The Ugly Truth Behind “We Buy Ugly Houses”

I started getting postcards around 2012: "I/we want to buy your house." I have a pile of them. None of them offered more than $20k.

I had pandemic tenant problems; they didn't pay during the last six months, and the damage was substantial. I repaired the damage, then sold it on contract for $60k; I'm done with rental property.

I'm still getting calls and postcards.

I just don't understand it. Mortgages are insane. If you're buying a rental property with a mortgage, you can't afford to not rent it out.

But home costs are up, rental costs are up, and properties are vacant. Do we really have so many people able to afford to sit on empty properties rather than lower rental price? It's also insane. Most rents are north of $600 around here, and a $10-a-week difference is $520 a year in rent. So if you raise rent by $50, that's $2600 a year extra(excluding taxes). but if the apartment stays empty for 6 weeks while you wait for someone willing to pay, that's likely to cost you > $3000. So that $50 increase has a 1 year payoff, assuming a long-term tenant.

The whole market is irrational. The greed of landlords these days is palpable.

I think we need a wealth tax on people who own more than 2 properties. Start making landlording infeasible and get people to instead invest their capital in productive assets.

As I remember it, there was a famous case decades ago where a bank manager visited the home of an elderly Polish couple. The couple had a mortgage with the bank, and the bank wanted to renegotiate the terms of their mortgage. Only the wife was home, and she barely spoke any English. She understood that the man in the suit from the bank wanted them to sign some paperwork, so she did. As a co-signatory of the mortgage, her signature was enough.

The couple eventually lost their home as a result, and the case went through the courts. Eventually the high court (equivalent of the supreme court in the USA) sided with the couple. They said that because the bank has more money and skill, they have more power in a negotiation like this. As a result, they bear proportionately more responsibility during contract negotiations. In this case, it was their responsibility as the powerful party to make sure the borrowers actually understood the terms they were signing.

We basically only have 6 banks in Australia because of things like this. Its very difficult and expensive to open a new bank in australia because of regulatory requirements. But my impression is that the banks here are extremely careful when it comes to interacting with unsophisticated investors. They (reasonably) assume the courts will rule against them if they do anything that doesn't pass the pub test.

(I am not a lawyer, this is not legal advice, etc.)

If you read the article, and the excellent primary reporting it links to, you'll see that these companies are swindling people for significantly less than they would get from the open market. These people could hire a realtor and retain 95% of the value of their home. However, scams like "We buy ugly houses" blanket areas in advertisements so these folks never even get to find their market value - instead, selling for 50% or less of it. They're intentionally targeting folks who are least-likely or least-capable of protecting themselves with due diligence.

I've witnessed this myself. An elderly man under full-time care, in another state, inherited a property in my neighborhood. A "franchisee" of one of these places got him to sign over the "right to buy" for a fraction of what it would have sold for in a single day on zillow or similar. I was interested in buying it, but I didn't want to end up owning something that way, so I reached out to the man directly to link him to the (much higher) estimated value.

I never received a response from him: just from a "caretaker" who, I imagine, was being enriched somehow by the deal. I doubt the actual owner was ever informed.

It's incredibly predatory and there's a whole industry of "how to" get into it (it being "wholesaling," or unregulated real estate brokerage):

https://www.fortunebuilders.com/absentee-owner-lists/

Even from the very first alpha prototype or placeholder Web site we create, we almost always throw in third-party "analytics". Haven't even launched MVP, and already selling out out the privacy of our visitors.