We Buy Ugly Houses – David Hicks

[Recorded introduction: Welcome to the FlipNerd.com Podcast. This is your host, Mike Hambright. And on this show, I will introduce you to VIPs in the real estate investing industry as well as other interesting entrepreneurs whose stories and experiences can help you take your business to the next level.

We have three new shows each week which are available in the iTunes store or by visiting FlipNerd.com. So without further ado, let’s get started.]

Mike: Hey, it’s Mike Hambright with the FlipNerd VIP Show. Today, I have with me David Hicks, who’s one of the co-presidents of HomeVestors of America, better known as the “We Buy Ugly Houses” folks. We’re going to learn more about the largest home buying company in America.

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Mike: Hey David, welcome to the show.

David: Thank you, Mike. I appreciate you having me on.

Mike: Yeah, glad to have you on. So I was talking to you a little bit before the show. I don’t go out of my way to make the connection, but a lot of folks and a lot of people that watch our show know that I’m part of the HomeVestors system myself. I’m a franchisee and a mentor and a coach to quite a few franchisees in the system across the country.

But this isn’t a chance for me to talk about myself. I obviously do that enough. I’d like to learn more about you. So why don’t you tell us a little bit about you and your background and how you got started with HomeVestors.

David: Absolutely. Well, HomeVestors has obviously been around since 1996. But I started… my first investment property was way back in 1978. So ever since then, I think investment properties for those that catch that bug is a real opportunity and it is a consistent opportunity over the years.

Mike: Yes. And tell me a little bit about your background and how you got associated with HomeVestors. Obviously you’ve come a long way since when you first started with HomeVestors, but I guess some of your background and how that led up to joining HomeVestors.

David: Yeah. Well I was president of a company called S.M.I. out of Waco, Texas. I have the unique opportunity to not only have been involved in the investment business and real estate properties, but also in building businesses. So I was hired in the late ’90s, early 2000s really, to be with HomeVestors. I’ve been here almost eight or nine years now. So that’s kind of how I got started.

Mike: Okay. And you’re now the co-president along with Ken Channell, who we had on the show a little while back. Why don’t you maybe take a second to tell us a little bit about how the co-president seats work inside of the HomeVestors system?

David: Well, really very interesting. I’ve never been in that kind of situation before, but it works very well. Part of it’s because Ken and I both trust each other and know each other very well. We work very good together. But we just split up the duties and it works very well because we have such a good team and such a good company and good franchisers like you to be a part of it.

Mike: And for those that aren’t familiar, I think there’s very few folks that can say they don’t know at least our advertising, the “We Buy Ugly Houses” advertising. But there’s probably not a lot of folks that really understand the company and what it’s all about. You want to tell us a little bit about who HomeVestors is and how it’s structured as a franchise system and all those things?

David: Yeah, absolutely. As a franchise, we have a real distinct opportunity because we support franchises in now 38 states. We’re in over 110 different communities. We have 440, or 50 franchises nationwide.

As a franchise company, we have the opportunity to have local business owners that are small business owners. People can run and have their own business, but be part of a support network that is nationwide and have people like you that would coach those local franchisers to help them improve. So it gives us that opportunity.

We say we improve neighborhoods one house at a time because it all comes down to working in a local community that a local franchise owns.

Mike: Yeah. I remember a time, I don’t even know if it was a little over two years ago, when we bought our 50 thousandth house. HomeVestors bought it. I understand it’s coming up real close on 60,000 now, is that right?

David: Getting close to that, yeah. We’re past 55,000.

Mike: Okay. All right. I guess a lot of folks that are real estate investors tend to have been conditioned to believe that they can go to a weekend boot camp or read a book or something like that and get started in real estate investing. And it’s not that you can’t, but why don’t you tell everybody a little bit about what the franchise offering, the benefits of being part of a franchise system?

David: Well, regardless of where you get started, real estate has some great opportunities. But a lot of people doing it on their own find out there are a lot of risks and challenges and stuff there. Being part of the system does several things.

One is it gives the ability to have consistent leads. That’s what our advertising presents. One of the challenges individual investors have that I learned buying houses is it’s hard to find those houses to buy. That’s what that advertising does.

The second thing is having the coach, a mentor, somebody like you, that can help a franchise learn to keep from making mistakes and learn to get to profitability quicker.

Mike: Yeah. And one of the things that you know I’m a big advocate of, and obviously omeVestors is too, is just the team nature of what we do. We’re very social in terms of sharing what works and what doesn’t work and sharing contractors.

A lot of independent real estate investors, I say generally speaking, a lot of them are not that way because they’re competitive and they feel that someone is going to take something from them.

But also they just really don’t have a platform to be social other than REIA Club which has generally a monthly meeting or something like that, whereas we have tools to talk 24/7, real time.

David: Absolutely. One of the greatest advantages of being part of HomeVestors is they get to learn from people. They go to a local club meeting and they really don’t know if the guy up front has truly bought houses and is giving them real information.

In fact, they have a tendency not to give real information because I don’t want to share my secrets. Our franchise understands that being part of the network, they want to make sure all of the people they work with are successful. So they share what’s really happening in the market and how they really do it.

Mike: Yeah. Do you want to talk about, obviously leads is the life blood of any real estate investors business. I would say in my experience a lot of the training courses or the things that are out there, conveniently that’s the one thing that they never talk about is how you’re going to get leads now.

I’m out of here, what do I go do to generate leads tomorrow? Obviously that’s a big benefit of being part of the HomeVestors system, but do you want to talk about the different advertising channels that HomeVestor uses?

David: Yeah. Most of those gurus have a training and at the end of the training it says now go buy houses, but they don’t tell you how to do that.

Mike: You’ve got to come back to the additional training for that.

David: Exactly. Pay more for more coaching. The reality is that is one of the big things that we have. Because, Mike, I’m one of the few people not only who bought houses at discount, but sold them.

My wife and her brother and sister inherited a house that they grew up in. It was a 40- year-old house. It needed all the stuff a 40-year-old house needs. The problem was it was in Oregon and we were in Texas and her brother and sister were in Idaho. How do you fix up and repair that house and sell it?

So we sold it to a local investor. It was a good thing for him because he got a house that needed repair that he could put his sweat equity in. It was a good thing for us because how do you go fix that house up long distance?

That is what our advertising identifies. Those people that have the houses that need repair right in our market that they call us, they e- mail us, they fill out the form online. People see our advertising that come to us that don’t go to any other investor. Other investors can’t find those people.

Mike: Right. And what are some of the main advertising? Obviously everyone knows the billboards, but HomeVestors franchisees know there are many different advertising channels. You want to talk about what HomeVestors does in some of the other channels?

David: That’s right. Part of what we do and part of the system is we have that proven advertising. We test it. Everything from direct mail to billboard, to TV commercials to radio commercials to everything. What is the best mix that can have the biggest impact in a local community and with our customers?

Because we have a very unique customer. The people that call us are the ones we have to identify. We have to know what TV shows they watch before we advertise. So that’s part of the mix that we learn from our history and our experience, what is the mix that fits best with the people that watch us?

Whether they’re inheriting a house or whether they are trying to retire and move into a nursing home or sell it to go to Florida to live with their kids, what is the advertising media to most likely identify those houses for us?

Mike: Right. And a lot of folks don’t understand how HomeVestors advertising works. At the individual franchisee, we have this structure called an advertising council where folks pool their money together.

Do you want to talk a little bit about that structure and how that works? I always think it’s very innovative. When people hear it they think it’s really neat, but a lot of folks don’t understand it until they hear a description.

David: Yeah, in the advertising council, all the franchises in an area work together, they band together, pool their money. They make decisions on how to spend their advertising based on that.

We also have a very sophisticated system to rotate the calls and rotate the leads online that basically, so based on how much they advertise, they get that percentage of the leads that come out. It works very well, but that’s just a small part of it.

As a council, they also learn how to work together so they can run the market. They can know what’s going on in the market. They can help. They end up buying houses from each other.

You know, Mike, you’ve got houses you bought in a certain part of town and you don’t want to be working on those houses and fixing them up because they’re too far from you so we’ve got another franchise that works in that area. You might sell to them or buy from them. That becomes a real advantage of working as part of that team.

Mike: Yeah. And we’re coming up on you said a little over 450, maybe 500 franchisees in the next couple of months? I know the system is growing very rapidly. Can you talk a little bit about where you think that’s going over the next several years? There’s some rapid growth going on right now.

David: Yeah, it is. What our real focus is to get to where we can get into nationwide advertising. We’re starting the first part of that right now. We’ve got a lot of markets, even markets that are fully developed, we’re just getting a fraction of the houses we could be getting.

Because right now, it’s interesting, the house we buy is typically a 20, 30, 40 year old house. Every month there’s more of those that fit into our criteria that we can target, but our real focus is filling out parts of the country that were less developed so we can get into nationwide advertising. That’s what our real focus is right now.

Mike: Yeah. And in terms of, are you able to share, I don’t know if you’re willing to share any numbers on anticipated franchise growth over the years to come?

David: We’ve think that if you look at how many investors are trying to buy houses in your community, you see how big a market it is. We believe we could very easily be two or three times the size we are right now in the next three to five years.

Mike: Yeah, that’s great. And there’s a lot of folks that maybe aren’t real sure what benefits they get of being part of the franchise.

I know we talked about obviously lead generation and the team. What are some of the other reasons why somebody may consider joining HomeVestors verses just going alone?

David: One of the biggest things is having what we call a development agent. We believe in having that coach, somebody to support and mentor them. We believe in it so much that we pay to have that person do that corporately.

When a franchise joins us, they get a development agent. That is a person who will help them learn quicker and faster and learn from the experience of that development agent. We pay them out of the fees that we got. So that’s one of the greatest benefits.

As well as we talked about being part of the team both locally and coming to our nationwide events. There are not many events that people can go to in this industry that they can learn from other people doing the level of business they’d like to do. Coming to our nationwide events and going to the training events, that is one of the big benefits of being part of it.

But again, when it comes down to it, the biggest thing is those leads. We also offer financing for those franchises that need it to buy, the interim loans to do it. That’s not a big part of it, but we offer that too.

Mike: Right. Obviously I know this, a few years back HomeVestors introduced what we refer to internally as the associate franchise program. But that’s really been a game changer in the fact that we know have lots of folks that join the system that are professionals in other areas.

They’re not necessarily focused on it full-time. They have other jobs or other businesses that they do. Can you talk a little bit about how that dynamic has changed and the type of franchisee prospect that maybe joins the system now verses you had to go kind of all in in the years past?

David: Yeah, absolutely. Right now with the associate franchise, it has a much lower investment for a person to get started which means the person can come in and learn, maybe even part-time, while they’re keeping another job where they get up to a level where they can move full-time if that’s their goal.

We do have a lot of franchises that start part-time. A lot of them continue part-time. Whether a person is trying to just add a few rental properties or whether they’re trying to move it into a full- time business, we have a place for them and that associate franchise has made that even more a reality.

Mike: Yeah. And in terms of obviously the relationship goes both ways, we’ve talked a little bit about what folks may get. What is HomeVestors looking for in terms of franchisees that join the system?

David: Really, what we’re looking for more than anything is somebody that can be a good team player, somebody that is willing to jump in and share with others. Our brand is real important to us. So part of it is that integrity of being able to do with the customer what they say they’re going to do is one of the key things we’re looking at.

We’re really not as concerned about the level of the business we have as long as our franchises are profitable as they see it. We want the franchise to be profitable. We want them to make money. But we want them to achieve their goals.

Sometimes that’s buying four or five houses a year. Sometimes, it’s buying 100 houses a year. We don’t care where they fall as long as they’re consistent with it and as long as they are willing to do what it takes to be successful.

Mike: Yeah, that’s one of the things that I talk to people a lot about with the associate franchise program is that when I came into the system nearly six years ago, everybody’s goal, or I felt everybody’s goal, was to be bigger than everybody else. It was everybody had to be big for the sake of being big.

I think what’s changed over the past few years, some of it with people kind of adapting to the economy and the real estate industry as it is and the roll out of the associate franchise program is there are people in the system now that say that their goal is to buy 6 houses or 10 or 12 or 15 houses and now we kind of celebrate that.

Before, we would have been like, “Well, you’re not going to win any awards or something like that.” It was kind of a chest-thumping competition back in the day. But now it’s like, “That’s fantastic if it helps you meet your goals.

David: Absolutely. In fact, one of the key awards we give out every year is an award just simply for doing more this year than you did last year because we believe when a franchise progresses, that they can be successful with it.

We’ve had franchises that their goal was to go buy 50 houses and 100 houses and when they got to that point they were tired. And if that’s what their goal is, we’re happy with that.

Mike: Awesome. Well, David, while we’ve got you I always ask people that have their ear to the ground where they think the market’s heading. As we sit here, I guess we’re through the first quarter of 2014. Where do you think the market is heading?
There’s probably nobody that has their ear to the ground more than you and Ken in terms of investment grade real estate in the country. So what are you guys feeling and what are you thinking right now?

David: The key is to watch them because one of the things we watch is what’s happening to sales and properties, what’s happening to the dollar sales. It appears to us that properties are selling very quickly. Inventory is very low in a lot of areas which means price is going up and we can see that in the prices the houses of our franchisers are selling for.

I believe over the next two or three years we have a real distinct opportunity in our industry to have a business that has a continual upward trend. I think, as always, there will be some bumps in the road.

The good news about our business is, and Mike you know this because you’ve been around, you came in when the market started going down, and we had franchises successful with that.

What we need to be successful in this business is a predictable market to where you know in 90 to 180 days what the market is going to look like. Upward trends are fine. Even downward trends are fine, as long as you can anticipate it and plan for that.

I think over the next three years or so, we can really anticipate it’s going to be an upward trend both in pricing and demand for our particular segment of the market.

Mike: Yeah. And what’s interesting is, and I talk to folks about this a lot too, is that what we teach people to do is to not be able to just survive, but to thrive in good and bad markets.

In all honesty, I wouldn’t mind having a bad market back for a little while because it’s just the mindset that people have when they’re selling their home of “Well, the media says the market’s bad.”

The media usually over-exaggerates whether it’s good or bad and it’s just planting those seeds in prospective sellers heads as to whether the market is good or bad. And bad markets tend to wash out a lot of the competition and maybe the hedge funds and things like that, that maybe are willing to pay more in a good market but it really changes the dynamic.

David: I think that’s exactly right. Again, the key to it is a consistent market and that predictable market. I think that’s what we have now. But a bad market works well for our business. We have people who’ve made a lot of money in a bad market and make a lot of money in a good market.

Mike: Right. Well anything else you want to share about HomeVestors?

David: No, except I believe whether you do it with HomeVestors or not, I think there’s a real opportunity in real estate. If you’re buying properties, especially in areas that we focus on that are potential rental properties or first- time home buyer properties, that’s a fairly stable area of the market.

I think year after year, real estate has been a great investment. So those that see that, we’d like to have them come join us or come buy from our franchises.

Mike: Absolutely. And we’ll put a link down below the video for how folks can learn more either way. So I appreciate your time today, David.

David: Thanks, Mike.

Mike: Thanks for your leadership with the HomeVestors company as well.

David: And I appreciate you having me on here.

Mike: All right. Have a great day.

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