Tag: owner

• Opendoor is creating too many rentals

  Steven Levy over at Wired recently wrote a short piece comparing Opendoor’s iBuying approach to what Zillow was doing when it was in the space. (Thank you Robert Wright for forwarding me the article.)

  As we have talked about before, the fundamental problem with Zillow’s model is that it couldn’t accurately predict where home prices were going. It was losing too much money and so they shut down that side of their business.

  The article talks about Opendoor’s approach and how they’ve spent the last 8 years refining a valuation model/approach that is now apparently pretty accurate. That’s positive. But here’s another excerpt that I found particularly interesting:

  There’s one controversial aspect of the business model that Wong didn’t bring up. It appears that when companies like Zillow and Opendoor can’t easily sell a home, the fallback is what’s called an “institutional sale.” All iBuyers sell a small but not insignificant percentage to institutional investors with aspirations of being “mega-landlords.” While the marketing materials of the iBuyers emphasize clean sunny rooms and frictionless transactions, that segment of the market involves hedge funds like KKR and Blackstone snapping up properties for rental, limiting the inventory available for families seeking homes. Even the Biden administration has weighed in on the evils of this trend: “Large investor purchases of single-family homes and conversion into rental properties speeds the transition of neighborhoods from homeownership to rental and drives up home prices for lower cost homes, making it harder for aspiring first-time and first-generation home buyers, among others, to buy a home,” said a recent White House dispatch.

  It’s interesting for two reasons.

  First, these highly tuned valuation models are now being used to scale the acquisition of single family homes. No specific figures are given, but Levy speculates that some iBuyers could be feeding up to 20% of their homes to institutional buyers. Economies of scale are a challenge with this asset class. Here technology is helping.

  Second, I don’t like the tone toward renters in the above White House dispatch: “[It] speeds the transition of neighborhoods from homeownership to rental.” This line in particular implies that renting is perceived as being suboptimal to homeownership and that “speeding”’ towards the former is something that should be avoided for reasons of social good.

  Even the words that are used here suggest biases. A single-family home is called, well, a home. But a rented one is a rental property. I reckon that a home is a home regardless of whether it’s low-rise, high-rise, rented, or owned.

  2022.02.18

• Airbnb-ing your way to homeownership

  I just discovered an interesting new Seattle-based startup called Loftium. 

  The way it works is that they provide down payment assistance (up to $50,000) to prospective homeowners as long as they commit to renting out one of the home’s bedrooms on Airbnb for 12 to 36 months. Loftium is positioning it as a way to help first time buyers get onto the property ladder.

  Here’s an example of how the math might work (taken from the New York Times):

  

  The details certainly matter a great deal here but, high level, the homeowner gets $50k upfront, ~$1k per month in shared Airbnb revenue, and the opportunity to buy a home. You just have to be committed to being a host.

  And from Loftium’s perspective, they put out $50k at the outset and get back just over $28k a year for 3 years. Assuming these assumptions are correct, that’s a pretty good IRR. 

  However, if the home doesn’t generate enough Airbnb income during the agreed upon term, Loftium is on the hook because the homeowner doesn’t owe anything after the “services contract” expires.

  Think this will fly? Would you use it?

  2017.09.19