How to Analyze Real Estate Deals (ARV, MAO, Margins)
A practical guide to evaluating deals using key numbers before making an offer.
Successful investing starts with understanding the numbers. Deals are made at the purchase price, not at the sale. Without a clear framework for analysis, it becomes difficult to operate consistently.
The first step is determining the After Repair Value (ARV). This represents what the property could sell for after renovations are completed. Accurate ARV estimates come from analyzing comparable properties in the same area.
Next comes evaluating the condition of the property. Whether it requires light cosmetic updates or a full renovation, repair costs play a major role in determining profitability. Being realistic with these estimates is essential.
The Maximum Allowable Offer (MAO) provides a guideline for what you should pay. A common formula used by investors is ARV multiplied by a percentage (often 70%), minus repair costs. This ensures there is enough margin for both the investor and any end buyer.
Margins matter because they protect the deal. Without sufficient spread, there is little room for negotiation or unexpected costs. Strong deals provide flexibility and increase the likelihood of closing.
Speed is also important. The ability to analyze quickly and confidently allows you to act before opportunities are lost. Overanalyzing can result in missed deals, while structured decision-making keeps you competitive.
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