Homevestors garnered a positive article in the Washington Post yesterday.
HomeVestor franchisees pay a $49,000 fee upfront and must have net assets of $200,000 in cash or cash equivalents. They also pay the parent company $775 for every house they acquire, plus interest on credit lines the company extends to enable them to buy multiple properties. Some HomeVestor franchisees buy, fix, rent or resell 100 or more houses a year, thanks in part to high volumes of potential sellers — more than 200,000 this year, Hayes said — who are driven to them by the company’s advertising campaigns.
Subprime mortgage delinquencies and foreclosures are swelling those numbers significantly, he said, along with plunging prices in some local areas. Softening markets also are driving down the expected discounts on troubled houses. Whereas in past years, “we might offer 65 percent of a property’s expected value after repair, now in some places we’re looking at 50 percent,” Hayes said.
A $100,000 starter home with a seriously delinquent mortgage and in need of renovation, for instance, might draw an offer of $50,000 to $55,000 cash from a HomeVestor franchisee.
I was with a real estate broker the other day when he received a buy offer for his client’s residence that was 50% below asking. The broker scoffed and refused to take the offer to the seller (which is unethical unless the owner gave instructions not to accept anything below a certain price; I think part of it too was the broker wanted his commission to be higher). Nevertheless, companies like Homevestors provide liquidity to distressed properties. It’s hard to believe that a perfectly good property would drop in value 50% in a few years in popular part of the country (Miami in this article), but at the end of the day the condo’s fair maket value is only what someone else is willing to pay for it.
For those of you interested in the legal aspects of residential real estate, I recommend checking out Chicago attorney Pete Olson’s blog.
Similar Posts:
- Discount Real Estate Broker Franchises
- Cash Discount for Customers
- Discount Real Estate franchises are booming
- House Flipping Franchise
- Structuring the New Franchisor
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.
I think Homevestors targets homes that are not sold by brokers. I believe Homevestors put in a lot of bids to buy homes that are pre-foreclosure for almost half the market value. They are probably making a killing right now as there are probably people willing to dump million dollar condos in certain markets for $400k just to get out of the obligations or variable loan.
If homevestors has been providing credit to their franchisee purchasers for more than a decade, wouldn’t they
be in a serious risk of default themselves for the properties they paid for at too high a price (over the last
1 or 2 years). I understand they try to quickly unwind the homes (but many of those going belly up in the speculation
business were trying to do the same. It just stopped a year or so ago when prices started coming down and buyers
started to wait to see how farther prices would fall. I am willing to bet that right this minute many homevestor
franchisees are sitting on a lot of places they can not sell and are losing money on the crashing rent market.
I agree that now is the time to go in fresh (though florida and Cali prices are likely to fall another 20%)
however, I would seriously look at Homevestors financial liquidity before buying their franchise (as they also
put a big stake on prices continuing to go up).
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.