Zillow recently announced that it's stopping it's "iBuyer" program, which puts an end to their venture into the house flipping business. So why couldn't Zillow, the largest & most well known real estate tech company, find success in flipping homes?
According to reports, Zillow bought over 7,000 homes slightly below market value, and had big challenges in renovating and reselling these homes for a profit. Also, it seems their algorithm, which informs what price to pay for a particular property, wasn't working so well. So what does this tell us about the home buying-for-profit business?
For those of us that have been buying and reselling renovated homes for a while - we get it. Flippin' ain't easy! Just think about current market conditions right now in Q4 2021: Housing prices are expensive, material is expensive, labor is expensive. We have supply chain issues, inflation issues, worker shortages, etc. A savvy investor has to take all this into account when evaluating a home purchase.
When evaluating a property, I often consider a wide range of factors like the resale value, the location, the condition of the home and the realistic cost of renovation, the room sizes and desirability of the home, the length of time of the project, the "hidden" costs that arise like legal fees, taxes, etc.
And that brings me to one the most critical factor that determines a successful flip - handling the contractors! Indeed, a bad contractor can ruin an otherwise sound investment deal. In fact, Zillow claims that one of it's main challenges was coordinating and overseeing all of it's ongoing renovations. Managing the contractors is the most critical, and difficult, aspect of flipping a home.
So when you factor in all the above, and add to that the crazy demand and short supply that's driving up prices, you can see that it's not so easy to make a profit flipping homes. But don't take it form me, just ask Zillow...