5 ms·

Startup Pays Cash to Buy Homes, Flip Them

34 points by adamqureshi 11y ago

shah_s 11y ago
How is this any different from the countless companies that have been doing them for ages?
- dubcanada 11y ago
  This one is a start up, which for the sake of this article means something. However it really means absolutely nothing.
- theklub 11y ago
  Idk but maybe this? "But OpenDoor is unique in that it owns all the homes it lists for sale, countering the prevailing trend in Silicon Valley of solely running a marketplace that matches buyers and sellers. As a result, OpenDoor’s strategy is steeped with risk, potentially backfiring if the economy tailspins."
  - kolbe 11y ago
    Nope. That's been a common business model for decades, if not centuries or millennia.
- filleokus 11y ago
  I'm not sure of the difference on the buying side, but their selling side seem to be quite different than the normal approach https://www.opendoor.com/homes https://www.opendoor.com/homes
- ryandrake 11y ago
  Yea, basically this seems to be those "WE BUY HOMES FAST WITH CASH!!!" signs you see jammed all over gas stations and highway medians, except with a responsive web design and javascript.
  - DrScump 11y ago
    Even if they compete in the same space, that's a harsh characterization (absent more data, anyway). I'm hoping to see alternatives to the "I-saw-the-house-flipping-infomercial-at-2AM-and-want-a-piece" crowd.
- japhyr 11y ago
  I found the 24-hour access interesting. Is that something other companies have been doing as well?
- trgn 11y ago
  That's my question too. What is the case is that finding cash buyers often requires some informal connections. My metro has a fair amount of flipping going on, but it's hard to point to the marketplace where all this occurs. There's the foreclosure trawlers, the agents who knows a guy who just sold his latest project and is looking for the next one, the guys from the billboard who are looking for total wrecks, ... It's daunting.
- elcct 11y ago
  It has fancy keywords like "Open" and has animated clouds on the website.
- kolbe 11y ago
  My guess: the owner knows powerful people who help him shill for his company.
- jdross 11y ago
  Hey, I'm JD, cofounder at Opendoor. The biggest difference is price. Those companies offer 65 to 80 cents on the dollar for homes. We offer full market value, and take fees that are comparable to a traditional transaction when you consider the full cost of selling. (Our total fees are generally 8 to 10%) The article has many key inaccuracies that the reporter refused to correct, mostly around profit. If we made $20k per home, we'd give most of that back to sellers through higher offers and lower fees. And the data science team would panic, since their key metric is accuracy.
  - DrScump 11y ago
    Will you be expanding to California in the foreseeable future?
    - jdross 11y ago
      Possibly Sacramento
  - shah_s 11y ago
    Hi, Thanks for your response. I am not knocking on you or the product because it is a lucrative market (if done right). So, you are taking the risk on the houses? Do you guys rent out the house? What happens if it doesn't sell?
    - jdross 11y ago
      Yes, we buy (almost) all houses ourselves then sell them, taking on that risk. If they don't sell, we lower the price until they do. Homes are hard assets, and always have a price. In many cases, we lose money.
deleted 11y ago
[deleted]
roymurdock 11y ago
OpenDoor is unique in that it owns all the homes it lists for sale, countering the prevailing trend in Silicon Valley of solely running a marketplace that matches buyers and sellers. As a result, OpenDoor’s strategy is steeped with risk, potentially backfiring if the economy tailspins...The company uses mostly debt financing to buy homes, improving returns. Mr. Wu declined to disclose OpenDoor’s debt terms but said they are superior to what a typical home buyer gets on a mortgage. The combination of high leverage and complete property ownership seems incredibly risky to me. If the country-wide housing market turns sour, not only is the company left with swiftly depreciating assets on their balance sheet as real estate values drop and people stop buying homes, but they are also left paying (probably 1-2%) interest on houses that they "bought" with these loans for $300k, but that are now worth $200k. But the overall concept of increasing liquidity in the market by cutting out the broker and his/her available hours, "automating" the valuation and bid process, using low short-term interest rates to flip houses, and pricing for volume and quick turnover is pretty cool. The key is sticking to "commodity" housing (cheap-mid range) and timing the market correctly.
- w1ntermute 11y ago
  > The combination of high leverage and complete property ownership seems incredibly risky to me. Perhaps they're hedging their exposure with property derivatives.
  - humbleMouse 11y ago
    This was my thought as well.
  - jdross 11y ago
    They don't exist, at least at any meaningful scale. You can hedge against mortgage defaults, but it's not really the same thing.
- imglorp 11y ago
  Not a money person. ELI5 why it's not like dollar cost averaging on their part, if they're set up for long term? They might be stuck with more inventory in the dips, but they'd also be buying in the dips and they'd be selling higher when the market recovered.
kapsteur 11y ago
If the goal is to improve the house buying experience like uber did with taxi business. Let's go Opendoor, for too long the real estate agents took advantage from system
- uptown 11y ago
  The transition to that model is tricky. In the United States, buyers don't directly pay the realtor commission. The seller generally pays ~6%, but sometimes that's negotiated down. This commission is split between the buyer's agent and the seller's agent, with their brokerage typically taking a percentage. But a buyer wants to use an agent because their perception is that they're not paying for it, and most buyers aren't well versed with the house transaction process, which is complex. You could certainly make the case that a transaction without agents would mean either more profit for the seller, or a lower house price for the buyer, but I think it will take many years until that is the norm. There are a huge number of laws built around real estate transactions, and the NAR is a major major lobbying entity.
  - goodJobWalrus 11y ago
    > The seller generally pays ~6% This is gross. We just put our London place on the market, and the total commission we will be paying (to a normal high street agent) is 1%
    - uptown 11y ago
      I agree. And it's particularly insane given the degree to which the tasks traditionally performed by the realtor are now handled by more-informed buyers and sellers. Information used to be locked in physical listing books. It then moved online to disparate MLS's. Now you can view most listing data using a combination of Zillow, Realtor.com and regional localized brokerage websites. Good realtors still add some value, but framing it as a percentage of the transaction is entirely the wrong metric given how the industry has evolved in the past decade.
  - jdross 11y ago

34 points by adamqureshi 11y ago

shah_s 11y ago

How is this any different from the countless companies that have been doing them for ages?

dubcanada 11y ago
This one is a start up, which for the sake of this article means something. However it really means absolutely nothing.
theklub 11y ago
Idk but maybe this? "But OpenDoor is unique in that it owns all the homes it lists for sale, countering the prevailing trend in Silicon Valley of solely running a marketplace that matches buyers and sellers. As a result, OpenDoor’s strategy is steeped with risk, potentially backfiring if the economy tailspins."
- kolbe 11y ago
  Nope. That's been a common business model for decades, if not centuries or millennia.
filleokus 11y ago
I'm not sure of the difference on the buying side, but their selling side seem to be quite different than the normal approach https://www.opendoor.com/homes https://www.opendoor.com/homes
ryandrake 11y ago
Yea, basically this seems to be those "WE BUY HOMES FAST WITH CASH!!!" signs you see jammed all over gas stations and highway medians, except with a responsive web design and javascript.
- DrScump 11y ago
  Even if they compete in the same space, that's a harsh characterization (absent more data, anyway). I'm hoping to see alternatives to the "I-saw-the-house-flipping-infomercial-at-2AM-and-want-a-piece" crowd.
japhyr 11y ago
I found the 24-hour access interesting. Is that something other companies have been doing as well?
trgn 11y ago
That's my question too. What is the case is that finding cash buyers often requires some informal connections. My metro has a fair amount of flipping going on, but it's hard to point to the marketplace where all this occurs. There's the foreclosure trawlers, the agents who knows a guy who just sold his latest project and is looking for the next one, the guys from the billboard who are looking for total wrecks, ... It's daunting.
elcct 11y ago
It has fancy keywords like "Open" and has animated clouds on the website.
kolbe 11y ago
My guess: the owner knows powerful people who help him shill for his company.
jdross 11y ago
Hey, I'm JD, cofounder at Opendoor. The biggest difference is price. Those companies offer 65 to 80 cents on the dollar for homes. We offer full market value, and take fees that are comparable to a traditional transaction when you consider the full cost of selling. (Our total fees are generally 8 to 10%) The article has many key inaccuracies that the reporter refused to correct, mostly around profit. If we made $20k per home, we'd give most of that back to sellers through higher offers and lower fees. And the data science team would panic, since their key metric is accuracy.
- DrScump 11y ago
  Will you be expanding to California in the foreseeable future?
  - jdross 11y ago
    Possibly Sacramento
- shah_s 11y ago
  Hi, Thanks for your response. I am not knocking on you or the product because it is a lucrative market (if done right). So, you are taking the risk on the houses? Do you guys rent out the house? What happens if it doesn't sell?
  - jdross 11y ago
    Yes, we buy (almost) all houses ourselves then sell them, taking on that risk. If they don't sell, we lower the price until they do. Homes are hard assets, and always have a price. In many cases, we lose money.

deleted 11y ago

[deleted]

roymurdock 11y ago

OpenDoor is unique in that it owns all the homes it lists for sale, countering the prevailing trend in Silicon Valley of solely running a marketplace that matches buyers and sellers. As a result, OpenDoor’s strategy is steeped with risk, potentially backfiring if the economy tailspins...The company uses mostly debt financing to buy homes, improving returns. Mr. Wu declined to disclose OpenDoor’s debt terms but said they are superior to what a typical home buyer gets on a mortgage. The combination of high leverage and complete property ownership seems incredibly risky to me. If the country-wide housing market turns sour, not only is the company left with swiftly depreciating assets on their balance sheet as real estate values drop and people stop buying homes, but they are also left paying (probably 1-2%) interest on houses that they "bought" with these loans for $300k, but that are now worth $200k. But the overall concept of increasing liquidity in the market by cutting out the broker and his/her available hours, "automating" the valuation and bid process, using low short-term interest rates to flip houses, and pricing for volume and quick turnover is pretty cool. The key is sticking to "commodity" housing (cheap-mid range) and timing the market correctly.

w1ntermute 11y ago
> The combination of high leverage and complete property ownership seems incredibly risky to me. Perhaps they're hedging their exposure with property derivatives.
- humbleMouse 11y ago
  This was my thought as well.
- jdross 11y ago
  They don't exist, at least at any meaningful scale. You can hedge against mortgage defaults, but it's not really the same thing.
imglorp 11y ago
Not a money person. ELI5 why it's not like dollar cost averaging on their part, if they're set up for long term? They might be stuck with more inventory in the dips, but they'd also be buying in the dips and they'd be selling higher when the market recovered.

kapsteur 11y ago

If the goal is to improve the house buying experience like uber did with taxi business. Let's go Opendoor, for too long the real estate agents took advantage from system

uptown 11y ago
The transition to that model is tricky. In the United States, buyers don't directly pay the realtor commission. The seller generally pays ~6%, but sometimes that's negotiated down. This commission is split between the buyer's agent and the seller's agent, with their brokerage typically taking a percentage. But a buyer wants to use an agent because their perception is that they're not paying for it, and most buyers aren't well versed with the house transaction process, which is complex. You could certainly make the case that a transaction without agents would mean either more profit for the seller, or a lower house price for the buyer, but I think it will take many years until that is the norm. There are a huge number of laws built around real estate transactions, and the NAR is a major major lobbying entity.
- goodJobWalrus 11y ago
  > The seller generally pays ~6% This is gross. We just put our London place on the market, and the total commission we will be paying (to a normal high street agent) is 1%
  - uptown 11y ago
    I agree. And it's particularly insane given the degree to which the tasks traditionally performed by the realtor are now handled by more-informed buyers and sellers. Information used to be locked in physical listing books. It then moved online to disparate MLS's. Now you can view most listing data using a combination of Zillow, Realtor.com and regional localized brokerage websites. Good realtors still add some value, but framing it as a percentage of the transaction is entirely the wrong metric given how the industry has evolved in the past decade.
- jdross 11y ago