Homevestors Franchise Cost and Payback Deep Dive (2022)
Written by: Patrick Findaro
Last Updated by
Rocio Somoza: March 3, 2023
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Download NowThis article is based on its 2022 FDD and the video above, from Vetted Biz Youtube Channel
Today, I want to talk a little bit about the Real Estate Industry opportunities in the franchise and business for sale space. There are a lot of opportunities in real estate property management, and brokerage. And I want to go across one option which you might have seen on their billboards before: We Buy Ugly Homes.
The franchise is named HomeVestors of America. And essentially, HomeVestors of America helps you buy, sell, and rehabilitate properties, and provides certain services to the buyers and sellers acting as an intermediary. It’s a well-established franchise concept that’s been running for about 25 years now.
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They grant franchises for HomeVestors Businesses (the “HomeVestors Business”). They offer both a full franchise (“Full Franchise”) and an associate franchise (“Associate Franchise”). The Full Franchise has a higher initial franchise fee but generally lower ongoing fees than an Associate Franchise, each of which may be operated on a full-time or part-time basis.
The primary activity of a HomeVestors Business is to buy and sell and rehabilitate residential and commercial properties. Also, furnish certain services to residential and commercial property buyers (the “Products and Services”). Rehabilitation includes all remodeling and repairs necessary to make the property marketable.
Total Investment:
The total investment necessary to begin the operation of a Full Franchise HomeVestors Business is $121,000—$456,250. This includes $80,000 that must be paid to the franchisor or affiliate.
The total investment necessary to begin the operation of an Associate Franchise HomeVestors Business is $80,000—$390,250. This includes $39,000 that must be paid to the franchisor or affiliate.
Most franchises in the United States do disclose their financials in the Item 19. However, it’s not required to disclose an Item 19. And in the case of HomeVestors, they choose not to disclose their Item 19 in 2021 but did disclose their financials for 2022.
When a franchise does not disclose the financials, and it’s that much more important to speak directly to franchisees to understand how well they’re doing or how well they’re not doing in the franchise system.
HomeVestor Financial Performance
The following tables are based on Gross Margin and the annual advertising spend for the period from January 1, 2021 through December 31, 2021 (the “Year 2021”) of all franchised HomeVestors Businesses in the United States operating for the full 12 months in 2021. It does not include any franchised HomeVestors Businesses that were purchased, sold or transferred during the Year 2021.
During the Year 2021, there were 958 franchised HomeVestors Businesses operating for the full 12 months. Gross Margin means the total sales prices of all properties sold by a HomeVestors Business during the period less the total purchase prices of such properties.
Gross Margin does not take into account any costs incurred by a HomeVestors Business in purchasing, rehabbing or selling such properties, including repair costs, advertising costs, commissions, etc. The amounts in the table are based on information reported to us by franchisees.
GROSS MARGIN AND ADVERTISING SPEND – SYSTEM
| Average Gross Margin | $617,609 |
| Median Gross Margin | $328,000 |
| Low Gross Margin | -$25,000 |
| High Gross Margin | $10,399,271 |
| Average Ad Spend | $86,408 |
| Median Ad Spend | $55,000 |
| Number of Units | 958 |
| Number and % Exceeding Average Gross Margin | 302/32% |
| Number and % Exceeding Average Ad Spend | 320/33% |
The following table lists by quartile(1) for the Year 2021 the average, median, low and high annual Gross Margin, the average and median annual advertising spend, the number of HomeVestors Businesses in the quartile, and the number and percent of HomeVestors Businesses in each quartile exceeding the average Gross Margin and the average annual advertising spend.
GROSS MARGIN AND ADVERTISING SPEND – PER QUARTILE
| Quartile | 1st | 2nd | 3rd | 4th |
|---|---|---|---|---|
| Average Gross Margin | $1,732,456 | $519,109 | $202,081 | $19,704 |
| Median Gross Margin | $1,303,08811 | $4961,742 | $207,900 | $0 |
| Low Gross Margin | $786,000 | $328,250 | $92,876 | -$25,000 |
| High Gross Margin | $10,399,271 | $779,376 | $327,750 | $91,000 |
| Average Ad Spend | $187,116 | $79,850 | $52,153 | $25,773 |
| Median Ad Spend | $144,000 | $71,750 | $41,250 | $14,500 |
| Number of Units | 239 | 240 | 239 | 240 |
| Number and % Exceeding Average Gross Margin | 72/30% | 110/46% | 121/51% | 78/33% |
| Number and % Exceeding Average Ad Spend | 83/35% | 103/43% | 92/38% | 79/33% |
(1) “Quartile” means dividing the HomeVestors Businesses into four groups, each containing a quarter of the HomeVestors Businesses, based on annual Gross Margin.
The “1st Quartile” means the top 25% performing HomeVestors Businesses, the “2nd Quartile” means the next highest 25% performing HomeVestors Businesses, the “3rd Quartile” means the next highest 25% performing HomeVestors Businesses, and the “4th Quartile” means the lowest 25% performing HomeVestors Businesses.
The following table lists by geographic region the percentage of franchises in that region that fell within the 1st, 2nd, 3rd or 4th quartiles based on Gross Margin for the Year 2021.
REGIONAL DATA
| Quartile | 1st | 2nd | 3rd | 4th |
|---|---|---|---|---|
| Midwest | 23.90% | 26.42% | 30.19% | 19.50% |
| South | 25.28% | 26.86% | 23.25% | 24.6% |
| North East | 19.08% | 26.01% | 25.43% | 29.48% |
| West | 30.60% | 18.58% | 24.04% | 26.78% |
The Midwest is comprised of the following states: IL, IN, IA, KS, MI, MN, MS, NE, ND, OH, SD and WI. The South is comprised of the following states: AL, AR, DC, FL, GA, KY, LA, MS, NC, OK, SC, TN, TX, VA and WV. The Northeast is comprised of the following states: CT, DE, ME, MD MA, NH, NJ, NY, PA, RI and VT. The West is comprised of the following states: AK, AZ, CA, CO, HI, ID, MT, NV, NM, OR, UT, WA and WO.
Some HomeVestors Businesses have earned this amount. Your individual results may differ. There is no assurance that you’ll earn as much.
The range of Gross Margin presented above represent Gross Margin before deductions for transaction royalty and marketing fees payable to the franchisor and all other operating expenses.
Gross Profit
The Gross Profit attainable by each HomeVestors Business depends on many factors, including geographic differences, competition within the immediate market area, the condition of the property purchased, the improvements made to such properties, as well as a franchisee’s management skill, experience, business acumen and marketing and sales efforts.
You should conduct an independent investigation of the costs and expenses franchisees will incur in operating their HomeVestors Businesses.
Franchisees and Former Franchisees May Be One Source of this Information
The range of Gross Profit presented above are historical data of specific franchisees.Written substantiation for the financial performance representation will be made available to you on reasonable request.Other than the preceding financial performance representations, we do not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets.
We also do not authorize our employees or representatives to make any such representations either orally or in writing. If you are purchasing an existing outlet, however, we may provide you with actual records of that outlet. If your receive any other financial performance information or projections of your future income, you should report it to the franchisor’s management by contacting Bonnie DePasse, 6500 Greenville Avenue, Suite 400, Dallas, Texas 75206, Tel: 972-761-0046, the Federal Trade Commission, and the appropriate state regulatory agency.
HomeVestors Franchise
So if you were to further evaluate HomeVestors of America on our site, you can see if it’s eligible for an SBA loan, which last we checked as of October 2021, it was not eligible for an SBA loan. You should definitely talk to HomeVestors of America to see why they’re not eligible and why they’re not classified in the SBA Franchise Directory as being eligible for SBA financing.
And if you’re interested in understanding different ways to finance a HomeVestors of America, you can fill out the form by clicking on the image below.
We can see together HomeVestors other potential ways to finance purchasing a HomeVestors franchise. And then also a big part of the business model is on the purchasing and selling of homes, which oftentimes you could use hard money lending and potentially even, depending on the hold period, it might be worth going to traditional mortgage to buy those properties.
Our Analysts Know What to Look for
We’ve reviewed over 5,000 franchise disclosure documents. So for us, it’s pretty easy going through seeing Item 7, Item 19. Look at a couple of other items to see what the most important areas to look for. Whether it’s a HomeVestors of America franchise or another franchise that you’re interested in investing in.
