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January 25, 2006

Who buys those ugly houses?

Chris Palmeri

You've probably seen the billboards. Big black and yellow signs proclaiming "We Buy Ugly Houses." Just who are these people with bad taste and money to burn? Turns out the signs are a creation of HomeVestors of America Inc., a Dallas-based firm that sells franchises to investors who want to use the company's formula for making money in real estate. It works like this: Franchisees pay $46,000 to join the program and for that they get a two week training course, a personal coach, an exclusive territory and the company's proprietary software program that helps them analyze how much to pay for a home and how much it will cost to renovate. The goal, says company chief executive John Hayes, is to buy houses for 65 cents on the dollar, fix them up and either rent them, sell them or flip them to another investor in the company's network. Is that kind of discount really possible in the kind of hot market we've had in recent years? Hayes says yes. Last year, HomeVestors' 250 franchisees purchased 6,500 ugly houses, a 27% increase from 2004. "There are more distressed properties than meets the eye," Hayes says. "We're not talking about million-dollar ocean front condos." Indeed, the average home his franchisees purchased cost less than $100,000.

02:20 PM

Investing in Real Estate

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This is a great company with a bright future. A close friend of mine in the mortgage industy left our lender to work for this company. The front side is classic marketing, "We buy ugly houses" and all sorts of property owners call to get bid proposals to sell their property. For some, the repairs are simply too much for their budget. And in many cases, the property was inherited or has lots of back taxes for whatever reason. Most are disappointed with the low offers but like all sales and marketing efforts Homevestors plays a numbers game. Many sellers don't take the offers because they aren't that pressed to sell or their property could be sold through more conventional methods.

The interesting part comes from the back side of this company. They have financing relationships with numerous local private investors and small lenders that provide unique financing. These unknown lenders (known in the industry as Hard Money lenders) are different because they will loan money on the anticipated value of the home AFTER repairs and improvements. Most all other lenders will only lend the appraisal value of the home's current condition. In return, the lenders receive higher returns for providing liquidy to an underserved segment of homes. Lots of parttime real estate investors call Homevestors to look for buying opportunities as well. These investors are the ones who determine what repairs will be made and control their anticipated return. They take the extra money that most banks and lenders won't give them to make necessary repairs and market the home for sale.

Communities win because more homes are improved and taxed accordingly. Neighbors are happy because they don't have to look at an eyesore when they pick up the morning paper. Investors win because the houses are located for them but they still have control in determining improvements and Homevestors wins because they act as a real estate broker capacity in an area that most real estate agents don't want to mess with. The small time lenders win because the financing covenants have hard prepayment penalties on top of variable rate loans that start at over 12-13%.

It may take several years but if this company ever goes public make sure you're in on the IPO.

Posted by: Galleria Panhandler at January 25, 2006 05:50 PM

It's almost amazing how vastly and the real-estate industry is evolving. The creative lending and market growth leads me to wonder where is the cycle headed. We are witnessing advancement unprecedented historically. How long will it last.

Posted by: Greg at April 14, 2006 02:27 AM

Homevestors charges $46K for a franchise? Unbelievable! Who needs them?? Anyone with the tenacity to dig beneath the surface can do the same thing without paying that ridiculous franchise fee!

Posted by: John at October 18, 2006 12:18 AM

You are a really ulgy guy. You should sell yourself.

Posted by: Sack Kelly at January 19, 2007 04:41 PM

We buy Ugly Houses and many similar other companies are competing with us Realtors for a market share of the Real Estate Market. Some hate it and other "cheapie" outfits like "Help-u-Sell" or "MLS for Owners" that have come along in recent years...that seem to plagiarize our Industry. My thoughts are... HEY its ok. There is room for everyone as long as it?? honest and the buyer or seller?? are fully aware of what they are getting into. That is why Pawn Shops and Pay-Day Loan companies are doing so well, there is a demand. I say that there is room for everyone, if their business is conducted with dignity and respect for others. I sold 36 homes in 2006 and own a number of rental properties, plus I flip homes and help people obtain zero down loans. Anyone can do it!

That is what makes America great.

Don Leske II

Realtor / Investor

www.homesandproperties.com

Posted by: Don Leske II at January 29, 2007 10:24 AM

However, we buy ugly houses never represents that they are interested in selling the house, and then buys it themselves for less than market.

Perhaps this is why they can do so well.

Posted by: Annon at February 3, 2007 07:56 PM

Hi--Have you ever heard of --"Highland Exchange & Development LTD. company??I'm just checking to see where they are from and if they are for real. Thanks -Ropy

Posted by: ropy at February 5, 2007 10:46 PM

why the heck should anyone pay these bozo's $48000 to do something anyone can figure out on their own with a little research and some common sense?

I bet they are the only one's making money, I'd like to know the success rate of their customers. Betchu its no more than 50% if that.

Franchising is the best scam there is, you pay someone to allow them to buy/sell their products for life...what?

Posted by: Rick at March 4, 2007 11:29 AM

We Buy Ugly Houses bought the ugly house up the street and keep the riff-raff moving in and out. What a racket. They cause blights in otherwise good neighborhoods. They should be arrested.

Posted by: Margot at April 1, 2007 11:23 PM


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