6 ms·

One thing not mentioned: Opendoor absolutely does not have to carry the balance sheet risk of owning the homes forever. They can chop up those assets and sell t

One thing not mentioned: Opendoor absolutely does not have to carry the balance sheet risk of owning the homes forever. They can chop up those assets and sell them to anyone (hedge funds, banks, individual investors, etc) at any point. At scale, they'd be able to do this and still maintain most of the upside. At some point, Opendoor will be able to let businesses that simply manage financial risk for a living (i.e. banks) spread the downside risk out over the entire financial system, while Opendoor takes advantage of its customer acquisition and data advantages to capture the bulk upside. It's not a perpetually risk model if they don't want it to be.

hkmurakami 10y ago
Blackstone will definitely be eager buyers at opportune times (I believe they are currently divesting their considerable stakes in low to mid market real estate that they'd been accumulating since 2009).
- tommynicholas 10y ago
  There will be limitless buyers, and because Opendoor isn't competing on price, their ability to price securities to the financial markets will be absurd. I assume they'll have to keep a token % on balance sheet to show good faith but that's it.
  - hkmurakami 10y ago
    Just remembered -- FirstREX does exactly this. Equity financing of homes, and selling off their stakes in collateralized fashion to institutional invsetors.
phire 10y ago
Also, their position in the market gives them a very good insight into the likelihood of a crash. As demand for their services will increase whenever sellers are desperate to sell their houses. If they track those indicators, they will be able to dynamically decrease their purchase price based on the likelihood of a crash and (in the worst case) limit their exposure to only the housing stock they had at the start. In the best case, desperate sellers might accept the much lower price and Opendoor will make a profit off the crash.
- dandermotj 10y ago
  There's no such thing as reliably predicting a crash - that's why it's called a crash. There's bulls and bears but no one side is 'right' in aggregate.
  - jdross 10y ago
    real estate doesn't really crash, like the stock market. It kind of... slides as liquidity dried up for higher price points. All of this takes many months, with many early leading indicators if you know where to look and have the right data
    - LordHumungous 10y ago
      Holy wishful thinking batman. I don't know why you are fucking around with start ups, you should be on wall street
      - jdross 10y ago
        I'm describing data from '07-'10 across markets, not how I believe things might play out. Don't troll, show data otherwise.
- LordHumungous 10y ago
  > their position in the market gives them a very good insight into the likelihood of a crash LOL what? What insight into the market will opendoor have that is not publicly available? Sorry but this is magical thinking
  - phire 10y ago
    There are two reasons why someone might sell their house to Opendoor... A) They are willing to sacrifice some of the money for a much easier sales experience. B) They really, really need to finish the sale now. The size of the first group will follow a constant trend, but the second group will fluctuate based on various factors. So Opendoor can infer the desperation of the sellers in the market based on their numbers of sales. Most other factors are publically available, but the desperation of sellers isn't publicly tracked. Regular real-estate agents will be exposed to the same desperation, but it's in their best interest to hide any desperation, to maximise the sale price. Lenders will also know when some homeowners are falling behind on payments, but again they don't publish those numbers until a foreclosure actually happens. It's not like Opendoor is going to predict the crash before it happens, but as long as they can spot the crash early, before it really picks up steam, they can minimise their exposure.
prostoalex 10y ago
The linked TechCrunch article mentions it's a debt instrument > Norwest disclosed that OpenDoor has “hundreds of millions” of dollars of debt to its name. This debt is what the company uses to actually purchase properties.
deleted 10y ago
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LordHumungous 10y ago
>They can chop up those assets and sell them to anyone (hedge funds, banks, individual investors, etc) at any point Yeah... unless there's some kind of market liquidity crisis.
- tommynicholas 10y ago
  A market liquidity crisis would have to hit and have fully felt impacts over night for this to be a problem for Opendoor, since they flip inventory relatively quickly. Even a crisis situation would create only moderate medium term risk for them actually.
  - LordHumungous 10y ago
    They don't call it a crisis for nothing

hkmurakami 10y ago

Blackstone will definitely be eager buyers at opportune times (I believe they are currently divesting their considerable stakes in low to mid market real estate that they'd been accumulating since 2009).

tommynicholas 10y ago
There will be limitless buyers, and because Opendoor isn't competing on price, their ability to price securities to the financial markets will be absurd. I assume they'll have to keep a token % on balance sheet to show good faith but that's it.
- hkmurakami 10y ago
  Just remembered -- FirstREX does exactly this. Equity financing of homes, and selling off their stakes in collateralized fashion to institutional invsetors.

phire 10y ago

Also, their position in the market gives them a very good insight into the likelihood of a crash. As demand for their services will increase whenever sellers are desperate to sell their houses. If they track those indicators, they will be able to dynamically decrease their purchase price based on the likelihood of a crash and (in the worst case) limit their exposure to only the housing stock they had at the start. In the best case, desperate sellers might accept the much lower price and Opendoor will make a profit off the crash.

dandermotj 10y ago
There's no such thing as reliably predicting a crash - that's why it's called a crash. There's bulls and bears but no one side is 'right' in aggregate.
- jdross 10y ago
  real estate doesn't really crash, like the stock market. It kind of... slides as liquidity dried up for higher price points. All of this takes many months, with many early leading indicators if you know where to look and have the right data
  - LordHumungous 10y ago
    Holy wishful thinking batman. I don't know why you are fucking around with start ups, you should be on wall street
    - jdross 10y ago
      I'm describing data from '07-'10 across markets, not how I believe things might play out. Don't troll, show data otherwise.
LordHumungous 10y ago
> their position in the market gives them a very good insight into the likelihood of a crash LOL what? What insight into the market will opendoor have that is not publicly available? Sorry but this is magical thinking
- phire 10y ago
  There are two reasons why someone might sell their house to Opendoor... A) They are willing to sacrifice some of the money for a much easier sales experience. B) They really, really need to finish the sale now. The size of the first group will follow a constant trend, but the second group will fluctuate based on various factors. So Opendoor can infer the desperation of the sellers in the market based on their numbers of sales. Most other factors are publically available, but the desperation of sellers isn't publicly tracked. Regular real-estate agents will be exposed to the same desperation, but it's in their best interest to hide any desperation, to maximise the sale price. Lenders will also know when some homeowners are falling behind on payments, but again they don't publish those numbers until a foreclosure actually happens. It's not like Opendoor is going to predict the crash before it happens, but as long as they can spot the crash early, before it really picks up steam, they can minimise their exposure.

prostoalex 10y ago

The linked TechCrunch article mentions it's a debt instrument > Norwest disclosed that OpenDoor has “hundreds of millions” of dollars of debt to its name. This debt is what the company uses to actually purchase properties.

deleted 10y ago

[deleted]

LordHumungous 10y ago

>They can chop up those assets and sell them to anyone (hedge funds, banks, individual investors, etc) at any point Yeah... unless there's some kind of market liquidity crisis.

tommynicholas 10y ago
A market liquidity crisis would have to hit and have fully felt impacts over night for this to be a problem for Opendoor, since they flip inventory relatively quickly. Even a crisis situation would create only moderate medium term risk for them actually.
- LordHumungous 10y ago
  They don't call it a crisis for nothing