Which path to follow..?

[Andrew Koczon]

I am just starting out.

I have done research all during 2013 on how this process works. I have visited many single family homes in my area listed on the MLS with the intention of buying them on the spot if I found one that made good sense on paper.

My ambition is to become a "flipper". I would like to buy single family houses in the Hartford county of Connecticut, rehab them as much as needed and sell them for profit. Short term real estate investing.

I have a significant background in home renovations. I have very reliable and cheap funding on a budget of $300,000 or less. I have many contacts in the real estate realm as well as the home remodeling industry.

The thing I don't have ... one thing... a property. I can not find a below market value home with enough meat on the bones to make a reasonable investment in.

I make $30,000 a year currently. I am looking for profits of about $20,000 per flip. If I can manage three successful flips in 2014 that net me approximately $60,000 before taxes, I will consider this year a tremendous success.

How do I find properties?

I have seemingly two options at this point, and both involve some serious upfront cash.

I have recently been targeted by a local franchise owner of HomeVestors. He would like me to buy into HomeVestors. HomeVestors allows you to buy into their system and they provide you with many features to help you along your path.

1. You get their brand name and name recognition (although I had never heard of them a day before Friday Jan.10)

2. You get leads from their third party marketing department ( dependent on how much you contribute monetarily to the system per month)

3. You get , essentially, a mentor and a support system to aid and assist you through the early stages on your real estate investing (definitely a perk for me, although I could do it on my own)

HomeVestors costs a lot.. for a Associate Franchise it costs $15,000 upfront.

Then, to gain leads, you must pay into a pool along with all other franchise owners in your designated region. Depending on what percent of money you contributed to the pot in that cycle, nets you the matching percent of the leads generated by the third party marketing group.

I do not know the estimated costs per month/cycle and HomeVestors masks their spreads in a curious way. They claim they are governed by the FTC ( odd to me) so they cannot disclose information like "How much does the average franchisee make per deal" or " How much do you pay on average to marketing"... two pretty big questions to me. That information is only revealed once you actually become a franchise owner ($15,00 later)..

Lastly, they take 5% of your net earnings per deal. I assume this is whether you make money on the deal or not.

So, in total, I like the support system and being able to have access to professionals that can guide and assist me through all facets of the short term real estate investing process. I love the idea of non- MLS generated leads. This to me is the key component I am currently missing in order to be successful. I do not like the $15,000 to buy into the worst business name as HomeVestors. I hate that name. It is cheesy. I could never say that with pride ( perhaps unless I had made 6 figures that year using it). It sounds quite expensive to buy into your fair share of the leads generated. 5% seems only reasonable as a cut to HomeVestors because of how little percent I am paying on my private money, I can not imagine most people would like that.

MY OTHER OPTION:

Start my LLC that has a fantastic name.

Pay money to a lead generator.

Do it the old fashioned way with learning from mistakes and taking it slow.

People using HomeVestors seem to churn out a lot of properties per year, but I get the impression that the money made per deal is less than $20,000.

What does it cost per month to generate some great non MLS leads?

What experiences have you had in paying for lead generation?

Would you consider buying into a franchise that expects you to pay into their system to the tune of $60,000 in the first year and that is excluding the 5% they take on each deal? ( franchise fee $15,000 + money per month into marketing $45,000 over 12 months)

The guy is not a scumbag trying to get me to buy into this program. The system is a pyramid scheme and that is not hidden. But, at the end of the day with all of the money I am paying to them, it still could be worth it.

Any information on the matter is highly sought after.

Thanks,

AHK

[Mike Hambright]

I'm not an attorney. We're not able to make earnings claims (most franchise systems are the same way), as neither HomeVestors, nor franchisees can not prove our earnings to a 3rd party without a fair bit of 'noise' (same for all real estate investors). As with all real estate investors, there are lots of factors that go into our earnings. Some close on properties in multiple legal entities. Some 'pay' themselves, others don't. Some use hard money at 14% and 4pts, others use family money at 4% and no pts. There are many, many ways to legally 'manipulate' your P&L, defer earnings, etc, etc, etc. We don't have a set menu and POS system like some businesses, and in most instances....even they don't make earnings claims. For legal reasons or otherwise, we go out of our way to never mislead people (name another 'training system' that does that!), as we want long term players on our team....and it's the right thing to do. Want someone to show you a big check that 1 in a million earned once upon a time...we're not for you. We are governed by the FTC, and making a false earnings claim (though, no real estate investors would do that....right?), would get us into serious trouble.

Regarding questions like "how much money can I make/how many houses can I buy" - As a mentor...I spend a lot of time working with those on my team to develop a plan for how you can hit YOUR goals. We have people in our system that plan to buy 5 houses per year, and plenty that buy 100+. How much they advertise, the size of their staff, etc is what helps determine # of houses (which doesn't matter - only profit does). We try to help people build their business around whatever their individual goals are (financial, family, quality of life, etc).

To be frank - if there's anything our model is know for...it's buying properties at much deeper prices that typical investors (generally). Very few of our properties come from the MLS, HUD, REO's, Short sales, foreclosures, etc. We advertise to get leads from sellers...and buying direct yields the best prices. In fact, around 40% of the time...we're the ONLY person a seller is talking to...so minimal competition. We have a national brand and reputation that sellers trust, and it's common for sellers to have a higher offer...but sell to us because they trust us more. We are often the lowest bidder...which means, when we buy houses...we get em' deep.

As someone that sells a lot of franchises...I wish I could make earnings claims! It would make sales MUCH easier if they could see the truth. For someone that wants to treat this as a business vs. a hobby...the right to be able to use the only national brand in this industry that others have spent over $200M building, the opportunity to have industry leading mentors and coaches (REAL ones!), the chance to surround yourself with hundreds of others that are doing what you want to do...and sharing knowledge that is hard to fathom as a non HomeVestors franchisee, to plug into a lead generation system that is second to none, and to get access to proprietary operating systems to run your business...and not have to try to replicate that (which nobody without our scale could), etc, etc, etc....$15,000 is nothing. As part of our vetting process for new franchise prospects....those prospects get the phone numbers for all 400+ of our existing franchisees...as well as all franchisees that have LEFT the system! Hows that for disclosure!

BTW - our best measurement is that approx 5% of our franchisees leave the system each year, and ~1/2 of those instances are for personal reasons. Nobody wins if our franchisees are not successful. And most of our large volume franchisees renew their franchises every 5 years (franchise agreements are 5 years). In fact...I just renewed mine, and have bought hundreds of houses in the last 5 years. I could do this on my own...but choose to be part of this world class team.

To be frank - I'll likely stop replying to posts like this...as I find myself defending the system, or trying to convince people of the value of a national franchise for $15K. Take a look at what other franchises cost...

For anyone that wants to learn more...just search me out.

Take care,

Mike