How has Zillow managed to lose upwards of a billion dollars house flipping? How do you lose a billion dollars in a business this good? And what can we learn from Zillow’s failure? Is the lesson as obvious as buy low and sell high? They were certainly buying high and selling low. However, buy low and sell high is basic economics. This lesson is even more important, and it impacts you.
What Can We Learn from Zillow’s Epic Failure?
You may be wondering what you can learn from an iBuyer like Zillow. True, you don’t have a billion-dollar platform that reaches millions of sellers. But you can still learn from this lesson because it’s crucial to real estate investing and it may be holding you back. The lesson from Zillow Offers’ epic failure is this: your problem is not money, it’s good deals.
Your Problem Is Not Money
Often investors think they can’t do deals because they don’t have money. This thinking shows a lack of understanding of the basics of real estate investing and Zillow illustrates this fundamental perfectly. They had unlimited funds to buy houses, but they lost a billion dollars. Why? Because they didn’t do good deals. They focused on the money as the solution thinking if they buy high volume, they can dominate the market and make a killing. What they didn’t understand was, it’s not about having money. It’s about good deals.
The lesson with Zillow isn’t just about finding good deals. If anyone can generate seller leads, it’s Zillow. They have a platform that reaches millions of homeowners every day. So, if they have endless cash and thousands of sellers leads every day, how did they lose so much money? Because they didn’t structure good deals.
Structuring Good Deals
Structuring good deals is a specialized skill but once you know how to do, it’s incredibly profitable. As Zillow discovered, even if you can reach the seller, you need to know exactly how to structure the deal for that property in that marketplace, at that moment in time. But Zillow didn’t know what they were doing, and they hired people in traditional real estate who don’t know what they’re doing either and together they failed miserably.
If you think that not having cash is what’s holding you back, you’re wrong. What’s holding you back are good deals. There are strategies you can use to do good deals even if you don’t have money:
- You can put it under contract and sell it immediately and begin to build up a bit of a war chest.
- You can get a line of credit to help a seller move through a transition so you can get the deal done.
- A third option is a hard money lender. There’s a lot of different lenders looking to put money on the street right now and fund good deals.
I’ve been in this business for two decades and I can assure you, money is not the problem, good deals is the problem. Now, if you have a well-structured deal and you have money, that certainly helps, but you have to begin with good deals and then the money flows. You need to find and structure great deals, so you don’t become an epic failure like Zillow Offers.