No doubt you’ve seen those bright yellow signs around that loudly proclaim, “We Buy Ugly Houses!” The genius behind those yellow signs with a funny message? HomeVestors of America.
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What is HomeVestors?
HomeVestors of America, Inc. is a privately-owned real estate company. They sell their “We Buy Ugly Houses” franchise to real estate investors. If you’re looking to get into the real estate market, then this may be a great franchise opportunity for you.
They’re ranked the #1 real estate franchise and the #1 home buyer in the United States, too. HomeVestors sells franchises that enables the franchisee to buy homes from people who need to sell in a way that’s much faster than what a normal real estate agent can accomplish.
Their franchise model is really fairly simple, too. You buy into the franchise and then buy homes from owners who must sell quickly or homes that need repair. Franchisees typically renovate the homes, then sell or turn them into a rental property for a profit.
Franchisees can also offer their real estate services to commercial properties. The company currently has 800 franchises and operates in 45 states – and it’s growing.
Here’s the good, the bad, and the ugly about this ugly house franchise to help you understand if it’s worth your time and money to invest.
Two Franchise Options
There are two options when purchasing a franchise – you can buy into a full franchise or an associate franchise. Each gives you the right to operate a business to sell, buy, and rehab commercial and residential properties.
This requires a higher initial fee of about $70,000. This option is best for someone who wants to do real estate investing full time. As a full franchisee, you have marketing rights in your territory and access to tools to help you get your business off the ground.
Associates have a fee of about $30,000. This may be the right path for you if you don’t have the money to pay the full franchise fee or don’t want to pay a lot in start-up costs. You still have marketing rights to your territory and access to tools to help you make your business work.
If you find it turns into a full-time job for you, then you can always upgrade to a full franchise. The associate franchise also has a royalty fee. It’s 2 percent of the sales price for each sale made or $500, whichever is greater.
Regardless of which model you choose, Homevestors charges ongoing franchise fees based on a sliding scale that depend on the sales price of the property transaction.
How the Model Works
Some people are a bit hesitant of the HomeVestors business model. After all, no one wants to get stuck with a property that goes underwater or wants to sink their savings into a home that’s essentially a money pit. But you shouldn’t worry about those things with HomeVestors
Their model works off a short sale principle. When a home cannot meet the market price but the homeowner needs to sell, they can get permission from their mortgage lender to sell it for less than the amount they owe.
What you do as a franchisee is offer someone a price for their home that’s based on the value of the property. This value is determined by HomeVestor proprietary software. You also go through the home and assess how much work it needs (you know, if it’s one of those “ugly” houses) so you can determine what investment you’d like to make.
You’re under no obligation to buy a home, but if you do want to make a cash offer, the homeowner needs to clear the short sale with their mortgage company first. Once that’s approved, then you buy the home and flip it!
What is an Ugly House?
All homes are unique – even ugly ones! But what does HomeVestors mean by an “ugly” house? Well, it’s not just about how it looks on the outside.
Yes, an ugly house may have physical issues such as a less-than-pleasant cosmetic condition, may be in bad need of updates that make it difficult to sell, might need quite extensive repairs, or even have very serious structural problems that may be too expensive for a homeowner to fix, such as a cracked foundation.
An ugly house may also be a home that’s in a place that’s not very desirable, such as a home located in a floodplain or a home in a neighborhood with a lot of crime.
Finally, an ugly home may just be a home that a homeowner doesn’t want anymore. They may not be able to afford it anymore, may have bad memories there, or simply don’t want to be tied down by homeownership anymore.
There are a lot of reasons for a home to be considered ugly, but each ugly house presents an entirely new opportunity for the home investor!
What About Money?
One of the great things about working with HomeVestors is that they can assist you with investments. In fact, they can pay for the property and you can work on the rehab so it can then be rented or sold for a profit to you both.
If you take that route, once the home is sold then you get a pre-determined percentage based on the work completed to rehab the home or you’re paid directly if it becomes a rental.
The Training Offered
HomeVestors isn’t going to simply send you out there with no training! They offer a two-week training course when you sign your franchise agreement. This training takes you through the entire real estate process and trains you how to use their software too.
You can get help with branding materials to help you develop leads and find new prospects. They also have poster boards and mailings to help you get the word out about your franchise.
Of course, purchasing the franchise is just one small part, there are other fees associated with starting up a business too.
Leases and Office Improvements
HomeVestors does not require you to get an office to do business out of. If you have space already, then you may have to make some adjustments to it to make it suitable for the franchise.
That’s because if you do choose to have an office to operate from, HomeVestors requires it to be separate from any other business activities. You cannot run your franchise from the same space – there must be some separation.
HomeVestors assigns levels to their franchises based on aggregate sales and qualifying transactions during an anniversary year. If you are a level 1 or level 2 franchise, HomeVestors recommends you spend about $1,000 per month on advertising. If you are level 3, then you have to spend a minimum of $1,000 per month.
Levels 4, 5, and 6 must spend about $3,000 per month on advertising. It’s worth noting that many franchisees spend over $3,000 per month on advertising alone. It depends on your market conditions, but some franchisees have reported spending over $15,000 on advertising per month.
HomeVestors requires you to pay for advertising up front. You may be excluded from advertising placement if you don’t pay on time by the end of each month. Advertising may cost a lot but remember – there’s brand awareness with HomeVestors and that can really pay off for you. You should take full advantage of the branded advertising they offer.
As mentioned, HomeVestors offers an intensive training program that teaches you how to buy homes, sell homes fast, and even how to deal with homeowners that are in some “ugly house” situations. But it’s not free.
You can expect to spend up to $6,000 on training, which is a figure that includes travel, meals, and lodging for the 6-day training course plus any hands-on, in-field training. Remember, if you bring employees on board to help your booming business, then you have to make sure they’re trained too.
In order to operate this business, you must have insurance coverage. The amount you pay can vary depending on who’s insuring you, your claims history, and the location of the property insured.
Vacancy insurance is recommended too but can be difficult to get. HomeVestors does have resources available to help you find coverage, but they’re not obligated to do so. Insurance coverage ultimately falls on the shoulders of the franchisee.
Don’t forget that you have to have a real estate license to buy and sell houses in your state. You’ll also incur MLS fees, bookkeeping fees, and legal fees in along the way.
You also need to comply with all city, county, state, and federal licensing requirements – and those costs will cary. Try to get a good idea of what these will be when deciding to buy in or not.
HomeVestors wants you to succeed as a real estate investor because when you do well, they do too. To help you reach your full potential, they offer some more perks to you to help your franchise along. These include:
Mentoring and Guidance
They offer ongoing, supplemental training for you as long as you own a franchise, but recognize the only way you really learn to become a great real estate investor is by doing the work.
HomeVestors pairs you with a development agent in a mentorship program. This agent is like a real estate investing coach – they are another franchise owner who has been successful and can help you learn how to be too.
You need leads if you’re going to buy houses and HomeVestors has a way to help you achieve that. Other than a recognized, national brand to help, they also have direct mail campaigns, commercials on radio and television, and internet advertising for lead generation in your area.
This can help target homeowners who have not yet list their home or haven’t been placed on foreclosure lists yet. The last obvious tactic they use? The ugly yellow bandit sign.
A Few Other Things to Know
There are a few more important details you must consider when deciding if you want to purchase a HomeVestors franchise. These include:
As a franchisee, you receive a territory. This territory isn’t exclusively yours and you may face competition there. You establish your territory in the franchise agreement you sign, so you can tailor it to where you want to do business in a market.
Restrictions and Obligations
When you become the managing owner of a franchise, then you must fully participate in the business – whether it’s full- or part-time. This means you must be involved in the direct operation of the business. You also must hold an equity interest, use your best effort to enhance sales, and to promote your business in your territory.
Additionally, you are not to engage in any other activity or business that conflicts with obligations under your franchise agreement. You must also offer and sell every service and product that HomeVestors designates.
Terms of Agreement
When you become a franchisee, your initial term is five years. You can renew your franchise agreement if you meet the requirements and conditions after that time.
HomeVestors does not offer any direct or indirect financing for the initial franchise fee. However, they do have an affiliate that offers financing for property purchases and repairs once you buy into the franchise.
What Do Franchisees Think?
HomeVestors franchisees can’t seem to speak highly enough of the HomeVestors model. Rickey W. says, “Everything I’ve experienced with HomeVestors has been ‘as advertised.’ From the introduction through the signing of my agreement and training, there haven’t been any surprises.”
Franchisee Brownie L. says, “I’m always amazed by the level of commitment HomeVestors shows on a daily basis. They’re a great company with an awesome corporate team. I’ve never had a problem in the 7 years I’ve been a franchisee that they couldn’t help me with.”
Is HomeVestors Right for You?
Whether partnering with HomeVestors is the right investment for you really depends on what you’re looking to get out of it. If you’re the type of real estate investor that buys and flips one house at a time, then you can probably take the same amount of money you’d pay to invest in a franchise and grow it on your own.
But if you want to create a large real estate portfolio, then HomeVestors may just be what you’ve been looking for. With its established name, excellent flipping system, and nationwide database of contacts, you’ll have everything you need to get started.