Boomer’s Blog

HomeVestors of America, the real estate investment (REI) firm with the ad campaign featuring cave man investor Ug, who carries a club and “Buys Ugly Houses,” has announced that Franchise Brands has bought a majority interest in the company.

Almost 20 years ago, the Dallas-based HomeVestors entered the real estate investment (REI) fray with the mission to buy and sell rehab-ready homes for fast profits. It and sold its first franchise in 1996, and has bought about 35,000 homes since its launch. Last year, HomeVestors bought 6,400 homes and sold 5,000, and in 2006, the company reports that it bought about 7,100 properties.

Since its inception, the company has flourished into a national franchise that specializes in buying — and selling — “Ugly Houses.” Currently, HomeVestors boasts about 230 offices in 35 states franchises sell most of their houses to other investors and first-time home buyers.

HomeVestors’ majority interest buyer, Connecticut-based Franchise Brands, formed three years ago with strong support from the founders of Subway restaurants. who also own Utah-based Bajio Mexican Grill, and Indiana-based Mama DeLuca’s Pizza. Terms of the deal were not disclosed, the Dallas Business Journal reports, but executives say that Franchise Brands is committed to using its resources to advance HomeVestors‘ franchise expansion goals and further develop its business model.

Amid the U.S. foreclosure epidemic, Habitat for Humanity has been capitalizing on the low prices of real estate owned properties (REO), and foreclosed properties to advance its mission to provide affordable housing in communities throughout the nation. Sound ironic? Maybe so, but it’s also a practical strategy for foreclosure-blighted areas to get their homes occupied as soon as possible.

By rehabbing these low-income properties, the non-profit is helping build stronger communities and property values in many of the real estate markets that need it most. They’re also helping to stave off some of the dangers that come with properties that seem to be abandoned in the long term.

When Builders and REO Lenders Walk Away
The Associated Press reports that an increasing number of Habitat for Humanity chapters have buying REO and foreclosed properties at bargain basement prices, organizing legions of volunteers for massive rehabbing projects and then selling the homes at affordable prices to families in need.

When rehabbing isn’t a practical option (and many of us know that sometimes it isn’t) the houses are torn down to make way for new dwellings. In some real estate markets, Habitat for Humanity is even buying large subdivision tracts left over from the real estate bubble burst. Many developers are simply walking away from developments they can’t afford to complete, Habitat officials say.

Although the circumstances that have enabled Habitat for Humanity to acquire massive amounts of U.S. real estate are lamentable, placing low-income families into affordable housing is a better use of existing resources than allowing properties to remain vacant or go to real estate investors. Habitat officials warn that vacant homes can drive up crime and reduce nearby property values.

REO, Foreclosed Homes and Neighborhood Blight
Not only are vacant properties an invitation for crime, In many U.S. housing markets, the untended, vacant properties have led to health hazards and neighborhood blight. Unkempt swimming pools have provided prime breeding grounds for the West Nile Virus. Properties left dirty or unsecure also are vulnerable to vermin that spread disease such as: rats, mice, roaches and others.

The extent to which Habitat for Humanity affiliates participate in local foreclosure and REO investing depends to some extent on how much money they have to spend. Here are some project highlights:

Habitat for Humanity Projects in Four Metro Markets:

1. In Fort Worth, Texas, the local Habitat chapter is negotiating to buy part of a 160-lot subdivision
   that a developer seems to have abandoned. If their negotiations go according to plan, they’ll develop 50 of the remaining 100 vacant lots in the area. Fort Worth Habitat officials say that prices for comparable lots has dropped 30 percent to 40 percent since the height of the real estate boom.
2. In Dallas,Texas, another Habitat affiliate has picked up about 150 lots for half of the original price. Developers in the city’s south end are abandoning inexpensive lots and costly construction projects in favor of greener looking pastures in the city’s north end leaving many real estate investment opportunities wide open, officials say.
3. The Habitat affiliate in Phoenix, Ariz., is wrapping up negotiations to complete a 20-home development abandoned by a company that went bankrupt and couldn’t complete its development. In addition, Habitat officials say they’re working deals on 14 metro-area unfinished lots for less than half of their original list price.
4. In Milwaukee, Wisc., the city is taking action against the ill effects of foreclosure in its metro communities. The city is buying multiple condo units in one large complex with a high concentration of foreclosures, and then selling them to Habitat for about $5,000 each. When Habitat for Humanity volunteer rehabs on the units are complete, they’ll be sold to clients for about $25,000.

As a real estate investor, what do you think of the city intervening with foreclosed and REO properties and working with a third party such as the non-profit Habitat for Humanity? Do you see advantages or disadvantages from yor position as a real estate investor?

Rehabbing your real estate investment property for a quick flip in today’s changing markets is a totally different game than it was during the housing boom. Nationwide, returns on major home-improvement projects are fetching only 70 cents on the dollar. That’s down from 80 cents in 2004, and likely to drop even lover in the next couple of years. Remodeling activity peaked in 2006 and started slowing last year. It is expected to fall 4.8% this year, according to a report by the Harvard Joint Center for Housing Studies released last month.

The Wall Street Journal reports that despite slumping home values, construction prices have soared — due in large part to rising fuel costs and the credit crunch. That means rehabbing a kitchen or bathroom will cost more, even as it contributes less to the home resale value. Minor fixes are the the most cost-effective and on-trend strategies to entice buyers without breaking the bank. In many markets, the following fast and cheap fix-ups are your best bet for cashing in on your flip:

1. Sometimes a deep cleaning packs the punch of a remodel;
2. Replacing old siding and painting trims provides a low-cost fresh look;
3. Changing out old light switch plates and electrical outlet covers can make old walls appear new again;
4. New hardware on drawers and cabinets adds a unified style element that buyers love;
5. Cleaning up the grounds and minor landscaping, including a few well-placed, drought-tolerant plants, can make a property look like it is loved with little maintenance; and
6. Installing energy-efficient windows provides great ROI in virtually every market.

An awesome, free resource to track which fix-ups will maximize your rehabbing return on investment (ROI), Remodeling magazine has a free online database that helps you do your homework before the bills start rolling in. Here, you can check out which remodeling trends pay-off most and quickly access relevant U.S. Census data at the regional, state and extended metropolitan local levels. This is a useful and easy-to-use tool for investors who are rehabbing flips in distant and home markets.

After escaping the daily grind of hard work and no time for his family and the pristine beaches in his Hawaiian home town, Andy Proper made his leap into the deep waters of real estate investing. “I had been working in IT for eight years and it was absolutely killing me that I was living in Hawaii and working from 8:00 a.m. to 6:00 p.m. in a cubicle every day,” Andy, the co-founder of TeamWorkLeadSystems says, “while everyone else seemed to be outside at the beach, surfing or hiking.”

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