Maximum Allowable Offer: The All-In Formula Beyond the 70% Rule

The classic 70% rule gives you a maximum allowable offer in seconds. Its weakness is built into its speed: it uses one percentage to stand in for your actual closing costs, holding period, loan, sale costs, and required profit.

An all-in maximum price makes those items visible. Instead of asking, “Does this price pass a rule of thumb?” you ask a more useful question:

The all-in formula

Every term matters:

• ARV — the expected sale price after repair, supported by sold comparable properties.
• Selling costs — commissions and seller-side closing costs.
• Rehab — the complete, category-based renovation budget.
• Holding costs — taxes, insurance, utilities, HOA, and other costs during ownership.
• Financing costs — points, interest, lender fees, and extension costs where applicable.
• Purchase closing costs — the buyer-side costs of acquiring the property.
• Target profit — the amount you require before you will accept the project's risk.

Do not subtract the purchase price inside the formula. The purchase price is the unknown you are solving for.

The sample deal

Use the same flip throughout: ARV $260,000 · rehab $45,000 · hold 6 months · purchase price being tested $135,000 · hard-money loan 85% loan-to-cost at 12% interest-only, plus 2 points · selling costs 7.5% of ARV · target profit for the all-in calculation $20,000.

At the $135,000 test price, the deal's cost estimates are:

Legend:Yellow = inputsGreen = calculated

Now compare it with the classic rule:

On this sample, the all-in ceiling is higher. That will not always happen. The 70% rule reserves 30% of ARV — $78,000 here — for the rehab-independent costs and profit. The itemized costs above, including the $20,000 target profit, total $58,340. The $19,660 difference is simply the gap between the rule's generic reserve and this deal's itemized reserve.

Neither number is automatically “right.” The classic rule is faster and, in this case, more conservative. The all-in formula is more transparent because you can inspect and challenge each assumption.

Why the actual $135,000 price produces more than the target

At the actual $135,000 purchase price, the full sample calculation is:

The price is below both ceilings: $2,000 below the classic $137,000 MAO, and $21,660 below the $156,660 all-in first-pass ceiling. The projected profit is therefore higher than the $20,000 target used in the all-in calculation.

That does not mean you should automatically raise an offer toward the higher ceiling. A maximum price is a boundary, not a bidding strategy. Paying less is still better, provided the lower price can actually be negotiated.

The all-in number has one important limitation

The simple subtraction above uses financing and closing estimates calculated at the $135,000 test price. Those costs are price-sensitive:

• A higher purchase price generally means higher dollar closing costs.
• If the loan is based on purchase price plus rehab, a higher price can also mean a larger loan, more points, and more interest.

So treat $156,660 as a first-pass ceiling, not as a promise that paying exactly that amount will leave exactly $20,000. Before offering near the ceiling, enter the candidate price into the full deal model and recalculate closing, loan amount, points, interest, cash invested, profit, and break-even price. If the recalculated profit falls below your target, the real ceiling is lower.

This is not a defect unique to the all-in method. It is a reminder that a formula with price-dependent inputs may need one iteration before it becomes a decision.

How to use both numbers

A practical sequence looks like this:

1. Run the 70% rule first. If the asking price is far above the classic MAO, slow down and look for the reason.
2. Verify ARV from sold comps. Do not proceed on an aspirational resale value.
3. Build the rehab by category. Replace the placeholder rehab number with a scoped budget.
4. Enter your actual holding and financing terms. Use the lender's figures, not a generic loan assumption.
5. Set the target profit before negotiating. Decide what the project must earn while you are still looking at a spreadsheet.
6. Calculate the all-in maximum. Inspect every line you subtracted.
7. Rerun the full model at the candidate offer. Check net profit, cash invested, ROI on cash, break-even sale price, and downside cases.
8. Write down the ceiling and the assumptions behind it. That written number becomes your negotiation boundary.

For the sample deal, the downside cases explain why the boundary matters:

A price can look comfortable in the base case and still have very little tolerance for a valuation miss.

Why you write the number down before negotiating

Negotiation changes the information around a deal. The seller counters. An agent emphasizes competing interest. A contractor says the work “shouldn't be too bad.” You spend time on inspections and begin to feel that walking away would waste the effort.

None of those events improves the ARV, reduces the rehab, or shortens the hold by itself.

Writing the ceiling down before those conversations creates a record of what you believed when you were calm and looking at evidence. If you later accept a higher price, you should be able to name the specific assumption that changed:

• A sold comp supports a higher ARV.
• A written contractor quote lowers the rehab.
• A lender's actual term sheet lowers financing costs.
• A shorter, credible timeline lowers holding costs.
• You deliberately choose a lower target profit and accept the reduced cushion.

“I still like the house” is not an underwriting change. Neither is “the seller came down a little.” A lower bad price can still be a bad price.

Bottom line

The 70% rule gives the sample deal a $137,000 ceiling. The all-in formula, using itemized costs and a $20,000 target profit, gives a $156,660 first-pass ceiling. The actual $135,000 price sits below both and projects $41,660 in profit.

Use the classic rule for speed. Use the all-in formula for transparency. Then use the full model — and a written walk-away number — before you negotiate.

Start with the free House Flip Analyzer Lite to check the core deal and classic MAO on one sheet. Step up to the Full version when you want the all-in target-profit calculation, detailed financing, sensitivity cases, break-even price, and the tools to track the project after purchase.