You have probably seen their big orange ads screaming “We buy UGLY homes!”. HomeVestors purchases homes at below market value, targeting homeowners that need to sell quickly, rehabilitates the properties and sells at a higher price. . This interview with the CEO walks through a few aspects of the franchise.
This was an interesting Q&A:
What do you think of TV shows like “Flip This House”?
In one episode of one of those shows, an investor goes up to a house, and the house is locked, but he wants to look at it. He says, “We’ll have to take matters into our own hands,” and kicks in the door and smiles at the camera. He just violated the law—that’s trespassing, and our franchisees aren’t able to do that. That’s the wrong image to give lawmakers, consumers and consumer lobbying groups about this business. I get agitated about what I see on these shows. People get the wrong idea—that you can buy a house, flip it and make $50,000 on it. So I don’t watch those programs too often.
A disciplined, systematized, ethical approach to flipping homes is the way to go in this business, whether that be on your own or with a franchise. Homevestors’ system does things in a legitimate manner, unlike some home flippers. The erratic real estate market of late makes profits unpredictable, and sometimes finding homes 30% below market value difficult. New government regulations could blind-sided franchisees as politicians try to buffer the profits from aggressive flippers.
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Ryan is an attorney and valuation specialist residing in Chicago. He chronicles his thoughts and research on FranchisePundit.com. You may reach him by email ryanknoll@gmail.com or mobile telephone 312-715-8115.
Given that mortgage fraud is rampant, both in the US and Canada, I would love to see the material risks disclosed in this UFOC!
Michael,
I wasn’t aware of how rampant mortgage fraud has been latey, and “flippers” like HomeVestors may be victims of legislation targeting mortgage fraud.
http://www.mortgagefraudblog.com/ tracks this type of fraud
Ryan;
Yes, I subscribe to that blog, along with this one:
http://www.mortgagefraud.org/journal/
My take is that the combination of mortgage brokers, the desire to “speed up” transactions and privacy theft combined with a hot real estate market attracts a lot of mortgage fraud criminals.
I don’t think that I would want a franchise associated with it; why not “Predatory Lending R Us?
I don’t think house flipping franchise and the TV shows about flipping houses are the same thing. One is a business the other is a reality show for entertainment. Homevestors like my business would have a professional code of ethics they ad-here too, most reality shows do crazy stuff for shock value.
I was watching a flip this house show and couldn’t understand how they where analyzing their deals. They were buying a home for say $60,000 totally gutting and renovating it for $70,000 and selling it for say $150,000 and claiming to have a potential profit of $20,000. Really! What about real estate commission, attorney fees, mortgage interest, closing cost, utility expenses, security, over head.
These shows are not reality but unrealistic. They make money from the show not the house. Most of my actual profit margin on a renovation was about 15% even though when I bought I purchased at 65% of the ARV minus repairs with a potential gross 35% equity spread built in… I never came close to that, a 10%-20% net profit margin is more realistic on a flip. To be honest I made more money on a straight flip (that is when you instantly resell the property to another investor with out fixing it) rather than a renovation resell, it is best to say a ‘Rebuild’ or Renovator than a Flipper a Flipper is an investor that simultaneously or quickly resells a property he took title to another investor or buyer with out any renovation what so ever. It is very lucrative.
Anymore questions on real estate investing feel free to contact me through my site http://www.raggedyriches.com or call me at (855) RAGGEDY.