The Science of Flipping - iBuyers Are Selling To Hedge Funds

Starting point is 00:00:00 Reports have come out and it says that iBuyers are selling one out of every five homes that they buy to institutional buyers. Who are institutional buyers? They're the big boys like Blackstone or Progressive. There are many of them. Cerebrus is another name that I've sold homes to. But here's the thing. This affects us small mom and pops in a very certain way that I want to go over right here on today's episode of the Science of Flipping podcast. I'm your host, Justin Colby, and this news just came out and was just reported today.

Starting point is 00:00:48 It is incredible. We've all talked about iBuyers. We've all talked about hedge funds and institutional buyers. Well, now the reports are showing that they're very intimately connected. How does this affect us? Justin, why are we listening or caring about why the iBuyers and the institutional buyers are working together? Well, 20% of the homes that these iBuyers are buying, which is open door, off a pad, Zillow just left the market. Redfin has given their share and there are others. 20% of these homes are not even hitting the market and just going straight over to these hedge funds now open door alone just the third quarter alone they bought 15,000 homes nationally and they sold 5,988 now that number of the 5,988 doesn't mean they all went to the institutional buyers like Blackstone and whatnot.

Starting point is 00:01:47 But if you just take 20% of 15,000, that's 3,000 homes that the general public never got to see. This is really impactful. Now, this article that I did the research about also talks about how Open Door and Zillow and OfferPad, they don't believe that they're the cause for this, you know, raise in market value. And I, to some extent, would agree with them. However, when they are paying numbers well above what the mom and pop investors can pay, they do play a part. Adam Data actually did a research on this and roughly says that iBuyers collectively, Open Door, OfferPad, Zillow, Redfin, and others are accounted for roughly 1% of the purchases nationally. Okay, so Adam is a very reliable source, so I would say they are not a major influencer in the pricing. But I would say they are a big influencer regionally in the pricing.

Starting point is 00:02:52 What does that mean? Well, they go on to talk about how there are parts of Georgia that are huge for these iBuyers, that they're buying a massive amount of properties, like Macon, Georgia. They say right here, McDonough, Georgia, if I'm even pronouncing that right. They're buying a lot of the homes in those areas. So if you talk about a region or even more specifically certain cities, they could be a major influx in why these prices are going so high. Now, this report also says that they're selling roughly 20% of the homes to the iBuyers, but they're also selling to individual investors who want good rental properties. So how does this affect me, Justin? Well, if you're like me, you're going to stay strong with buying rentals. It is a great, great, great inflation hedge. And the reality is a real asset that will no longer exist. If you've been following me at all on TikTok or Instagram

Starting point is 00:03:52 or anywhere else, you'd see I just put out a video talking about this metaverse real estate versus real world real estate. And while I myself really do believe in cryptocurrencies, I do believe in this concept, the metaverse, I do believe it will happen and exist and be around. It has already been proven. My investing strategy specific to real estate for the time being is going to be doubling down on real real estate right here on planet earth, not the metaverse. Now that could change over time, but that being said, I'm going to be buying from these individuals. I literally sent a text to my manager saying, Hey, we need to not know just the buyers that we've worked with. And we've worked, um, with these, you know, hedge fund buyers, uh, you know, in Georgia and Phoenix

Starting point is 00:04:43 or Arizona, specifically Florida, et cetera, we've worked with a good amount of them. We not only want to sell to them, we actually want to buy their product. And I guess, let me take a step back. I'm actually talking more about buying the iBuyers product. So I'm not buying from the hedge funds, but buying from the iBuyers. And we've worked with them extensively in Phoenix. The iBuying platform really kind of launched itself within Phoenix and we've worked with all of them. We've been creative to get the deal structure down. We've gotten paid.

Starting point is 00:05:13 We probably could have made more money on some, but I've actually asked my manager to contact them specifically, not the hedge funds. I was confusing myself because we actually want to be buying rentals directly from them. If they're remodeling to a place of a good rental property, then I want to be on that list. Now, listen, I don't have as much money as these hedge funds, not even a fraction of

Starting point is 00:05:35 a fraction, but if I could buy one, two or three a year directly from them with the ease that they can make it, that's going to make it so much easier for me because it won't hit the market. Part of this article was reporting that these properties don't necessarily hit the MLS market. So it's off market, right? So that's the key is I'm not really in a bidding war with anyone except for these hedge funds that have so much more money in me. Obviously it's not fair. Now, this is something that needs to be recognized because more and more are these iBuyers growing. Offerpad went out and got an extra $600 million worth of debt to buy more, right? This is my last episode. And then

Starting point is 00:06:20 Opendoor really is the leader in the category, right? I mean, they are the big dog. They are the Uber. And so, you know, when these guys already have hundreds and hundreds and hundreds of millions of dollars to work with and they're getting more, we as a small mom and pop, we need to adjust, right? If you can't beat them, join them. So many people, when this first happened in Phoenix two, three years ago, they're not profitable. They won't be around long.

Starting point is 00:06:48 They're gonna realize the numbers don't make sense the way they're buying, all this stuff. By the way, if you are not watching me on YouTube, I just did bunny ears like six times in a row, make sure you're subscribed to my YouTube. Go to youtube.com, look me up, Justin Colby, subscribe to my YouTube so you can watch these videos because they can be entertaining. And I will continue to drop fire podcasts with interviews with some of the top people

Starting point is 00:07:11 in this space to help advise you guys right here. Now, with that said, to get back, open door and offer pattern not going anywhere. Yes, Zillow fell out. Well, Zillow fell out for one reason is because they're really a data company and they started losing track of their data. But there are some articles coming out saying they're not totally couple million, which is nothing on the scheme of things. Or maybe you're just trying home, they call us first to see if we would just buy it directly from them. No realtor involved. I will buy it from you as a good rental because I am actively buying rentals. So that is one way we're doing it. Obviously, another way is we can wholesale to them. Now, the interesting thing about the iBuyers and the institutional money, like Blackstone is the biggest reference, I sell to both. And they're actually quite easy to sell to.

Starting point is 00:08:30 We just did a deal, like I said, out in Georgia, making Georgia. We just closed the deal last week in making Georgia. Those type of transactions are becoming easier and easier. So what it boils down to, and I've said this for quite some time is if you become a opportunity seeker. And what I mean by that is so many people that listen to me and are in this space, you know, in social media and podcasts and YouTube, and you're learning how to do this and wholesaling is the way. Now I'm not saying it's not the way, but you're not framing it right in your head. Wholesaling is dead. You need to be an opportunity business person,

Starting point is 00:09:10 meaning maximize each and every opportunity. The reason I can sustain a high volume of deals every single year is because I can understand my exit strategy. Every offer doesn't necessarily have to be a cash offer. If I know a hedge fund or an iBuyer is behind me, I can get creative on how I structure that deal based around their buying criteria and I can actually get the deal done where a wholesaler might just make a cash offer that the seller knives because they weren't creative enough I have these connections the networks and I'm gonna pause everyone knows that I'm a coach here that's listening to me I believe there are four main pillars in our business of real estate investing. The very first pillar guys is your network. Your network is absolutely everything. And I'm so passionate

Starting point is 00:09:53 about that because I do roughly 10 deals a month directly through my network. Maybe it's agents, maybe it's other wholesalers. Maybe it's my network of hedge funds and iBuyer connections that help me structure a deal in a way that I can get the deal done and move to them and make money where most would not find money. Maybe it's my title companies. Maybe it's my hard money lending companies that help me move a deal to one of their clients that's looking for flips. I get text message from my hard money companies saying, hey, I have a client that's needing something in this zip code. You have anything. My network gets me these deals,

Starting point is 00:10:30 10 plus a month, every single month. So for those out there trying to break into this space, network is your first pillar, okay? And this article is highlighting that. Meaning, if you have the right relationship with these iBuyers, they will quite literally sell to you for your rentals. Now, not everyone's ready to buy rentals, but the point is still the same, right? Is you need to actually structure your end in mind first. Be a maximized opportunity business owner, not just a cash offer, you know, marketer as a wholesaler, right? So this is really impactful stuff because

Starting point is 00:11:04 these guys are going to be buying and buying and buying more and more and more. They're raising more money to do so. So what do you need to be doing? You need to be getting in front of sellers so you can wholesale those over to your iBuyers so they can buy them. Or you need to be able to have the hedge fund buyers that you can go in between and sell it off to the hedge funds. Either way, you need to create the opportunity. Here's the thing. This isn't going to slow down the market. It's not going to maximize, or I should say, it'll likely maximize the prices that they're going to be buying it at. The data is saying they've done 1% nationally. Yes, but where they are at regionally,

Starting point is 00:11:44 they can make a massive impact in that market. Phoenix is a prime example of the prices that have just gone so high so fast. It's because all the iBuyers and hedge funds are all playing in that sandbox. Well, I've been in Phoenix now for 14 years. I haven't left. We're still doing deals in Phoenix. It's because of the number one pillar, my network. I connect with the hedge funds. I connect with the iBuyers. I put deals together that a cash offer wouldn't do. So hopefully you took something from this. This is very real. They're selling directly to each other, meaning we don't even see it on the MLS. This is why MLS product continues to stay low.

Starting point is 00:12:23 There's a lot to unpack here, but I try to do enough in 10 to 12 minutes here so we don't take too much of your time. Anyways, if you haven't yet, give me a five-star review on iTunes. Make sure you're subscribed to my YouTube channel, Justin Colby. Hopefully, you guys can pull some stuff from this, and I will see you guys on the next episode. Peace.

The Science of Flipping - iBuyers Are Selling To Hedge Funds

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