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Ugly is only skin deep to some investors
By Bob Bouyea
Executive Editor
Pamela Hope inherited her North Charleston childhood home in 2000 after her father passed away.
Uncertain what to do with it, she rented the home for a while to a friend and then let it sit empty for a couple of years. In October 2004, she received a letter from Karen Rapchick asking her if she was interested in selling, but set the letter aside. In January, she decided to give Rapchick a call; 30 days later the house was sold.
“It was (emotionally) very hard to sell. The day I signed the contract, I cried all the way home,” Hope says. “But when I went to close, I knew it was the right thing to do.”
Rapchick is owner of HomeVestors Kava Properties Inc. in West Ashley, and is one of two HomeVestors franchises in the area. The Dallas-based HomeVestors of America Inc., known to most as the “We Buy Ugly Houses” company, is the largest home buying company in the nation with 250 franchises in roughly 25 states. Its business plan is simple: Find undervalued homes, evaluate cost of repairs, buy them for cash and sell them quickly.
Real estate experts estimate that the United States’ undervalued home market is roughly $10 billion, HomeVestors says. Rapchick and Jonathan Lee, of Choice Investment Properties Inc., have recently entered this market.
Rapchick says most of her business comes from finding distressed homes or distressed sellers. Many people come to her either because they have inherited a property or because the property has become a burden and they are unable to keep up with it either physically or financially.
Hope’s decision to sell to HomeVestors instead of through traditional listings was based on not wanting to sink any more money into the home and not wanting to pay commission on the sale or deal with contractors and inspectors.
Rapchick says, to her, “ugly” is OK. She stresses that she is a wholesale discount homebuyer and if the seller needs top dollar then she tells them they need to put the home on the retail market.
“We buy ugly ones as well as pretty ones,” says Lee. He adds that he looks for pride of ownership in the area when he’s deciding to buy a home. What he tries to stay away from is unlivable homes like those found in the southern tip of Charleston.
Rapchick agrees. “If it’s not going to make us a decent return, then it’s not worth tying up our money.”
She says it’s not worth tying up her money for 30-90 days if she’s not going to earn a minimum of $8,000 to $10,000 per home. Rapchick has bought houses for as little as $3,800 to as much as $150,000. Reactions to her offers vary.
“Some people laugh, some get mad and curse at me, and some say ‘OK’ right away,” she says. “But before I tell them my offer, I explain to them what it would cost them to get the house ready to sell retail. Some will tell me ‘no,’ and then come back months later.”
When homeowners call, they first go through a series of questions: are they behind in payments? Why are they selling? How much do they think the house is worth and how much do they want for the house? This will help determine if it fits into the HomeVestors profile.
Part of that profile is determining if the seller is motivated and whether there is enough equity in the house to make it worthwhile for Rapchick or Lee to purchase.
Rapchick says she considers the neighborhood surrounding the home. She tries to stay away from homes in high-crime areas or areas that have high incidences of vandalism.
Once Lee or Rapchick buys a property, they either repair the homes and put them on the retail market or sell the homes to a local investor who rehabs the properties to rent or resell.
Their businesses have an impact beyond personal gain. When they go in and buy and rehab a home, they typically sell at a higher price, therefore increasing property values in the area.
“The seller makes money, we make money and we give back to the community by restoring the home as good as when it was originally purchased,” Rapchick says.
More often than not, Lee and Rapchick say neighbors have thanked them for restoring a home that had become a neighborhood eyesore.
However, not all ugly homes are ugly on the outside.
Rapchick received a call from a woman with a house in the more upscale Village Green subdivision in West Ashley interested in selling.
“From the outside you never would have said ‘that is an ugly house,’” Rapchick says. Inside was a different story.
The house was occupied not only by the family but also by five large dogs and several cats that “used the home as a toilet,” Rapchick says. The dogs also ate the drywall in the room in which they were confined.
Rapchick replaced all the carpeting and some sub-flooring and also replaced drywall and bleached the cement slab under the sub-floor. The neighbors were appalled that they had an “ugly” home in their neighborhood but were thankful that it was being refurbished, she says.
“This is not a job for the queasy,” she says. “Not everyone can go into a home that smells like urine and sit for several hours while interviewing a potential seller.”
Bob Bouyea is executive editor of the Business Journal. E-mail him at bbouyea@crbj.com.
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