Another real estate tech company has ended their home flipping business.
Redfin announced they lost $22 Million in 2022 from their iBuying Program, RedfinNow.
Subsequently, Redfin decided to discontinue RedfinNow and stop iBuying altogether.
What is iBuying?
iBuying is a process where companies purchase properties site-unseen directly from property owners. Homeowners will first enter their property details on an iBuying website. Owners will then receive an offer site-unseen from the iBuyer. The iBuyer typically bases their offer algorithmically on various analytics. The offer is usually made at a steep discount, in cash, and promises a fast closing.
RedFin is not the first company to get out of the iBuying business. Zillow lost $881 Million dollars from iBuying in 2021 and no longer iBuys properties.
The process has proven to be very risky. RedFin’s CEO Glen Kelman summarized: “iBuying is a staggering amount of money and risk for a now-uncertain benefit. We’ve tied up hundreds of millions of dollars in houses that you yourself wouldn’t want to own right now.”
RedFin went on to blame their losses on the changing market. They cited that rising interest rates and falling prices did not make a conducive environment to their iBuying plans.
What can Real Estate Investors Learn from Redfin’s mistake?
- Real estate is an illiquid and risky asset. Successful real estate investing requires careful due diligence. Buying homes site-unseen without a game plan is a recipe for staggering losses.
- The most successful investors think big but go small. Focus on niching down on one market. Then, expand outward (if even necessary). You will quickly become a local expert. Opportunities will be spotted easily. More importantly, the best opportunities will be uncovered.
- Small investors can very often beat the big players. A big name or millions in VC funding need not be required. Real estate is locational and relationship based. Big tech continues to have challenges competing with smaller organizations by their very nature.
