Pretty Houses and Ugly HousesPosted on November 28, 2014 by
I was recently on a panel discussing the business models of pretty houses vs. ugly houses. The good news is that both businesses are extremely viable in today’s economy.
Because I have been a successful investor for so many years, I know that there is no wrong choice between the two strategies, but I also know that it is essential to have both techniques in your arsenal so that you can take advantage of all possibilities. The more options you have, the better your chances are of making the most money.
I would like to teach YOU about both business models so that you have yet another tool to help you to succeed. Here is just some of the knowledge I’d like to share with you.
The Ugly House
An Ugly House is a distressed property. When you drive past an ugly house, you will see needed repairs, tall grass, and broken windows. There may be prostitutes, drug dealers, and individuals who make it unappealing to live in the community. A majority of Ugly houses are typically in lower socioeconomic neighborhoods, but sometimes in moderate or middle class neighborhoods.
The Ugly House Market is large because after 15 years, a new house will have a higher chance of being ugly because of deterioration. The owners have let things go. They have not maintained the property. They may not have bought a new roof or an HVAC system; there are large ticket items that need to be addressed.
The result? The owners move, and you have the opportunity to buy at a significant discount.
The Pretty House
A Pretty House is not as run-down as an ugly house, but it needs some work. This market is a little bit narrower than the Ugly House market because the owners typically have resources to stay current with their payments and understand delayed gratification. Pretty houses become available because the owner has been faced with life situations such as job loss or relocation, an elderly parent in another state, or moving a long distance away. The owners are stressed and motivated to get out of the property.
Making the Money
A Pretty House has the possibility of selling more quickly. You can talk to the seller on a Monday and have a pay day within 5 days. You do this by either placing the property in your rental portfolio or doing a wholesale transaction.
With some of these pretty house opportunities, you will be putting a tenant buyer into the property and leasing for a two year period. That way you get paid on the option; it is a non-refundable option. Plus, you might get paid on the cash flow, and then you have an opportunity to get paid when they cash you out.
Disadvantages of the Pretty House
- You’ll need to educate the seller and yourself on the paperwork, the terminology, the ease of entry, and the ease of exit.
- You must develop rapport with the seller.
- You must placate the sellers’ concerns about repairs, payments, condition of the property, liability, and value.
- Many of these sellers want a fair market value. This sometimes creates a conflict and makes the Pretty House business a little bit more stressful.
An Ugly House typically takes 10 days to 14 days to make money on. This happens when you have a solid buyers list built. The fastest that I have ever had an ugly house sell was 4 days. This is because I had a buyers list. I do know people who have built a system that allows them to post a piece of property on a Friday, have multiple offers on Monday, and have it sold by Wednesday.
The Advantages of the Ugly House
- There are plenty of them in all income areas.
- They rent or sell easily.
- They are easy to spot.
- They have a low cost.
- They are easy to negotiate.
- If you have little or no money and/or credit, you can purchase an ugly house without cash. All you need is an understanding of what the return on investment is or the cash flow might be.
- Persuading the seller to take the correct price is easier because you don’t need to build a tremendous amount of trust and rapport.
Disadvantages of the Ugly House
The profit margins are slimmer, and you typically get paid just once.
The Pretty and the Ugly
Both types of houses are extremely viable options. Both will work in this economy and can be very fruitful.
Both ugly and pretty houses can be wholesaled because they are deals that somebody else would want. You can also go with a buy-fix-and-hold or a buy-fix-and-sell. When the smart investor does a lease option, they make cash flow, so with each one of the two business models, you can get paid in the same way. The idea is to be able to understand when you have a deal and when you have a dud. Whether you structure either a subject-to or lease-option is determined by the amount of equity, cash flow, and exit strategy.
Personally, I strive to put properties into my portfolio in order to create wealth and cash flow. I buy them, renovate them, and rent them. One technique I use is to buy and fix the house with private money and then, once the tenant is in the property, I refinance it, pay off the lenders, and have zero of my own money in the deal. This allows me to have the beautiful cash flow and later on sell for a profit. I can do this for either a chunk of money or as a source of continuous cash flow with low tax consequences.
Knowledge Is Power
The more knowledge you have, in this case the Ugly House or the Pretty House, the more likely you are to make the most amount of money.
You need tools. And once you have the tools, you will be able to be more creative in your deal structuring.
To get knowledge, to collect tools, you need an education. You need a coach who has experience and expertise, someone who has worked in the business and who has been successful, someone who continually invests in his own knowledge so that he can pass that along to you.
Are YOU a Smart Investor?
If YOU are a smart investor, then you will pay for a quality education and see returns on your investment. When you learn what works in different economies or different neighborhood and within varied socio-economic levels, you will be far more successful.
I am a smart investor. My life is important to me. My family is important to me. I want a good life with vacations and comfort. Therefore, I spend $5000 annually to educate myself further so that I can make more money, so that I can give my family the life they deserve, so I can pass knowledge along to YOU.
Are you committed to learning to earn more money? Are you willing to invest so that you too can be successful?
The information I’ve given you here today is only a tiny portion of the training I can offer you. I am an expert in this field, and I can help you to assess and make deals. I can help you decide what is a deal and what is a dud. I can lead you through decisions that will make you money.
But you have to invest money before you can reap the dividends. That is why I am a coach because I want YOU to succeed.
PLEASE NOTE: This title of this article was changed on October 27th, 2015 from “The Good, The Bad, and The Ugly House” at the request of Attorney Darin M. Klemchuck who represents the trademark rights of HomeVestors of America, Inc® While the original title as a play on words from the famous 1966 Clint Eastwood film “The Good, the Bad and the Ugly”, Attorney Klemchuck thought this title might somehow confuse our readers or make them think of the Homevestors’® Trademark “THE GOOD, THE BAD AND THE UGLY®” which they use in regards to “Real estate services, namely, purchase, finance, acquisition and brokerage of residential real estate properties for others. FIRST USE: 20070302. FIRST USE IN COMMERCE: 20070302”.