"We Buy Ugly Houses" article - Posted by JT-IN

import · February 22, 2002, 12:47pm

Posted by JT-IN on February 22, 2002 at 22:08:40:

Hank:

You may certainly borrow the saying, but I have to tell you, I have already lent it out over a dozen times, so be careful that we don’t saturate the market with this new saying… LOL

All these billboards in your area will only help you make more money. Trust me… and the next time you drive by one of these signs, bow your head and say: “Thank you for the FREE advertising”. They are only exposing what it is that you do for a living, and in a sense, warming up your customers to the idea!

Just the way that I view things…

JT-IN

import · February 22, 2002, 12:47pm

“We Buy Ugly Houses” article - Posted by JT-IN

Posted by JT-IN on February 22, 2002 at 13:47:21:

There have been numerous questions over time about a franchise concept called “Homevestors”, and their yellow and red billboards spouting “We Buy Ugly Houses”.

Well today in the Cinti Paper, there is an article about them; read it here: Cincinnati News, Sports and Things to Do | Cincinnati Enquirer

This should be NO competition to most experienced investors, as the investor/operator’s target per deal is 5-10K for a rehab. I think that you will go broke quickly doing rehabs for this low number. Anyway, i thought that some of the info was very interesting, as the company does deal with demographics and seems to be quite analytical about the age of houses, and percentage of sellers that they expect their franchisees to be able to target. 5% of all sellers are their expected target.

Hope you find it of interest…

JT-IN

import · February 23, 2002, 12:51pm

What a scam. - Posted by GL(ON)

Posted by GL(ON) on February 23, 2002 at 13:51:45:

So you can buy one of their franchises for “only” $33,000. Then you need a bunch more money for operating expenses. Total $125,000 or so.

Then they will permit you to borrow money for “only” 12%.

Then they take monthly fees, a fee when you do a deal, etc etc.

What a scam. If you have $125,000 and good credit what do you need them for? Why can’t you do your own deals and find your own lenders?

I thought the $5000 boot camps were a rip off but this beats everything.

import · February 23, 2002, 6:29am

THE FUTURE IS HERE - Posted by Ben

Posted by Ben on February 23, 2002 at 07:29:52:

No matter how you slice it or dice it this is the future. It’/s only a matter of time until major players with well known identities, as in Century 21 for example, are in this industry. Now is the time to join forces with other investors.

Anybody out there who wants to start a franchise? I am ready.

import · February 22, 2002, 7:59pm

Re: “We Buy Ugly Houses” article - Posted by JD

Posted by JD on February 22, 2002 at 20:59:03:

Thanks for the link. I am in agreement with Hank, I think this is just a 'for public consumption" sales pitch. I bet they make more than 5-10k per deal (even including the advertising costs). But, I don’t see them as a threat to the average investor, primarily because the franchise buyers all seem to be no experience wantabes that generate leads by dumping tons of money into advertising.

import · February 22, 2002, 7:52pm

The numbers don’t look that great… - Posted by Kristine-CA

Posted by Kristine-CA on February 22, 2002 at 20:52:16:

Maybe I am missing something, but like many other franchise opportunities, it seems like this one could only provide profit over time, and maybe not even then. If Homevestors did 1000 deals with 87 franchises, that’s averages about 12 deals per franchise. Projections are for 2000 deals next year with an additional 45 franchises, for an average of 15 deals per franchise. If one of the main sources of advertising is billboards, that’s a lot of dollars per month right there. Plus the franchise fee amortized over some period of time, the service charge per deal and the points per deal (see previous posts this week on Homevestors). If indeed one did 15 deals with 10K to the franchise owner, minus all the expenses, this would be so-so in my book. And that would be if everything was going great and the other franchises in the area didn’t saturate the market. But maybe my So. Cal. income needs are out of proportion.

Does this sound like a good way to make money? 33K for getting to use an ugly billboard design and access to hard money. I don’t see it. Wouldn’t 33K buy some pretty good advertising and give one enough cash to get in and out of deals with banks or hard money sources?

Thanks JT for the post. I’ve been hearing about these signs from friends in other places that aren’t RE people. So they are getting noticed. Sincerely, Kristine

import · February 22, 2002, 2:18pm

Re: “We Buy Ugly Houses” article - Posted by Hank

Posted by Hank on February 22, 2002 at 15:18:44:

I think those #s are for public consumtion and may not be real. If I was being interviewed by a reporter, I would try to downplay the profit in it for me so as not to turn off some people that don’t like the idea of someone making 20k on their house.

I mean, if everyone reading that article in a (big?) paper like that knew there is a 15 - 25k profit in it for the rehab co. , then they might try to get a better price out of said rehab co. But this is just a guess.

What I do know is that Homevestors are getting TONS of calls in Tampa Bay and buying lots of houses - and not just rehabs.

I’ve got to hand it to the guy in TX that started this. Lots of people have tried to get a piece of the action from deals countrywide, but these guys seem to have found a system that really works well.

The homevestors guy took the business entirely into the “B” and “I” quadrants. He can go to Europe for a year and come back to a stronger company than he left. Most of the rest of us house hunters seem to have a lot of the “S” mixed in.

I can’t say I wish them the best, but I must say it’s a good system from my limited point of view.

import · February 22, 2002, 1:23pm

Re: “We Buy Ugly Houses” article - Posted by Mark (MD)

Posted by Mark (MD) on February 22, 2002 at 14:23:44:

Makes you realize the wealth of info here for those that are willing to learn. A steep frnachise fee or courses here from those that “Do the Business” everyday, for only a fraction of the cost.

Man what a deal!!!

import · February 23, 2002, 10:20am

Re: THE FUTURE IS HERE - Posted by Houserookie

Posted by Houserookie on February 23, 2002 at 11:20:42:

I don’t think you will see the big guns entering this business. It will be a conflict of interest.

Do they want to help sellers sell or buy at a discount? I have heard ERA ads in the past, however, offering to buy homes if they can’t sell them.

It will be interesting to watch.

Austin

import · February 22, 2002, 10:50pm

Re: “We Buy Ugly Houses” article - Posted by David H

Posted by David H on February 22, 2002 at 23:50:49:

>I’ve got to hand it to the guy in TX that started
>this. Lots of people have tried to get a piece of the
>action from deals countrywide, but these guys seem to
>have found a system that really works well.

So then, is this guy just a guru that figured out a way to make money from RE without doing all the grunt work and then found a way to franchise it and market it to new entrants to the (grunt work) market?

import · February 22, 2002, 4:11pm

Re: “We Buy Ugly Houses” article - Posted by JT-IN

Posted by JT-IN on February 22, 2002 at 17:11:57:

Hank:

You are likely correct about the “canned press spiel”. And Yes, the concept is great and the creator/facilitator was definitely thinking and is being well compensated for doing so.

However, consider this:
“Ms. Stultz has bought just two properties since starting Queen City Homebuyers in November”.

Now if I had spent $ 33K for a franchise, and have spent boo-koo bucks on some advertising and overhead in the past 4 months, and had only bought 2 houses, I may be in a bit of a panic. Wouldn’t you?
Secondly, and in the spirit of the founders profitable idea, these franchisees pay some buxom fees and interest for funds, to the franchise. Whether an average investor can or will make 20K profit per rehab, a HomeVestors Franchisee will typically not, due to overhead and cost of funds expenses. They must do some volume to make a living, far in excess of this new francisee is reporting.
As I understand it, HomeVestors also passes on deals that a typical Creonline investor would likely make a handsome profit on, such as Sub2’s, L/O’s or CFD’s pruchases, as they are “all cash” at a discount, and no other method.

While it is an interesting concept, I feel that an astute creonline investor is much better equipped to be a long-term, profitable RE tycoon.

Just the way that I view things…

JT-IN

import · February 23, 2002, 9:42pm

they’re already doing it… - Posted by David Krulac

Posted by David Krulac on February 23, 2002 at 22:42:45:

ERA is buying houses and so are lots of other real estate companies. There this big scandel about flipping houses, well there are conflict issues imho with a real estate company buying in houses at less than market prices if they have a fudiciary duty to the seller. I saw one example recently where a real estate company had a house listed for sale for $100,000. It didn’t sell. they knew the owner just wanted to get out. they offered him $40,000 and he took it. A week later they sold it for $100,000 and instead of the real estate office making $6,000, they made $60,000!

import · February 22, 2002, 8:14pm

Re: “We Buy Ugly Houses” article - Posted by David Alexander

Posted by David Alexander on February 22, 2002 at 21:14:18:

From my understanding (just what I’ve heard) is that these guys advertise for the franchisee’s.

That’s what the intial 30-35k is for.

The calls come in and then they go down the list by area as to who gets what deal…

I believe they will also offer to finance some of the deals…

Much like we would to a rehabber or for a fixer upper property…

Say example we picked one up for 55k (after repair value 100k)that needed 10k… the sell it on a wrap for 5k down or something for 70k, short term…

Make the money and do no work…

I do agree… they are business people and not investors… and I think there are alot more folks that are business folk than investors… for say… sometimes it’s hard to draw the line… because your business(s) can be an Investment in and as of itself.

David Alexander

import · February 22, 2002, 6:31pm

Re: “We Buy Ugly Houses” article - Posted by Hank

Posted by Hank on February 22, 2002 at 19:31:50:

Now if I had spent $ 33K for a franchise, and have spent boo-koo bucks on some advertising and overhead in the past 4 months, and had only bought 2 houses, I may be in a bit of a panic. Wouldn’t you?

> If she’s getting the leads, then she has to close or learn to close soon. I’m thinking that as time goes on, she’ll get better. If not they’ll replace her w/someone that can. I think the leads will also increase in number as more billboards and TV spots are bought. These guys will eventually buy billboard space in bulk. They are by far the biggest billboard buyer in my area - by a wide margin.

Secondly, and in the spirit of the founders profitable idea, these franchisees pay some buxom fees and interest for funds, to the franchise. Whether an average investor can or will make 20K profit per rehab, a HomeVestors Franchisee will typically not, due to overhead and cost of funds expenses. They must do some volume to make a living, far in excess of this new francisee is reporting.

> I’d love to know about the cost of their money.

As I understand it, HomeVestors also passes on deals that a typical Creonline investor would likely make a handsome profit on, such as Sub2’s, L/O’s or CFD’s pruchases, as they are “all cash” at a discount, and no other method.

> That depends on the knowledge of the franchisee. I know the guy by me does sub2s. I suspect the # is small though… I don’t know if their “buy ugly” sales pitch brings in many pretty house leads.

I wonder if the franchisee can send out letters to prospects like lis pens, divorce situations, probate situations , and/or do other things that might get his local phone ringing with pretty house leads.

While it is an interesting concept, I feel that an astute creonline investor is much better equipped to be a long-term, profitable RE tycoon.

> I don’t know if these guys are being smart and keeping the keepers. I also don’t know how many keepers ( for me, nice houses ) might even come across their desks.

I’m concerned w/their ability to buy ad space in bulk. They can come into a large market and get a good deal. They also seem intent on running their business as a business. … Many of the small operations don’t even bother to return calls and act in others ways like non serious businesspeople. … That last sentence in the story you posted might just close some deals for them.

To paraphrase, they call guys like us out as small time individual operators that struggle to get things done correctly.

But I do agree with your last point. I don’t want to be a Homevestors franchisee either.

import · February 22, 2002, 9:02pm

Re: “We Buy Ugly Houses” article - Posted by JT-IN

Posted by JT-IN on February 22, 2002 at 22:02:40:

David:

According to some info from the franchise itself, it appears that the Franchisee does pay for their own advertising… Again udner the heading of: “Their Ain’t No Free Lunch”

This info provided compliments of the one and only: Johnboy (Thanks)

What does the franchise cost?

The HomeVestors franchise fee $40,000. In addition to the initial fee, there is an on-going monthly fee of $300 and a royalty fee, which is paid with each property sale. The first two years, the fee is $775 per property acquired; in the third year and beyond the fee is $675. The franchise owner will be expected to have enough working capital to cover operating expenses for six months.

There is a chart that I couldn’t get to paste here, that indicates that the Franchisee would spend between a low of 21K and a high of 60K on advertising, over the first six months.

Individual costs are going to vary based on several factors; however, the following are typical.

What would that do for you, as an individual investor, if you spent between 3 to 10K per month on advertising ? You would darn sure need some help, not only putting the deals to bed, but spending the profits… lol

Just the way that I view things…

JT-IN

import · February 22, 2002, 8:57pm

Re: “We Buy Ugly Houses” article - Posted by JohnBoy

Posted by JohnBoy on February 22, 2002 at 21:57:52:

From what it says on their web site it appears that the franchisee has to pay for the advertising costs of these billboards and tv slots. I thought Homevestors covered that as part of the franchise package, but I guess not.

According to what they say on their site you must have the capital to buy in which ranges from $125k - $257k!!!

$40k is just the franchise fee. Then it looks as if you’re required to open an office which they say will run another, $0 - $3000 for leasehold improvements, $5,000 - $10,200 for furniture, equipment, $0 - $3,200 for the signage, $670 - $1,500 1st months rent, $670 - $1,500 security deposit, $1,950 - $4,900 travel for airfare, meals and hotel to attend their 5 day training which must be part of the $40k fee, $1,700 - $1,950 for various opening supply costs, $21,000 - $60,000 for advertising costs on billboards, TV, yellow pages, $2,700 - $6,000 for various miscellaneous items, $51,310 - $125,100 additional funds for opersting costs to run the company and buy properties…all for a total cost of $125,000 - $257,350!!!

DANG!!!

So what are you getting from Home Vestors for all this cost??? Well, from what it look like you get a NAME, you get a source to borrow funds from, which you still need to qualify for, you get a source to sell your owner financed paper after you sell to a buyer, you get a software package to figure out your deals for you by typing in the information, and you get 5 days of training! WOW!!! All THAT for only needing a measly $125,000 - $257,350 to invest with!!!

Man, where do we sign up??? LOL

Now how many deals and how many years will it take to recoup that investment??? Plus don’t forget all the time and work you need to put into each deal rehabbing it!

Oh, and then there is the $300 per month on going franchise fee you pay each month, plus another $775 for each deal you get that has to be paid to Home vestors, but that $775 does drop to only $675 in the 3rd year of business with them!

But you gotta hand it to the guy that started this thing! People are buying into it!

import · February 22, 2002, 8:05pm

Re: “We Buy Ugly Houses” article - Posted by JT-IN

Posted by JT-IN on February 22, 2002 at 21:05:28:

Hank:

“> I’d love to know about the cost of their money.”

From what I have been told: The note rate is around 12%, but with some of the other fees, the yields are certainly higher. No Thanks, as I bielieve the franchisee’s are personally liable for this debt. A hefty price to pay for such a one-sided benefit.

Hank, You seem to be preoccupied or concerned over their ability to purchase advertising. The way that I look at this is, HomeVestors will bring our industry more into the realm of awareness of professional homebuyers being a “trade”, as a Century 21 did for Realtors. All you have to be able to do is to compete on a professional basis, and the flexibility of an independent, with added awareness of our industry, should bode well for any of the survivors.

I have been asked a number of times, “if I am with the company that has the Buys Ugly Houses billboards”? I simply answer that, “I am the Ugly Guy who Buys Pretty Houses”.

And about the last line… about struggling to get things done, etc., I surely wouldn’t trade them paychecks; or the flexibility to do it my way.

Just the way that I view things…

JT-IN

import · February 22, 2002, 9:14pm

Yes ,but… - Posted by Hank

Posted by Hank on February 22, 2002 at 22:14:56:

From what I can see driving around town, I’d say the guy from my town is going to do 100+ houses this year.

If I knew his profit per deal I could then do some math.

That overhead is something though.

import · February 22, 2002, 9:01pm

I am the Ugly Guy who Buys Pretty Houses - Posted by Hank

Posted by Hank on February 22, 2002 at 22:01:38:

I’m lik’n’ that a heck of a lot. Gonna have to borrow it if that’s OK w/you. Get 'em to laugh, make friends, and your half way to closing it.

You are right about my preoccupation with those billboards. It’s just that I see soooo many of them.

I wonder what the franchisees net after that nut they have to meet for all those ads. I wonder at which point the dollars are almost being wasted. The point of diminishing returns – that’s the term I’m looking for.

import · February 22, 2002, 9:24pm

Re: Yes ,but… - Posted by JohnBoy

Posted by JohnBoy on February 22, 2002 at 22:24:17:

That’s the problem! All that overhead!

The problem is that overhead creates diminishing returns! You have to keep doing volume just to pay all the overhead costs.

Would you rather do 20 deals per year making $20k - $30k per deal and have your freedom while being able to do it, OR would you rather buy into a business that is basically buying yourself a JOB where you HAVE to go to work everyday just to keep after getting enough volume to coming in to cover all that overhead???

Those billboards alone usually cost between $800 - $1200 per month, each!

After all the smoke clears compare your bottomline with doing 20 deals on your own without all the overhead VS. 100 deals having all that overhead to pay?

In the end, which would YOU rather deal with???