Gaining a Florida Home Improvement Loan Foothold

Joseph Peri is hunting for homely houses in Orange County.

A new franchise owner for HomeVestors of America, Peri is ready to buy real estate that needs some work.

HomeVestors is the company known for its “We Buy Ugly Houses” signs - a phrase it has trademarked, though the homes are not always ugly and other companies sometimes rip off the slogan.

The Florida housing market has been one of HomeVestors’ best, with 42 franchises, second only to the company’s home of Texas. And there’s no shortage of houses for sale - a virtual smorgasbord.

“I’m looking at some from $50,000 to $550,000. It’s pretty spread out,” said Peri, 31, one of two HomeVestors franchisees in the Orlando area.

But these days, many of the homes for sale in the Central Florida housing market can’t be bought, rehabilitated and sold for a profit.

“We’ve enjoyed tremendous growth in Florida historically, and we still have pockets of franchises doing well,” said John Hayes, chief executive officer of Dallas-based HomeVestors.

But a sharp run-up in home prices in recent years, the lack of equity have in many of the properties now for sale, slack demand among home buyers and other factors have made the business more challenging.

“I don’t know how some [owners] are able to pay the taxes and insurance,” Hayes said. “But this is temporary. We’re just riding through this transition with Florida.”

Hayes said he expects Florida lawmakers will find ways to bring down both property taxes and hurricane-related property insurance - and help boost existing-home sales.

“They are not going to allow an exodus from the state,” he said.

Ron Smith, an independent housing-rehab specialist in Apopka, said he gave up his sideline business a few months ago after 20 years of working the Orlando housing market area.

“It just got a lot tougher. I went to work full time at a roofing company,” said Smith, who used to buy and fix up homes to sell, or to rent until he could find a buyer, as many as four or five times a year.

Smith said his best years were the late 1990s through 2004, when “it just went crazy.” So many buyers were bidding up home prices, it got harder to compete. Then, earlier this year, sales went flat as thousands of homes flooded the market at inflated prices.

“I didn’t believe the market here would go 180 degrees, but it did,” Smith said.

The median resale price of an Orlando-area home was appreciating as much as 36 percent on an annualized basis by 2005, before settling back to single digits by 2006 and turning negative this April.

With widespread Florida mortgage troubles mounting, the end may not be in sight, either.

Ed Rogner, who has been a HomeVestors operator in Orlando for the past six years and in real-estate sales locally since 1978, said the once-thriving market’s sharp turn has surprised many veterans.

“I’ve never seen it like this,” said Rogner, 67. “There are just so many [bad credit Florida mortgage] loans out there. People call us and want us to buy their home, but there’s almost no equity. We can’t do that.”

And when the company does close on a sale and puts the property back on the market, “you’re competing against all these other houses.”

The Orlando area’s median sales price as reported by Realtors leveled off at about $250,000 beginning in April 2006 and recently dipped to about $240,000 as the inventory of listed homes jumped 50 percent in that period.

Still, Rogner said he expects the market to rebound, and the sign he is looking for is a decline in the inventory of existing homes for sale.

“When we see that, we’ll know,” he says of a recovery.

Andrea “Andy” Tolbert of Sanford, who has been buying, rehabilitating and selling homes in Orlando since 1999, said the Florida home improvement loan is more challenging but still workable for savvy investors.

“It’s tougher to sell but easier to buy,” Tolbert said, because of the record inventory of existing homes for sale by Realtors.

“Of course, you’ve got to be careful,” she said. “We’re going back to the core basics,” with much slower price appreciation.

Tolbert, president of the Investors Resource Center, a real-estate networking and education association in Winter Park, said she still is able to make a profit buying and selling homes by focusing on those worth $100,000 to $200,000.

“There are always buyers in that range,” she said.

HomeVestors specializes in homes sought by first-time home buyers or renters. It buys properties at a discount to what it projects will be the market value after rehab. The discount varies based on many factors, including the amount of work the project is expected to take.

With 260 locations in 33 states, the company is the only national operation of its kind. Founded in 1989, HomeVestors’ system of independent franchise operators bought a record 7,100 homes nationwide last year and sold about 5,000 of them. Others were rented.

Peri has helped family members rehab homes in Brevard County, but this is his first stab at the full-time buying, refurbishing and selling.

“I’m pretty confident,” said Peri, who is perusing bankruptcy and pre-bankruptcy listings for potential deals, and, in addition to Orange County, is considering projects in Ocala and Seminole.

Rehab work is hard and can be risky in this Florida home mortgage climate, but HomeVestors has refined the process and provides training and marketing support for its franchisees - as well as financing.

The company has about $75 million that it makes available, for a fee, so its operators can pay cash for homes, said Hayes, the CEO.

But that doesn’t mean the company puts itself in the same league as the individuals and companies who violate local ordinances by littering utility poles and public rights of way with signs that shout:

“We Buy Houses for Cash.”

Hayes, who saw numerous signs like that while in the Orlando area recently to meet with franchisees, said, “We don’t use those ‘bandit’ signs.”

SOURCE: Orlando Sentinel