iBuying is changing the way many people buy and sell homes. But what is it exactly and what does it mean for you as a real estate investor?
This article will answer those questions. So read on if you’ve ever wondered about the impact iBuying has on real estate investing.
First of all, no, iBuying is not an extension of Apple’s brand of iPhone, iPad, and so on.
The “i” in iBuying stands for “instant.” The term refers to instant cash offers made on houses by large corporations. These large iBuyer companies use algorithms that take into account comparable properties in the area (aka “comps”) to determine what price to offer on a home. They purchase homes this way on a large scale to turn around and sell them for a profit (usually after renovations). In other words, iBuyers are like institutional house flippers. Some also offer trade-ins for other houses they have in their inventory. They make most of their money by taking advantage of economies of scale.
The first iBuyer to enter the scene was Opendoor, which launched in 2014. Since then, the real estate market has flooded with a number of iBuyers, including Redfin Now, Offerpad, Knock, and up until the end of 2021, Zillow Offers (more on this later).
So, what do iBuyers have to offer homeowners that traditional real estate agents don’t? Well, iBuyers can close on a home deal much faster, often in a matter of days instead of weeks. In addition, since iBuyers purchase homes as-is, sellers don’t have to worry about repairing or cleaning the house. And though there is usually a service fee, selling to an iBuyer allows you to circumnavigate agent commissions.
All in all, iBuying is an innovative new market player in the real estate space. But what does this mean for you as a real estate investor?
Now that you know what iBuying is, let’s go over the potential threats it poses to you as a real estate investor.
For one, iBuying means more competition. If you’re looking to make offers on investment properties like single-family rentals, your offer needs to be higher because selling to an iBuyer is usually faster and more convenient. In aggregate, this could mean you’ll be spending more on purchasing investment properties.
Another threat presented by iBuying is its potential ability to manipulate housing prices. For example, an iBuyer could potentially manipulate housing prices by keeping their inventory off the market (lower supply will cause home prices to rise). Another way an iBuyer could manipulate the market is by overpaying on some houses to force comp prices to go up so they can sell future homes for more. Keep in mind, however, that an iBuyer would have to have a fair bit of market share to have these kinds of impacts, but it’s possible.
That said, iBuyers can also help real estate investors. For example, you can purchase investment properties from iBuyers. This way, you can shop for properties all across the US, lower your property search time, and close on deals faster. You also don’t have to schedule appointments to tour iBuyer homes. If you invest in single-family rentals (SFRs) or fix-and-flip properties, this could really speed up your workflows. But that’s not all.
iBuyers can also help real estate investors on the selling side. For example, you can get rid of investment properties you no longer want by selling to an iBuyer. Simply fill out some information on the property on an iBuyer’s website and get an offer within 24 hours with no obligation on your part. If you do decide to sell, you won’t have to worry about making repairs or cleaning either, and it’s very low risk since it’s an instant cash offer.
As a real estate investor that needs to buy and sell homes frequently, working with an iBuyer could be just what you need.
So, does the rise of iBuying present a net good or a net bad for real estate investors? Right now, it’s hard to say, especially since homes sold to iBuyers still only make up 1.3% of all home sales.
On top of that, the jury is still out on how successful iBuying will be in the long run. Zillow’s iBuying platform (called Zillow Offers), for instance, shut down in November, 2021, when it turned out to be unprofitable. And even more recently, Opendoor started selling homes at a loss for the first time ever. So it’s unclear how much longer iBuying will be around, let alone a threat to real estate investors.
If anything, think of iBuyers as another tool in your real estate investing toolbox. They may present some competition when making offers on investment properties, but you can also leverage their competitive advantages by buying from and selling to them when it makes sense. The key is to keep a pulse on market trends and only make moves when conditions are right.
Another way to leverage competitive advantage is to partner with a professional property manager. Property managers like Green Residential can help you advertise your properties, screen tenants, manage leases, perform home inspections, do repairs and maintenance, serve eviction notices, and much more.
By partnering with us, you’ll gain a competitive advantage and have more time to focus on your real estate business. So if you are in the Houston or Austin, TX areas, don’t hesitate to reach out. Contact us today to take your real estate business to the next level. We offer a free analysis of your rentals to help you know where you can make improvements and what kinds of returns to expect as a result. We look forward to chatting!
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