The Real Deal

By Sharman Egan Lagniappe columnist

Ever wonder about those “We Buy Ugly Houses” signs you see around town? What’s up with that – why would someone try to entice you into selling your house by telling you it’s ugly? Especially in Mobile where even the run-down houses are pretty.

The signs are courtesy of HomeVestors of America, and they’re not just here in Mobile. HomeVestors claims to be “America’s #1 Home Buyer,” with the purchase of over 35,000 homes in the last 12 years.

According to the HomeVestors Web site, it’s the only franchised home buying company in the U.S. with over 230 franchised offices in 35 states. The Mobile office is headed up by Steven Brown, a native Mobilian. After graduating from the University of Southern Mississippi, Brown spent much of his career in restaurant management. In 1999, he began investing in real estate in Jackson, Miss. In 2004, he moved back to Mobile and opened the local HomeVestors office with three partners, his wife Mecca and his parents Ron and Marie Brown.

Brown said the company’s signs don’t really tell the full story. “It’s not so much that we buy ugly houses,” he explained. “We help fix ugly situations.”

Brown’s company bought 88 homes last year, from distressed sellers willing to accept 65-70 percent of retail value in exchange for a quick and easy sale. The distressing situations included divorce, financial problems and estate issues. Brown said most of the houses they buy are at least 20 years old and priced between $60,000 and $120,000. Most are in transitional neighborhoods, areas that are changing significantly, either up or down.

“Our sweet spot is just south of the median-priced home,” Brown said. He explained that houses in this price range generally sell to first-time buyers who get their financing from the Federal Housing Administration (FHA). But many of these houses don’t meet FHA standards so the typical homebuyer can’t get financing on them. The only prospective buyers are investors. “No one else wants them. So we fix them up to sell to homeowners,” said Brown. “Most are first-time homebuyers, and 80 percent of them never thought they could buy a house.”

Of those 88 homes bought last year, Brown’s company rehabbed and sold 20 of them to homeowners. It rehabbed and rented out another 14. The remaining 54 houses were sold to other investors. Brown explained that he and his partners sell to investors in the “wholesale” market when they have more houses than they can rehab and resell or rent themselves, or when the houses they buy are not in their preferred areas.

Brown said investors are a large portion of the residential real estate market. “According to numbers from the National Association of Realtors, 21 percent of homes bought in 2007 were bought by investors, down from 27 percent in 2006,” he said.

The problems in the subprime mortgage market are having a big impact on real estate investors and consequently, a big impact on Brown’s business. “The average investor can’t get financing now, so we are selling more to homeowners,” he said. As a result, he expects the company’s numbers to flip-flop this year, with the majority of homes being sold to homebuyers, and a minority to investors.

What does Brown see happening in the Mobile real estate market over the next several years? “There are huge opportunities for growth here,” he said. “Mobile and the Southeast are poised for the biggest growth we’ve ever seen. The only question is whether the credit crunch will impede that growth.”

Brown said there’s a “desperate” undersupply of housing in Mobile, a big change from as recently as a year ago. He said prospective tenants are looking at his rental houses before the former tenants move out, and moving in within a week after the houses are vacated. He said they would move in even sooner if he could get the houses ready for occupancy faster.

Sounds like very bad news for renters, but it turns out there’s a silver, maybe even a gold, lining to all this. “Because of the economy in Mobile, it’s almost cheaper to buy than rent here,” Brown said. He gave the example of a situation recently where a woman was planning to rent a house from Brown’s company. Her rent was going to be about $700 per month. Brown told her she could buy the house with a payment of just over $500 per month including principle, interest, taxes and insurance. He offered her incentives that would allow her to get into the house for about $1,500, roughly the same amount required for up-front rent and a security deposit. She bought the house for $72,000.

In 2005, with the local HomeVestors franchise under their belts, Brown and his partners founded the Mobile Real Estate Investors Group. The group focuses on networking and education at its weekly lunch meetings. It has over 200 members with between 20 and 50 people at a typical meeting. There’s no membership fee (just $15 per meeting to cover the cost of lunch), and guests are welcome at the meetings. The group also holds several meetings throughout the year that, frankly, sound more like fun than business (this is Mobile, after all, and Brown’s office is on the Mardi Gras parade route).

To learn more about HomeVestors, visit http://mobile.homevestors.com. For information on the Mobile Real Estate Investors Group, go to www.mobile-rig.com. Or you can contact Steve Brown directly at steve.brown@homevestors.com or 251-366-4663.

Sharman Egan is Lagniappe lagniappe columnist. Contact her at Sharman@SharmanEgan.com.

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