Home-Flipping Giant Opendoor Says It’s Time to Resume Buying
(Bloomberg) -- The SoftBank-backed startup that used mountains of cash to reinvent the practice of flipping houses is betting that it’s safe to start shopping again.
Opendoor, which halted purchases in March and laid off more than a third of its staff as the coronavirus kept U.S. homebuyers indoors, will resume operations in Phoenix this week, with plans to reopen in more than 20 additional markets in the months ahead.
The company’s main service, letting owners sell without open houses or in-person closings, holds new appeal in the age of social-distancing. But it also carries big risks. Opendoor uses debt to buy homes, and its borrowing costs rise the longer it holds onto a property. Purchasing homes over the summer with the intention of reselling them in the fall could prove costly if the U.S. is mired in a recession or hit by a second wave of the virus.
“The value proposition we provide to customers is to help them move with certainty and convenience,” Chief Executive Officer Eric Wu said in an interview. “We should be willing to take on some of that exposure and we should price homes appropriately due to that risk.”
Opendoor has raised $1.3 billion in equity capital from investors including SoftBank Group Corp.’s Vision Fund. The company purchased about 19,000 homes in 2019 and owned roughly 3,800 in March. Skeptics have seen inventory risk in the business model for years.
Opendoor, founded in 2014, lets owners request bids online, and buys homes from those who accept. Unlike traditional flippers, the company makes light repairs and lists homes without major markups, profiting by charging a fee slightly above the commissions real estate agents collect.
Despite the economic turmoil stemming from the outbreak, Opendoor is under pressure to get back in the business of buying and selling homes, said Mike DelPrete, a real estate tech strategist who tracks the industry.
“They can’t afford to wait for things to get back to normal because they’re never going to get back to normal,” DelPrete said.
Opendoor’s model, often called iBuying, is popular with real estate companies and home sellers, especially in cheaper markets with uniform, suburban housing stock. Zillow Group Inc., Redfin Corp., and a handful of others have adopted the strategy, collectively purchasing, for example, more than 7% of homes in Raleigh, North Carolina, and nearly 6% of homes in Phoenix in 2019.
The company, whose investors also include single-family rental giant Invitation Homes Inc., has considered converting some of its properties into rentals, according to a person familiar with the company’s plans, who asked not to be named because the matter was private.
“It’s always an option for us,” Wu said. “It’s not something we’re actively pursuing at this moment.”
Instead, Opendoor is emphasizing its ability to limit personal interactions as it begins to acquire homes again. The company has started offering virtual tours, and launched a service, called Home Reserve, to buy new homes on behalf of customers while they list their current properties for sale.
Wu said resuming acquisitions in the middle of a deadly pandemic will require a measured approach, but that Americans still have plenty of reasons to buy and sell homes.
“There is still demand for people to move,” he said. “That could be driven by the fact that people need more space because they work from home, or they want to move out of the middle of the city because they want something less dense.”
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