The Numbers Get You the Offer. Trust Gets You the Deal.

In Phoenix, the competition for a distressed house is always very stiff. Every investor has the same data. What we learned is that the key is the person in the field, talking face to face with a homeowner who needs a way out of a bad financial situation, needs the best price they can get, and needs it fast, or they lose their home.

The team

This was 2022. I ran a foreclosure auction team in Phoenix, Arizona. I did all the financial work. We had a younger guy in the field who was amazing at closing deals and gaining trust. And we had the financial backers, two different companies.

Two very different jobs. Both had to be done right, or nothing closed.

One deal, start to finish

Here’s a real one: a four-bedroom house in Mesa, about 1,900 square feet, coming up through the foreclosure auction process. It’s the exact deal in the sample data that comes with our Max Offer Toolkit, so you can open it and follow along.

It was actually a very quick transaction. The sellers just needed to hit their price. We had a fund, so we were really just the middleman. We used the fund’s money and did a double close: we bought the house and turned it right over to the fund, handing off all the due diligence we had already done.

Quick and simple, but only because the numbers were already done.

The numbers are a must

All the financial work is a must. If you’re not very accurate on your numbers, you go broke as a business. It’s that simple.

So before anyone knocks on a door, you need to know your number. The way we did it was to work backwards from what each type of buyer will actually pay, then take off their costs and your profit. Whatever is left is the most you can offer the seller.

On the Mesa house, it looked like this:

• Retail value: about $462,000, weighted from online estimates and sale comps.
• Assign to a wholesaler: max offer about $327,000.
• Assign to a flipper: max offer about $339,000.
• Double close to a fund: max offer about $334,000.
• Buy and rent: max offer about $189,000. As a rental, it only worked at a much lower price.

On paper the flipper exit was a little higher, but the fund was the quick, sure close. The seller owed about $94,000. At the double close max offer of about $334,000, they would walk away with about $240,000. That’s a number you want to know before you sit down with them, because it’s the number they care about most.

The people part is the tough part

Here’s the thing. The model gets you the number. It doesn’t close the deal.

Closing deals is all about human skills: the interaction, the right approach, and the seller really trusting you.

Our best person in the field was extremely disciplined. He was a sharp, charismatic, truthful 32-year-old. He would ask one question and then just let them talk. He was a great listener, and he was able to close an incredible number of deals because of the trust the sellers had in him, mainly because he was listening to them.

“Let the seller talk. Let them tell you the story. It’s usually a very difficult story, and it’s almost therapeutic for them to get it off their chest.”

Sometimes the right answer is “not us”

There are definitely times when you tell the seller that coming to us is not their best option. Maybe they should reach out to other funding sources just to get through a short-term spell.

That’s part of being truthful. A homeowner in trouble has options: working with their lender, a housing counselor, a short sale, a loan modification. If one of those fits better, tell them. And steer them away from anyone who wants an upfront fee to “save” their house. The sources below are a good place to start.

Is the model the easy part?

Not really. The model is only easy if you know how to structure it, you know what you’re doing, and you’ve done it before, so you know what inputs you’re looking for. It’s easy once you’ve got it and you have the experience.

The people part is the tough part, regardless.

Five lessons for anyone buying from sellers in trouble

1. Know your number before you knock. Work backwards from what each buyer will pay. Bad numbers will put you out of business.
2. Know what the seller walks away with. It’s the number they care about most.
3. Ask one question, then listen. Let them tell the story.
4. Be truthful. If selling to you isn’t their best option, say so.
5. Move fast and do what you say. When the clock is running, speed and follow-through are what they need.

— Patrick

Names are left out to protect the sellers, the team and the backers. Figures come from the 2022 underwriting and are rounded. This post is not investment, legal or tax advice.