eli5: How does We Buy Ugly Houses work as a business model?

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I looked at their website after seeing one of their billboards and they have like 100+ locations listed. They must be making bank but what exactly is their business model?

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Is it not just house flipping at scale? So they make money with the classic “sell it for more than you paid for it” model

It’s a house flipping business.

They prey on people with houses in bad shape that can’t sell them otherwise. The make low-ball offers to buy the house or sometimes just the land.

Then they’ll spend the minimum needed to renovate or upgrade the house on the cheap and sell for way more than they paid.

They Buy Ugly Houses (at *significantly below market value,* fix them up enough to flip at a higher price).

They pay way under market to people desperate to sell, willing to take less if they don’t have to clean out/stage, etc. That’s where the profits in flipping houses is… in getting below market homes to fix up.

So somebody inherits their parents’ run down house that hasn’t been updated since it was built in the 70’s. They don’t want to deal with decluttering it, trying to make it look more modern/presentable to today’s buyers. So rather than do all that work and get $250k, for it, maybe they’ll take $180k and be done with it.

The “we buy ugly houses” people then spends $50k to remodel the house and list it for $300k.

Super easy actually. It’s called Wholesaleing.

Basically you find dilapidated properties, your offer on the property is the ARV (after repair value) minus cost of repairs, minus assignment fees.

So you get the current owner to sign a contract to sell you the home with 60 day close (or however you set it up).

Then you take your contract and market it to contractors and people who buy houses fix then and sell/rent them.

So let’s say I find a house with 200k ARV it needs a roof, new flooring, some drywall work. The repair cost is 50k (example). I’d offer to buy the house for 120k

Then market it to contractor for 130k.

They agree then I assign my contract to the new buyer. Meet at a closing agent and close both deals. Walk away with 10k

Edit: obviously this is a very simplified outline. Takes 100s of leads to find one willing to sell for a profitable amount.

Let’s say you need to sell your house. Let’s also say that you need to sell it relatively quickly.

If you sell it the conventional way, it can take months. You need to have an open house, find a buyer, let that buyer go through inspections, ensure that the buyer’s bank comes through on their promise of a loan, etc.

We Buy Ugly Houses expedites that process. They give all-cash offers and can close on the house much faster. In exchange, they pay under market value for the property.

They then renovate the place and sell it for more than they paid, because they can afford to get full market value.

I think most of the answers so far miss the point.

Yes, they are in the real estate “wholesaling” business, which is effectively just unlicensed real estate brokerage. Basically everything in the answers below regarding this bottom-feeding line of work is correct.

But “We Buy Ugly Houses” itself does not make its money that way. They sell franchises to wannabe “wholesalers.” That is why they have locations all over; they have sold franchises all over.

The franchise failure rate is extremely high. Basically the company appears to make its money by deceiving people into buying franchises of a business deceiving people into selling their homes at a disadvantage.

To the extent that they are stealing from thieves, you could almost say that they are on the side of the angels.