'll know this step is done

This step is done when you can point to the artifact it produced — a written decision, a worked number, a list, a signed paper, or a log entry — and explain, in plain language, how you got it and what would change it. If you can only say you read about it, the step is not done yet, and moving on anyway is how gaps hide until a live deal finds them at the worst price. It is also done when you know your own weak point inside it: the input you estimated instead of verified, the conversation you are avoiding, the deadline you have not calendared. Name that weak point in your deal file and give it a date. Steps in this path are not school subjects to pass once; they are stations you will revisit on every deal, faster each time, because the artifact from the last deal becomes the template for the next one.