Some will argue, it is a bad thing, others that it can get home owners out of a desperate situation.
If you have a home you can't sell because you can't afford the repairs (maybe you inherited an old home) then someone needs to invest money into it. No one is going to invest money and get nothing back except non-profits and I don't know of any.
The company itself is a franchise started by home vestors. Just like any other, there are people who independently own and operate each. And just like anything else there are good investors and bad investors.
Some will take advantage of home owners and some will do their best to help. I've personally met various investors in the Phoenix area who are part of this company. Most of them are doing good things to improve neighborhoods and help out distressed home owners.
If this is your situation, well there's not enough time to act, but I will always suggest you talk to various investors. I never understood why if you are willing to sell your home to an investor for 60 cents on the dollar, why you wouldn't advertise that price for a day or two and get a drove of investors fighting for your home.
The deal will have to work for them if they are going to buy it and you still won't sell for what it would sell if it was repaired and updated, but you may get an extra few grand more in your pocket.
I hope that helps,
A few quick comments: "We Buy Ugly Houses" is a phrase used by a franchise, but is also used by many individual investors. It's impossible to tell from the question whether Donna's referring to the franchise or to someone else. Even with the franchise, there's some variation in what they buy, what their strategies are (I know some who largely rehab; others primarily wholesale), or what their buying criteria are. So there's no simple answer.
The generic "We Buy Ugly Houses" investors are good for someone, generally with a lot of equity, who values selling quickly more than achieving the maximum price for the property. If you're willing to sell for roughly 65% of ARV (after repair value) minus any needed repair costs, then you can find investors who'll purchase your property (or wholesale it) in a week or two. And, as is pointed out below, there are some very good investors, and some not-so-good ones.
Donna: In your case, it sounds as if your situation might not be suited for "We Buy Ugly Houses" investors. The reason: Investors look for motivated sellers. The seller's first (and second, and third) priority is to sell the property quickly and get out of whatever situation they're in. You wrote: "It has the best views of the Raritan Bay and the Verizzano Bridge is gorgeous. It looks like a row of diamonds at night." Sounds very nice. But that's what I often hear when I talk to sellers--how beautiful their home is, and all the things they've added onto it. And their next sentence is, "I really want to sell, but I'm not willing to give my house away." That's fine. But that's not the motivation that's required.
You're absolutely correct when you write: "I thought as long as I know the market vaue and the amount I'm willing to sell I should be alright." Have a Realtor do a CMA on your property. That won't cost you anything, and should give you a good idea of its retail value. Again, general rule of them: Take 65% of that number, then subtract any needed repair costs. That's about the most that most investors will pay for your property. If you're OK with that, great. Consider it sold. If you decide you really want more, then you'd probably be better off considering another option, such as listing it with a Realtor, maybe at 90% of the CMA. In most cases, that's enough to help it sell reasonably quickly.
Hope that helps.
Don't get me started on the Realtor(TM) Code of Ethics. . . . Many Realtors toss this around as if they're the only ones involved in real-estate who have ethics. I'll just leave it at this: there are also good and bad Realtors. Many non-Realtor agents also have good ethics, and operate by a particular code, but opt to not join NAR for whatever reason. Many investors (myself included) have good ethics too, and we operate by a particular code. However, we don't pistol whip non-investors with our code every chance we get, and we don't have to pay dues for our membership(s), hence we also don't always feel the "need" to defend our code.
Many Realtors often accuse many investors of equity stealing. While it's true that some investors do this, it's certainly not true that all investors (myself included) do this. Let's go a step further: what about equity draining? Plenty of unscrupulous Realtors take listings at prices that they know--or at least should know--won't sell; meanwhile their unsuspecting clients continue watch their properties to rot on the market until they price their properties more realistically with respect to that market. Equity stealing and draining are two sides of the same coin. Most knowledgeable real-estate professional (including agents, brokers, investors, appraisers, bankers, attorneys, etc) knows that a correctly priced property will sell typically within the average DOM. Most knowledgeable real-estate professionals also know that one has to price one's property below it's current market value to move it faster.
The bottom line is Realtors/agents don't work for free, and neither do we. Realtors, inspectors, attorneys, title/escrow companies, and many other real-estate professionals get paid on the front-end of every deal. We've already established the fact that one won't resell a property for higher than the current market value, so it should be obvious that one would have to buy an ugly property below its current market value to have a sufficiently large margin to pay all of the other professionals on the front-end, and earn a profit on the back-end. If sellers want to sell their homes for retail, then let them hire and manage the pros to make the needed repairs.
I agree 100% with the statement: "two parties coming to agreement with knowledge of the fair market value of the property, that's a different thing." Nevertheless, I also assert that the fair market value won't be a retail price for an ugly property. Stated another way, I'm not going to pay the same price for an ugly home that I'd pay for a similar pretty home within the same subdivision; that simply doesn't make very good business sense; I don't think anyone else would here would pay the same price too. Keep in mind that some investors (myself included) target the properties that no one else wants; we're completely uninterested in most of the pretty properties.
In "most other businesses," "wholesale" refers to "volume." Which means, you get the wholesale price because you buy a skid of the stuff or because you do a volume business with that supplier. Try getting the "wholesale price" from Hon for one file cabinet.
To my mind, the Realtor(r) Code of Ethics precludes preying on the uninformed to grab their equity. Isn't that the quintessential yard-sale or auction quote? "They didn't know what they had, so I got it on the super-cheap!"
However, two parties coming to agreement with knowledge of the fair market value of the property, that's a different thing.
I don't know of any "We buy houses" or "We buy ugly houses" franchises. in most cases, the entities/people that post those signs are independent investors. Jorge's correct: some are good and others aren't.
Most knowledgeable investors (myself included) won't buy properties at retail prices; instead, we buy them at wholesale prices just as most other businesses acquire their supplies at wholesale prices. We have to buy at a discount to account for the various expenses required to rehab, market, and sell each property. Some people look at that 30% to 50% margin assuming that most of that money goes into our pockets. I'll kill that myth here and now: that margin consists of several other costs (repairs, title, legal, taxes, insurance, inspections, appraisal, etc) and a small profit.
The following claim doesn't make sense: "If ugly will buy it for 50% of appraised value, five buyers will pay 70% of appraised value." First, we wouldn't buy at 50% of the appraised value; instead, we'd buy at 50% to 70% of the ARV (after repaired value) minus the repair costs. For example, let's say the ARV is $100K, the property appraises for $80K, and the repair cost is $20K. The most I'd pay for that property is $50K (or .7*100K-20K); 50% of the appraised value is $40K. Second, most retail buyers won't buy an ugly home, because many conventional lenders won't finance the acquisition and rehab together (at least right now).
10 days vs. 30 days equal a savings of 20% or more.
If ugly will buy it for 50% of appraised value, five buyers will pay 70% of appraised value.
Contact Deborah Madey she will get it done as fast as ugly, and she`s a lot prettier
Any cash home buyer is going to make an offer at a discount and generally purchase the house "as-is" - meaning you don't need to do repairs or clean it up.
Essentially, you are paying for the convenience of an immediate cash sale, versus making repairs, cleaning up, painting, and listing it for sale with an agent.
Should you decide to work with an investor, we would be happy to connect you with one of our investors in your local area.
For more information:
Sorry, sweetheart; the free part of the educational moment is over.
Confidence men (and women) talk a game of honesty and integrity while picking your pockets. You can always find a mark who will hand over their wallet nice and easy; that doesn't make you an investor.
Actually, the "guru" to whom Jed referred is Robert G Allen. Although I agree with many of Jed's statements, I'd make a few changes. Investors aren't the only ones who look for an advantage in every buying/selling transaction; everyone looks for some kind of advantage. Stated another way, every buyer wants to buy more for less, and every seller wants to sell less for more. Also, many speculators, whether they were investors or not, are learning (and have learned) some harsh lessons in this market. However, many buyers/sellers (some of whom were investors) are doing just fine even in this market, because they purchased/sold their properties using good, old-fashioned, time-tested market fundamentals along with a good dose of common sense. Contrary to popular opinion, the sky isn't falling everywhere; everybody didn't lose money in real-estate.
I'll address the following moral statement separately: "we are not trading on the misfortune of someone in need by dangling cash to buy what is likely the most expensive thing they will ever own for an acknowledged discount." We're not dangling empty rhetoric, or waiting for yet another bail-out hoping that the problems will eventually just go away. Medgar Evers taught, "You're either part of the solution or part of the problem." Some investors are stepping up to provide a solution that no one else is willing/able to provide; we're not fiddling away merrily while watching Rome burn to the ground.
My point isn't (and wasn't) to defend the practice of equity stealing. Many jurisdictions in which I invest have laws on the books (often called "foreclosure consultant" laws) that guard against that practice. Instead, I intended to expand the discussion.
An owner has positive equity in an asset provided his/her liabilities are less than the present value of that asset. Deferred repairs are a hidden form of liabilities (or costs); inspections and/or appraisals bring them to light. Most brokers and agents prefer to not receive their commission in the form of a note; that commission is another cost. Taxes, insurance, appraisals, and inspections are other costs. Both buyers and sellers should--but some don't--account for all of the costs involved in any buy/sale transaction. It's neither my fault nor problem (whether I'm buying or selling) if the counter party lacks (the wisdom to seek proper) representation or hasn't done his/her homework thoroughly.
For example, let's say a seller has a property that has an ARV of $100K, prorated taxes/insurance of $2K, deferred repairs of $20K, and a mortgage with a current balance of $70K. Many sellers (and some agents) mistakenly calculate the equity in that deal to be $30K; they failed to also account for the other liabilities (which a knowledgeable buyer will always do). The only way to account for the costs, that have to be paid upfront, is to deduct them from the ARV also upfront. The actual equity in the deal is $2K (don't forget the commissions [6% for this example]), so that property is actually worth (meaning the property will appraise around) $72K, and I'd only break even at this point. I'd have to buy that property for $67K to earn a profit of $5K from the flip. Sorry, I can't afford to give away $33K.
Here's another example: let's say a buyer buys a property for $100K that has an ARV of $100K, deferred repairs of $20K, and a loan for 80% LTV at 7% APR (30-year fixed). Let's assume s/he can rent it for $500/month (assuming that's the market rent). Here are the numbers s/he'd get using the "50% rule":
gross rent = 12*$500 = $6K
NOE = $6K*.5 = $3K
NOI = $6K*.5 = $3K
cap rate = $3K/$120K = 2.5%
debt service = $7,664.28 (or $638.69/month)
DCR = .391
pre-tax cash-flow = $3K/12-$638.69 = -$388.69/month
This is a terrible deal. If s/he keeps buying losers like this one, then it's only a matter of time before s/he will crash and burn.
Mack, I admit that I don't know all there is to know about investing; I'm always willing to learn something new. Please show us the numbers from some real-world examples on a few deals that you've done within the past 3-6 months, where you purchased 1 or more properties at their current market value (or retail price), flipped them retail within the next 90-180 days for a profit >= $5K, or rented them with market rents for positive pre-tax cash-flow (accounting for the expenses using the "50% rule"). I've run the numbers on at least a couple thousand or so deals, and I have yet to stumble upon any profitable ones that were purchased within the past 3-6 months at retail prices.
The â€œwe buy ugly housesâ€ and â€œwe pay cash for housesâ€ business model is focused on getting scared, financially troubled people out from under a burdensome home quickly. Itâ€™s a system that has been touted around the country by a speaker named, I think Robert Anderson, who takes out full page ads in the paper touting quick riches. He gives a â€œfreeâ€ seminar on how to go about getting people to call the investor when they are in dire need and can be taken advantage of and he sells books and DVDs.
Now â€œbeing taken advantage ofâ€ is a moralistic position obviously. In the previous discussion the Code of Ethics was mentioned and then the investor weighed touting his own ethics. Whatever. The reality is the person needs to sell and these people are setting themselves up to take advantage of it. We can say there are only winners if we believe that the seller has good advice or sufficient knowledge to make decisions that will not allow the other side to take unfair advantage.
But the investor is always looking for advantage â€“ thatâ€™s the nature of investment. In other markets, like stock and bonds there are regulations in place and oversight agencies that are supposed to protect people from the unscrupulous. In real estate you are pretty much on your own with only legal recourse to the courts if laws are broken. Itâ€™s a higher hurdle to prove fraud though.
So ethics will enter into the transaction but only as far as the need of the person with the home and the investors own code allow. There are people with money that will do the â€œright thingâ€ even if they could get a better deal but not too many. In the normal market place where Realtors work most often, we have to work on taking advantage of each other for our clients. The playing field is a bit more level and we like to think more ethical. I will admit that Iâ€™ve had things done to me by agents that I didnâ€™t think right and Iâ€™d like to say that I never used another agents lack of ability or knowledge to the advantage of my client, but we are not trading on the misfortune of someone in need by dangling cash to buy what is likely the most expensive thing they will ever own for an acknowledged discount.
Now letâ€™s put this in perspective. If the â€œbuyer of ugly housesâ€ was in business for a number of years we can bet that they have houses in their inventory right now that are under water. All the smart people who were flocking to the buyerâ€™s clubs and snatching up properties in Las Vegas Phoenix and all over Florida bought at what they believed were discount prices. The market changed as markets do. If they are good investors they knew that this could happen and are now holding on to the property. The â€œmarket valueâ€ is less than what they paid but the income is covering the debt service and the equity will likely return.
Flipping houses is always a dangerous business. The companies you see advertised are not franchises they are independent operators typically looking to make a fast buck by taking advantage of people in need. They are one segment of the overall real estate market and like catfish they serve a purpose.
Big Lots, however, is a wholesaler, who buys wholesale (in the aforementioned "big lots," to sell it to us, at retail.
And if your defense of "equity stealing" is that, well, "others do it too ... " that's not in dispute. I'm here on record to state that I disapprove of the practice and refuse to engage in it. And to the extent that others act the same way, I applaud them.
Finally, "fair market value" is simply that - regardless of condition. The FMV of an "ugly house," is what it is - less, certainly, than if it were re-habbed, but it's not, so it's worth what it's worth. The thing is, just because it's ugly doesn't mean that its seller deserves to be taken advantage of.
The thing is, you can make money in real estate honestly and ethically, and for those that do, well - living well is its own best reward.
I Would never tell a client to just dump(offer) their home to an (one) investor / buyer.
Instead open it up to the FREE Market, being more than one offer.
As far as financing goes, we in AZ are seeing FHA`s get 203`s with only 3.5% down!
I am not familiar with financing in NJ, and would hope a NJ mortgage broker chimes in with the options available. There are buyers who want your home who have money.
As far as someone telling you..
" most retail buyers won't buy an ugly home, because many conventional lenders won't finance the acquisition and rehab together (at least right now)."
I`m sure they guys at ugly houses told you that also. Don`t believe it.
You don`t own a shed in the country, Waterfront property in Laurence Harbor NJ! It`s all about location.
Any Realtor or Investor would have to agree that you should offer your home to all potential buyers, to bring the greatest profit. Especially such a unique property.
The house is a waterfront in Laurence Harbor. I have another mortgage in Flordia since 1997 and want to buy something else in NJ, so I have to sell Laurence Harbor fast. It has the best views of the Raritan Bay and the Verizzano Bridge is gorgeous. It looks like a row of diamonds at night. I thought as long as I know the market vaue and the amount I'm willing to sell I should be alright.
My impression is that if you need to sell quick and your home needs work, you might want to try WBUHs, but the cost of doing so could be costly for you. My impression is that oftentimes a homeowner dosclose too much information to an investor which could lead to being taken advantage of. Then again, it depends on your situation.
I sold an ugly home in West Orange, which was a 3 family for $215,000. I think I had 40 plus people take a look at it and it was a short sale which was no easy fret. If you are a home owner and you are weighing your options, speak to multiple real estate professsionals before you make a decision.
Just my two cents. I hope it helps!