7 ms·

Just as interesting to me as the tech stack is the business stack. There have to be some really tightly-managed pipelines of deals because Opendoor is fronting

Just as interesting to me as the tech stack is the business stack. There have to be some really tightly-managed pipelines of deals because Opendoor is fronting capital to buy up the houses. Interesting scaling challenges there on the capital side. If Opendoor works out how to quickly vacate the newly-bought property, then automate much of the project coordination activity that is done to flip the property by automatically scheduling and bringing in contractors and inspectors, that could lead to some really interesting returns. Even if the sprucing up is not to flip for huge amounts, just the usual repairs and freshening changes, combined with an empty house to show, could easily lead to semi-automation of a buy-low sell-high, high-volume business of conveniently buying a lived-in house, and selling a nice-looking, nice-smelling, high-curb-appeal house for much higher than the original property owners could bring. Automate the scheduling of staging and unstaging, and goose the numbers even more. I can see all sorts of other follow-on monetization streams from this simple change in the process you guys introduced, thanks for the thought-provoking write up, I look forward to reading much more about your successes in the future.

frgtpsswrdlame 10y ago
But it basically is flipping isn't it? Maybe they can work out how to flip a little cheaper with technology but this model only works because flipping is so hot right now. http://www.housingwire.com/articles/39523-home-flipping-hits-10-year-high-in-2016 http://www.housingwire.com/articles/39523-home-flipping-hits...
- azirbel 10y ago
  It looks similar, but we're actually very different than flippers. House flipping is about finding underpriced houses (either by having a sharp eye, or by buying distressed houses), and then optimizing the amount of money invested vs. the return. Opendoor is much more focused on the customer experience, trying to give fair offers to every home - everyday homes, not distressed ones. We typically don't spend very long renovating our homes. We'd rather reinvent the buying and selling experience itself, and do a larger number of transactions. More info: https://www.opendoor.com/blog/flipping-the-real-estate-industry-on-its-head https://www.opendoor.com/blog/flipping-the-real-estate-indus...
  - frgtpsswrdlame 10y ago
    That's defining it a bit narrowly isn't it? You guys buy homes, do a (little) work on them and then sell them for more, all in a short time frame. Maybe your innovation is in doing lots of small flips but it still seems like flipping to me.
    - kandalf 10y ago
      Perhaps another way of thinking about it is in terms of being a market maker versus a speculator. I think of Opendoor as more like the former, where traditionally a flipper refers to the latter.
      - amalag 10y ago
        Market makers make money on the spread and facilitate liquidity. Speculators hold an asset (sometimes short term) for a rising price. Flippers traditionally do benefit from a rising market because of longer hold times.
    - wtvanhest 10y ago
      I'm going to speak for OpenDoor here so someone from them can probably jump in, but the company I started and shut down was around financing house flippers and I have a background in both capital raising and real estate. There are many types of 'house flipping' and most of the differences are just various shades of grey. For illustration purposes: At one extreme: Focus on buying dramatically undervalued assets, putting in minimum work and reselling. (Do this using lots of people labor in looking for deals.) - IMO, this is the only way to make money consistently flipping At the other extreme: Buy houses, put dollars in to them and acheive an ROI (lots of people labor in rehab). This is what you see on "house flippers" or other TV based flipping shows. Typically these systems work when the market is appreciating, but the value the 'flipper' puts in is really questionable vs the market appreciation. Most of the people that do this strategy eventually end up getting hammered in a downturn. Opendoor is basically disrupting the first group. They are using a quantitative process (automated valuation models), then overlaying a fundamental process on top (having someone look at the data to make sure it makes sense.) That is how they make sure they are buying undervalued assets. The disruption happens because they are eliminating the huge amount of man hours it takes to find undervalued deals, by paying slightly more, and building a good brand and well as fine tuning their marketing channel. At the end of the day, a certain percentage of people need to sell their house very, very quickly and OpenDoor will be able to pay more than flippers in the first extreme so they will gain a ridiculous amount of market share. Downside risk: The risk is that they need to scale their operation so large to get economies of scale that when a downturn happens, they are too top heavy and end up getting financial destroyed. Many people may also assume that they could systematically missprice houses (pay too much), but I doubt that is a real risk.
azirbel 10y ago
Very true on the financing, and how it connects to our business. There have been plenty of companies in the past whose business model is to buy distressed houses and flip them; Opendoor is coming from a very different angle. We'd like to buy and sell houses at normal prices, do a lot more volume, and make smaller margins on each transaction than the traditional "flipping" business. Because of that model, it's very important that we (1) have access to a lot of capital, and (2) renovate and resell the property quickly, so we can put the money to use again.

frgtpsswrdlame 10y ago

But it basically is flipping isn't it? Maybe they can work out how to flip a little cheaper with technology but this model only works because flipping is so hot right now. http://www.housingwire.com/articles/39523-home-flipping-hits-10-year-high-in-2016 http://www.housingwire.com/articles/39523-home-flipping-hits...

azirbel 10y ago
It looks similar, but we're actually very different than flippers. House flipping is about finding underpriced houses (either by having a sharp eye, or by buying distressed houses), and then optimizing the amount of money invested vs. the return. Opendoor is much more focused on the customer experience, trying to give fair offers to every home - everyday homes, not distressed ones. We typically don't spend very long renovating our homes. We'd rather reinvent the buying and selling experience itself, and do a larger number of transactions. More info: https://www.opendoor.com/blog/flipping-the-real-estate-industry-on-its-head https://www.opendoor.com/blog/flipping-the-real-estate-indus...
- frgtpsswrdlame 10y ago
  That's defining it a bit narrowly isn't it? You guys buy homes, do a (little) work on them and then sell them for more, all in a short time frame. Maybe your innovation is in doing lots of small flips but it still seems like flipping to me.
  - kandalf 10y ago
    Perhaps another way of thinking about it is in terms of being a market maker versus a speculator. I think of Opendoor as more like the former, where traditionally a flipper refers to the latter.
    - amalag 10y ago
      Market makers make money on the spread and facilitate liquidity. Speculators hold an asset (sometimes short term) for a rising price. Flippers traditionally do benefit from a rising market because of longer hold times.
  - wtvanhest 10y ago
    I'm going to speak for OpenDoor here so someone from them can probably jump in, but the company I started and shut down was around financing house flippers and I have a background in both capital raising and real estate. There are many types of 'house flipping' and most of the differences are just various shades of grey. For illustration purposes: At one extreme: Focus on buying dramatically undervalued assets, putting in minimum work and reselling. (Do this using lots of people labor in looking for deals.) - IMO, this is the only way to make money consistently flipping At the other extreme: Buy houses, put dollars in to them and acheive an ROI (lots of people labor in rehab). This is what you see on "house flippers" or other TV based flipping shows. Typically these systems work when the market is appreciating, but the value the 'flipper' puts in is really questionable vs the market appreciation. Most of the people that do this strategy eventually end up getting hammered in a downturn. Opendoor is basically disrupting the first group. They are using a quantitative process (automated valuation models), then overlaying a fundamental process on top (having someone look at the data to make sure it makes sense.) That is how they make sure they are buying undervalued assets. The disruption happens because they are eliminating the huge amount of man hours it takes to find undervalued deals, by paying slightly more, and building a good brand and well as fine tuning their marketing channel. At the end of the day, a certain percentage of people need to sell their house very, very quickly and OpenDoor will be able to pay more than flippers in the first extreme so they will gain a ridiculous amount of market share. Downside risk: The risk is that they need to scale their operation so large to get economies of scale that when a downturn happens, they are too top heavy and end up getting financial destroyed. Many people may also assume that they could systematically missprice houses (pay too much), but I doubt that is a real risk.

azirbel 10y ago

Very true on the financing, and how it connects to our business. There have been plenty of companies in the past whose business model is to buy distressed houses and flip them; Opendoor is coming from a very different angle. We'd like to buy and sell houses at normal prices, do a lot more volume, and make smaller margins on each transaction than the traditional "flipping" business. Because of that model, it's very important that we (1) have access to a lot of capital, and (2) renovate and resell the property quickly, so we can put the money to use again.