HomeVestors of America, Inc.

views updated

HomeVestors of America, Inc.

10670 N. Central Expressway, Suite 700
Dallas, Texas 75231
U.S.A.
Telephone: (972) 761-0046
Fax: (972) 761-9022
Web site: http://www.homevestors.com

Private Company
Founded: 1989
Sales: $27 million (2004 est.)
NAIC: 531390 Other Activities Related to Real Estate

HomeVestors of America, Inc. is a privately owned, Dallas-based company that specializes in buying older single-family houses in need of repair at below-market prices. The company then renovates and sells them. Involved in franchising since the mid-1990s, HomeVestors has approximately 250 franchised offices located in 30 states. The company has pursued a "seed concept" in expanding into new markets, starting out with a strong franchisee, which it then supports with local marketing and advertising. HomeVestors has built its marketing around the concept of "ugly," creating slogans such as "We buy Ugly Houses" and "Ugly's OK." The company has successfully sued more than a dozen competitors attempting to copycat the use of "Ugly." Although anyone can buy a home, fix it up, and sell it, HomeVestors offers franchisees a complete program to create and sustain a successful business. HomeVestors helps franchisees to generate leads on houses to buy through an advertising program as well as helping them to conduct research on the owner of a target property; provides proprietary software to help in determining market value of a property, repair costs, and a target purchase price; makes financing available to franchisees for the purchase price and loans to cover renovations; and in order to sell homes quickly it offers financing to homebuyers with small down payments or credit problems through owner-carried financed notes. Franchisees pay a $46,000 franchise fee, a monthly fee, and a royalty to HomeVestors.

COMPANY'S FOUNDING IN THE LATE 1980S

HomeVestors was founded by Ken D'Angelo, who had worked as a real estate agent in Houston and Dallas for Red Carpet Realtors and ERA Realtors for 20 years. Late one night in 1989 he saw an infomercial pitching a two-hour video to teach people everything they needed to know about home buying. It was the inspiration the 40-year-old needed to strike out on his own. "I just took that idea one step further and into a specialized area," D'Angelo told Dallas Morning News in 2003. "No one likes to buy ugly houses, so I thought, 'Why not do it myself?'" He set up shop in East Dallas as a one-man business and began buying houses at below-market prices in the Dallas-Fort Worth area, renovating, and selling them. "When I started out, people thought I was crazy," he confessed.

Over the next several years, D'Angelo steadily grew HomeVestors. By 1995 he was buying and turning over more than 150 homes a year. He now decided to franchise his concept, and to help in that effort he hired Dain Zinn in March 1995. Together they put together a franchising program that would distinguish HomeVestors from the competition and sell the concept to potential franchisees. "Anyone who has ever watched late-night TV has seen the ads hawking real estate investment systems," Zinn explained to Dallas Business Journal in a 2001 profile. "People wondered why they should buy a franchise when they could spend $149 on a tape and a weekend seminar." According to Dallas Business Journal, "D'Angelo and Zinn focused on creating a brand-name image and developing financing, training and support systems, including Web-based software that helps franchisees determine the value of a home. They got the word out with a memorable slogan—'We buy ugly houses'—slapped on bright yellow billboards." All of these elements were important in turning what had traditionally been a part-time endeavor into a career, because the key to success, as D'Angelo knew from firsthand experience, was locating a lot of properties to buy, having funds available to act quickly and buy target properties, and having a way to quickly resell the houses.

LAUNCH OF FRANCHISING IN 1996

HomeVestors raised $350,000 in a public debt offering to launch its franchising program in 1996. From that point forward, HomeVestors was purely a franchising business, with the company-owned operation providing the foundation for the franchised chain. D'Angelo sold the original HomeVestors business to his manager, who became the first franchisee. Another six franchises would be sold to employees and former business associates of D'Angelo. All told, HomeVestors awarded 17 franchises and generated revenues of about $800,000 in 1996. A year later those numbers would increase to $1.4 million in revenues and 30 franchises. At this point, the company raised another $1.5 million through a private placement of stock, with the money earmarked to pay off debt and provide operating capital to fuel further growth.

In the words of Franchising World, "The secret to HomeVestors' success is their focus on a segment of potential sellers who are not contacted by other home buyers and real estate agents. These are sellers who would be willing to accept a discount on their property in exchange for a cash offer and the ability to close within days of purchase … Typically, these homeowners have houses with deferred maintenance because the houses were inherited, they were rental properties that are no longer wanted, or the owner had a financial situation which allowed their house to deteriorate." Other sellers had recently divorced or had grown too old to properly maintain their homes. In short, HomeVestors offered a win-win situation: sellers received cash quickly for their properties, and HomeVestors received a property at a discount and could begin renovations as soon as closing took place. Typically, a homeowner was offered 65 percent of the house's value, less the amount it would cost to repair it. Moreover, the renovated houses proved to be a good value for many first-time homeowners, who had previously rented.

By the end of 2001 HomeVestors was operating in nine states through 84 franchisees, a 50 percent increase over the previous year. The company's strong growth was reflected by its inclusion in Entrepreneur Magazine 's listing of the top 500 franchises. In January 2001 HomeVestors ranked 189. A year later the company improved to 125. It would crack the top 100 in the January 2004 issue.

As the economy slipped into recession in the early 2000s, the prospects for HomeVestors improved further. A large number of homeowners, who had been falling behind on mortgages or refinancings, were now looking to quickly unload their properties to avoid foreclosure. By early 2003 HomeVestors had grown to 135 offices in 17 states.

COMPANY PERSPECTIVES

HomeVestors of America provides world-class products, services and training to our franchisees, empowering them to transform the Real Estate industry.

HomeVestors grew on a number of fronts in 2004. It signed an agreement with The Home Depot in February to make the retailer its exclusive building materials provider to HomeVestors franchisees, who would now enjoy the benefit of a price discount. The deal was struck with Home Depot's business to business division, The Home Depot Supply. Later in 2004, HomeVestors moved into a new headquarters to accommodate its steady expansion, and also unveiled a new advertising campaign, which introduced a company mascot, a caveman named Ug. The company's longtime slogan was modified to "Ug Buys Ugly Houses," which now appeared along with his likeness on a new series of billboards. By this stage in its history HomeVestors was spending about $18 million a year on advertising, mostly on billboards and some television spots. According to the company, this marketing accounted for 70 percent of its business.

INTRODUCING "UGLY NOTES" IN 2004

HomeVestors also found a new way to drum up new properties for its franchisees. In July 2004 the company launched a real estate-owned (REO) program to buy so-called "ugly notes" on single-family houses. (REOs are in the possession of a lender as a result of foreclosure or forfeiture.) The company was well familiar with the value of homes as collateral and, unlike other companies that bought such notes from banks and other parties and turned around and sold them "as is," HomeVestors planned to buy the notes at a reasonable cost, then turn them over to franchisees, who would renovate and sell the collateral properties. In addition to banks, the program hoped to appeal to holders of owner-financed notes on collateral homes that were on the verge of foreclosure and who did not want to take on the rehabilitation costs, legal fees, and other expenses involved in making good on the loan. Once again, Homevestors was offering a win-win situation: Sellers of the ugly notes benefited, as did the franchisees who picked up additional inventory in their markets.

The year 2004 also was marked by misfortune for HomeVestors. According to Franchising World, "D'Angelo moved the company's corporate headquarters to a bigger space. He started hiring more support staff and even dabbled in relinquishing some of his lesser duties so he could concentrate on managing the business as CEO. Things couldn't have been better. Then D'Angelo started having stomach pain. After a battery of tests, doctors concluded that he had terminal cancer of the bile duct." D'Angelo underwent treatments and surgeries at the Mayo Clinic, but it became apparent that he had only a short time to live.

With all hope exhausted in September 2004, D'Angelo met with Dr. John Hayes, a national franchise consultant and a member of the board of directors, and asked him to take over as president and CEO. Hayes told Franchise Times Magazine that D'Angelo said, "I created HomeVestors. It's everything to me; it will be my legacy; and there are lots of people depending on it. You're the person I'd like to come in and take over." Hayes agreed immediately: "He needed to know that he didn't have to worry about this. My gift to him was that he didn't."

Aside from being a consultant, Hayes was an author, public speaker, and seminar leader, who started out as a communications professor at Temple University. He wrote a primer called Franchising: The Inside Story, which became a platform for landing consulting assignments from companies such as Aamco transmission shops, the Subway sandwich chain, and Jani King, a cleaning service. D'Angelo originally hired Hayes to help with training and to start a franchise advisory council at HomeVestors. The two men grew closer and were soon in contact on a daily basis. Hayes even bought a HomeVestors franchise himself. (After becoming an officer of the company, however, he sold his stake to his partner who had been actively running the business.) He also helped to make HomeVestors a more disciplined, professional organization. Strong on intuition and emotion, D'Angelo realized that he fell short in some areas and came to rely on Hayes. For example, D'Angelo had been lax on the enforcement of franchise agreements on payments, allowing some of the franchisees to fall behind and creating a dangerous precedent. Hayes brought stricter enforcement, and although it resulted in the termination of some franchise agreements, the organization as a whole grew stronger.

During his final months of life, D'Angelo took other steps to prepare the business for his departure. The company's current president, David Young, agreed to become a vice-president charged with handling the increasingly important task of maintaining relationships with national vendors. Other executives also received an expanded portfolio of responsibilities. In addition, D'Angelo wrote a letter that was sent to all the franchisees explaining his condition. Then in December 2004, in defiance of his doctors, he traveled to Miami to address the annual HomeVestors Convention. According to Franchising World, he "gave a moving speech that he called a personal highlight in his life. He passed away exactly five weeks later. He was 55 years old."

KEY DATES

1989:: Ken D'Angelo launches HomeVestors in Dallas.
1996:: HomeVestors begins franchising.
2004:: The company begins buying "Ugly Notes."
2005:: D'Angelo dies, and is succeeded by John P. Hayes.

As a testament to its founder, HomeVestors did not miss a beat after D'Angelo's death. The same week as his death, for instance, the company graduated its largest training class of new franchise owners. The successful transition was a testament to the plans D'Angelo put into place as well as to his team of executives, which included his widow, Betty D'Angelo, director of human resources, and brother Paul D'Angelo, director of IT services. HomeVestors continued to grow and in October 2005 began to award franchises in New York, Connecticut, and Massachusetts.