The Science of Flipping - Opendoor And Redfin Predictions For 2022

Starting point is 00:00:00 Offerpad gets approved for a $600 million line of credit to buy more homes in 2022. And the Redfin CEO says there is a big push for sellers to sell their property in the next home buying season, which is where we are right now. Let's unpack these two things and how this affects us, the mom and pop investor, and how we should be approaching 2022 as investors in this episode of the Science of Flipping podcast. What's up, guys? I am Justin Colby, and welcome to another episode of the Science of Living podcast. And it is officially 2022. This is I think the second or third podcast I'm doing here for you.

Starting point is 00:00:56 And I want to do a little market recap of what's going on because I think there's a lot of questions about how we need to be approaching 2022. Now, there are still rumblings from some people that the market is going to crash, but I'm going to push that all the way to the side because I just read an article this morning telling me all about how the number one iBuyer, Offerpad, just secured another $600 million to go buy more homes in 2022. Now, $500 of that million is on a revolving line of credit, which essentially for those that don't know, they're able to borrow the money and then sell their homes and repay back the money and essentially are only paying on what they borrow when they borrow. So it allows them to buy and sell and not have to pay on all $500 million. They also got another $112 million in mezzanine lending. Now, what mezzanine lending is for the people like you and me is a fancy way of saying bridge loans, right?

Starting point is 00:02:02 Able to bridge the gap. Maybe that's better utilized for the remodels, the holding costs, or whatever that bridge the cost of the buying, remodeling, and reselling. That is what the $112 million mezzanine loans will be used for. In 2021, Offerpad actually increased its revenue to over $540 million. A lot of that in the third quarter of last year, and which is even more impressive is it actually increases gross profit 169%, roughly $53 million during that same time period. Now here's the shocker, and this is the critique that most people give these iBuyers is, yeah, but they're losing money. In fact, Offerpad during the same time period actually lost $15.3 million during this very same time period.

Starting point is 00:02:52 But guess what? They're playing a totally different game than us. We, A, don't have nearly that type of budget and they're just not looking to be able to flip homes for a profit. They're thinking about the fact that they already went public and what the public offering means to their company and how that big play is more important to them than making $20,000, $40,000, $50,000 per flip. Offerpad also mentions here in 2022, they're looking to open up 15 more markets. Now, when I say and have been saying that I don't believe the real estate market is in any jeopardy at all, this is in large part why. You not only have these iBuyers, such as Offerpad, doubling down, tripling down, getting $600 million of credit to go buy more homes at top dollar, mind you. You also have the hedge funds, who have well over $600 million. They're in the billions to go buy more rentals. These two players are here to stay. I know many of you guys

Starting point is 00:03:51 would hypothesize that all of them would go out of business. No one is making money. And while Zillow did go out of business, they actually were just in the wrong business. They were really a data company, but Opendoor and Offerpad are here to stay. And there are several others. Those are the two biggest, and they're just raising more money to do more of the same, which means if there's that much money flooding the streets, the prices are going to continue to appreciate in the year 2022. Now, let's change the page to another article that is totally separate, but talks about how Redfin, the CEO of Redfin, is actually claiming that the real estate market is going to stay hot as sellers are going to try to take advantage of two simple things. One, that they want to sell before the interest rates start hiking up. Now, I don't know if I'm in full

Starting point is 00:04:43 agreement with the CEO of Redfin here. I don't believe they're going to go up catastrophically. Would it hurt, hurt, hurt the market? They're not going to jump to 6%, but could they incrementally go up to maybe 4% relative to the 2.8 or 3.0? Maybe. Is that really going to stop someone from buying? The answer also is maybe, but for the people that actually have money and good income still probably not, right? So the other thing that they're talking about is how they want to take advantage of this really hot market, right? That there is no inventory that they can get top dollar and they can do it in the buying months, which will be

Starting point is 00:05:20 roughly anywhere from now until call it July. when summer starts. This is a great time for sellers to get their homes ready to list so they can get top dollar and the home buyers can still afford it because the interest rates are low. Now this all 100% makes sense. And then you combined how Offerpad just got that much more money, $600 million, how there's still hedge funds buying homes like crazy and they're not going to slow down. The question is, how does this all affect us as little mom and pop real estate investors? And let me give you some light on what my opinion actually is regarding this. First, if you are a one trick pony and you're only doing wholesaling, you've got to find a way to diversify your exit strategy. It doesn't mean you need a lot of money.

Starting point is 00:06:10 In fact, you don't need money, don't need credit to flip homes, to buy rentals, or any of that. Trust me, I know, because I'm actively right now buying rentals with none of my own money. So I know that this is all very doable. In fact, I've flipped 600- plus homes with none of my own money. So don't tell me if you're a wholesaler that you don't have money or credit to do these things. I need you to win in 2022. You need you to win.

Starting point is 00:06:35 And part of that will be diversify your exit strategy. If you know Offerpad, Opendoor, and all the hedge funds, let's just say Blackstone and every other subsidiary of Blackstone, and Invitation Homes, and Progress, and you name it, you know that they have the capital to go out there and buy heavy for 2022. You know Offerpad now is reported that they're going to open up 15 new markets. You know that this is going to drastically affect the real estate market because people are going to be able to sell at top dollar. The CEO of Redfin is saying that homeowners are

Starting point is 00:07:10 starting to rush to get their houses ready to list, to take advantage of the low interest rates, and to take advantage of these high prices. This all means one thing. The more inventory you have, the more money you can make because the appreciation, the hardest thing right now is to find the inventory. So how do we do that? Well, there's a bunch of different ways. I myself heavily rely on cold calling and heavily rely on pay-per-click advertising with combination of texting all the people who I can't reach via cold call. Those are my three strategies I'm heavily reliant on right now. But yes, you can use direct mail. I think that is kind of more of a rightful approach at this point in terms of direct mail and the cost of direct mail and going wide.

Starting point is 00:07:57 I believe it is better used to spend your money on pay-per-click advertising and cold calling. I work with a company out of Mexico. They're phenomenal. They speak English, they speak Spanish. If you want a referral to that, just let me know. Look me up on social media. Let me know you're interested in my cold calling company that I use, or you could even do it on YouTube. By the way, stop right now. If you're not watching these on YouTube, you need to. You need to jump over to YouTube, subscribe to my channel, Justin Colby,

Starting point is 00:08:24 and start watching these videos. These podcast episodes go live right here on YouTube. So subscribe to the channel, turn on your notifications. And by the way, give me a thumbs up for every video you watch. The YouTube gods really like that. If you're listening to this on iTunes, do me a huge favor. Give me a five-star review. I would greatly, greatly appreciate that. Now, let's get back to the show. What I would say to all of this is you need to find a way to get what these monsters, the iBuyers and the hedge funds, don't have. I quite literally am contracting you a deal today. Well, I'm not. My team is because they know we have a relationship with Blackstone in that market. So we know if we can contract that deal that they are going to pay a top dollar. Now, do they maybe need an inspection? Absolutely. So

Starting point is 00:09:09 we build in an inspection into our purchase price. But guess what? They're now paying assignment fees. That wasn't always normal. That was not always the norm, but now they are. So you need to find a way to have multiple exit strategies. And if you can't find motivated sellers, then you need to find buyers who will pay top dollar and more than top dollar, such as Opendoor and Blackstone, for example. If you can do both, you're going to make a whole lot of money. So how does Opendoor getting another $600 million affect us? It means they're going to be buying at top dollar more than the mom and pop flipper can do. How does the Redfin CEO mention that homeowners are getting ready to sell right now because they want to take advantage of the low interest rates and the high prices?

Starting point is 00:09:57 Well, that means there's going to be more opportunity out there for us to go get homes, right? That means there's going to be more on the market. And for us investors, we can navigate these deals and potentially do some more creative deals, potentially buy some more rentals. All this is you really understanding that there's a diversified exit strategy for every single opportunity and you need to maximize those opportunities. Long story short, guys, this episode to me is all about 2022 being a rock star year, making a ton of money because you can make a lot of money and leverage that into opportunities to build wealth.

Starting point is 00:10:39 Just like I did in 2021, you can do the very same this year in 2022. I hope you enjoyed this episode. There's a lot of new things coming to you in 2022. We're going to be bringing you a lot of cool things. So stay tuned, subscribe to my YouTube channel, like my iTunes, and we will see you on the next podcast episode. Peace. you

The Science of Flipping - Opendoor And Redfin Predictions For 2022

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