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Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
Every week in this space, I write an article about something I've observed in the real estate market...
But while I normally put my own spin on the stuff I observe, this week I'm reaching out to you to find out what you think.
Because I am, quite frankly, befuddled. I'm flummoxed. I'm scratching my head with a stupid slack-jawed look on my face.
The headline of an article is what caught my eye...
It said:
"OpenDoor, PayPal vet Keith Rabois’ ‘big-data house-flipping’ startup, has funding and will launch in July."
But the subheading is what reeled me in.
It said: "OpenDoor will make 'instant offer' to sellers with funding in as soon as 3 days."
Hmm. Interesting concept, right?
The article goes on to say that:
"OpenDoor has attracted attention in part because of the proven track record of its founders as innovators, but also for the boldness of their vision: a platform that will allow homeowners to sell their homes almost instantly with just a few clicks of a mouse, which the company will then flip."
Ummm. Really?
But it gets better. I'm serious…
The company's website tells visitors that homeowners who use the service will “receive an instant offer online and funding in as soon as three days,” and may enjoy “full certainty on the price and close date.”
How, you ask? Great question!
They say that "OpenDoor will base those offers on analysis of public and private data, and it guarantees sellers “full certainty on the price and close date” of a transaction.
And, after OpenDoor purchases a home, it will sell it to turn a profit.
The startup reportedly thinks it can pull that off because, if all goes according to plan, it’ll be able to purchase homes at a discount that will be “much less” than the 8% car dealers expect on trade-ins.
Huh? They compare real estate investing to used car trade ins?
Okay… Forget about that for a second…
Let's take a closer look at this.
I take this explanation to mean they're going to do lead generation marketing to motivated sellers just like we do. Except they're going to do it nationwide.
Then they're going to have these motivated sellers fill out an information form. Just like we do.
Then they, apparently, are going to have the "system":
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Do the market analysis based on the information the seller provided;
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Compute the ARV for the home in the area;
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Estimate the repairs necessary on the house;
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Know the appropriate MAO formula for the neighborhood the home is in;
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Compute the MAO; and
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Make a firm offer.
And do all of this with no human intervention.
Seems legit. {rolling my eyes}
And they say the buzz is because they have a guy from Paypal, a guy from Trulia, and a guy from Square leading the startup.
This is where I start scratching my head.
Because if I read this right, they're pitching "full certainty on price and close date" based on "public and private data" that will come from Trulia.
Seriously? They're going to make offers with "price and close date certainty" based on Trulia data?
I can't even get accurate data from Trulia on a STREET BY STREET basis in a small area that I buy in, yet they're planning on making blind offers everywhere?
And make a profit doing it?
Color me skeptical, but this sounds a lot like the pie in the sky crap that I saw during the dot com bubble in 2000:
An unworkable concept. A poor plan. No real chance of success.
But since the founders "have a proven track record" and because they're acting with boldness and vision, the press is hyperventilating over it.
Sorry, I ain't buying it.
In my view, this emperor has no clothes.
I'm sure the IPO will go off with a sky-high valuation, but I don't see where the profit will come from.
But I want to hear from you - what am I missing on this? I mean, I'd LOVE for this to work. But having been a down-in-the-weeds real estate investor for 10 years now, to me it's a pipe dream, at least right now.
So…
What do you Think?
I’m curious to hear your take. Let me know by commenting below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.