iBuyers have traditional real estate investors nervous and many are wondering if they will mean the of end house flipping for small real estate investors. OpenDoor, OfferPad, Zillow Offers, RedfinNow and Knock are the big iBuyers. Just like traditional house flippers, they’re buying houses for quick cash, renovating and then reselling; but on an unprecedented scale. Funded by big banks and Wall Street, they’re buying up tens of thousands of houses in many major markets and expanding rapidly.
What are iBuyers?
You can think of iBuyers as traditional house flippers on steroids.
- They are paying cash for properties.
- Their money comes from Wall Street.
- They close in 7 to 10 days, fix the house up and resell it.
iBuyers are in many markets across the U.S. and they’re growing rapidly. Some pundits predict they will be buying over 100,000 houses combined each year.
Traditional House Flippers Are Nervous
Traditional house flippers that have been this business for a long time are extremely nervous for 3 reasons:
- They don’t have as much money.
- They’re being out bid by iBuyers.
- Their money is a lot more expensive than iBuyers’ money because iBuyers have lines of credit from Wall Street with incredibly low interest rates.
iBuyer Market Share: Motivated Sellers and Uncomplicated deals
iBuyers are taking about ten percent of the overall real estate market. They have the ten percent of people who would rather avoid the headache and fees of a traditional sale and sell their house directly to a buyer while still getting close to market value.
iBuyers deal in volume, so to keep things simple they’re buying uncomplicated deals from motivated sellers. This has real estate agents concerned too because iBuyers are taking some of their better clients. Because pricing is so powerful when selling a house, they too want clients that are motivated to sell. If agents can list the house slightly lower, it will sell right away, which is good for business. So, traditional investors and real estate agents have reason to be concerned. But what about us? Does all this mean that these mega real estate investor iBuyers are about to put us out of business?
Creative Investors, Creative Solutions
Since the market share iBuyers are interested in is motivated sellers and uncomplicated deals, it also means that they’re not as interested in problem situations. They’re looking for properties they can buy quickly and move on. They’re not looking for complications and that’s where creative investors shine. We deal with the two percent of people that have difficult situations and sometimes are willing to take a much deeper cut in price.
I’ve been dealing with complications with house sellers for almost twenty years now. If you are a creative real estate investor that can solve complicated problems and provide creative solutions, there’s an encouragement here. iBuyers won’t touch it, but it’s perfect for you.
Pay Cash and Close Quickly
iBuyers do have one powerful tool in their tool belt that most house flippers don’t have; pay cash and close quickly. This is a significant advantage, but sometimes sellers don’t need or want that. They may prefer to take their time moving out. There are sellers with particular requirements and as a creative investor you can make a deal work.
So, the good news is their trash is our treasure. Creative investors are stepping in and we’re able to continue to do what we’ve always been doing. That said, traditional investors don’t have that benefit. They’re going toe to toe with iBuyers and they’re losing.
Are iBuyers Making Any Money?
Some of these iBuyers have been losing money. It seems it’s not quite as simple and automated as they anticipated. However, you must remember that they are backed by billions on Wall Street and their goal is to win on volume.
Adjusting Their Business Model
As they begin to adjust their business model, I have noticed that there’s been a reduction in how much they’re offering. They’re realizing that they were paying too much before. This drop in price could mean they will lose some of their market share because some people only sold to them to make a ton of money on their property. Those who sold to these iBuyers early on made out like bandits.
This has led some to suggest they are creating a real estate bubble. However, I don’t agree because they are focusing on the affordable housing price point. This is where most people are looking for property and it already has a lack of inventory. So, supply and demand is what’s pushing the market higher. They are focusing on the right market and as they begin to adjust, they’re going to figure out how to make money in this business.
Making Our Business Mainstream
I think iBuyers are here for the long haul, therefore you need to look at this as if this is the new normal for our industry. iBuyers are here and they are paying cash for houses just like you and me, only they are a tougher competitor. You may be asking, what’s the good news?
Here’s the first piece of good news. When they entered the business, they began spending millions on marketing. As a result, they’ve made the business of a home seller selling directly to a company rather than through a real estate agent more mainstream.
iBuyers are making our market bigger. So, even though they’re taking some deals from us, they’ve created deals that we wouldn’t have before. We’re getting significant deal flow volume with our apprentices that are in markets where they are heavily competing against these iBuyers.
Creative Real Estate
Sometimes we deal with sellers who have already connected with Opendoor and we are a breath of fresh air. When we are in an area where we are competing against iBuyers, what we like to communicate to the sellers is that we are like Opendoor, only we’re local, small and more creative. Which means we can do things that they can’t do. They’re a big company and they have specific rules. There’s a lot of things they don’t buy and say no to. As a result of trying to be more profitable, they’re adding more and more rules. They won’t buy property in a HOA, they won’t buy condos, or anything over $500,000. As they make more deals, they create more policies.
These rules create opportunities for us. We have always been the ones that take on the deals that traditional investors aren’t willing to touch. I will agree they’re stronger competition. They market in some of the places that we market for sellers and interact with more of our leads than traditional investors have in the past. However, the high tide has allowed us to create more opportunities. As a creative investor, I know how to weave and bob and be successful regardless of the competition.
Creative vs. Traditional Investing
Check out my video called Creative Real Estate vs Traditional Investing to find out what sets creative real estate investing apart. No matter what the market is or who our competitors are, creative real estate has been consistent, powerful, and profitable.