Zillow surprises investors by buying up homes
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Zillow surprises investors by buying up homes
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Re: Zillow surprises investors by buying up homes
#2Buying homes for subsequent resale is a capital-intensive, old-economy, bricks-and-mortar business.
Zillow will borrow money to buy the homes, which means that (a) the clock will start ticking the instant each new home is purchased, and (b) this endeavor can be profitable only if proceeds from resales/rentals are sufficiently high to cover cumulative debt service costs -- in addition to all property taxes and ongoing maintenance expenditures associated with home ownership.
Why would a heretofore capital-light SaaS business like Zillow want to do this?
The only sensible explanation I can think of is that Zillow's current business is no longer growing quickly, i.e., Zillow is now a boring, mature company.
The stock dropped 7% on the news last Friday.
Re: Zillow surprises investors by buying up homes
#3Buying homes for subsequent resale is a capital-intensive, old-economy, bricks-and-mortar business. Zillow will borrow money to buy the homes, which means that (a) the clock will start ticking the instant each new home is purchased, and (b) this endeavor can be profitable only if proceeds from resales/rentals are sufficiently high to cover cumulative debt service costs -- in addition to all property taxes and ongoing…
Because they think they have some competitive advantage in the space?
Re: Zillow surprises investors by buying up homes
#4Buying homes for subsequent resale is a capital-intensive, old-economy, bricks-and-mortar business. Zillow will borrow money to buy the homes, which means that (a) the clock will start ticking the instant each new home is purchased, and (b) this endeavor can be profitable only if proceeds from resales/rentals are sufficiently high to cover cumulative debt service costs -- in addition to all property taxes and ongoing…
Improving liquidity in the market, aka being a market maker, can provide an interesting advantage.
Re: Zillow surprises investors by buying up homes
#5So what does it mean for me if I buy a home straight from Zillow? Better price?
Re: Zillow surprises investors by buying up homes
#6I get the feeling a company like this would only make this kind of leap because they have the data to show it will pay off. I.e. they can formulate algorithms to make the best purchases and the most profit. I foresee big gains from this
Re: Zillow surprises investors by buying up homes
#7Buying homes for subsequent resale is a capital-intensive, old-economy, bricks-and-mortar business. Zillow will borrow money to buy the homes, which means that (a) the clock will start ticking the instant each new home is purchased, and (b) this endeavor can be profitable only if proceeds from resales/rentals are sufficiently high to cover cumulative debt service costs -- in addition to all property taxes and ongoing…
Real Estate is one of the older investment games in town - It is what I am basing my retirement on.
I wonder how this will impact disclosure rules versus sales advertising? Existing model to use, or adopt another industry's? Will this cause fears of LIBOR-style manipulation?
This will be interesting to watch...
edit: p.s. Maybe another chance to make a Carfax-like system for homes? In the US market, I find there is not a lot of opacity, especially when one gets into larger/commercial deals.
Re: Zillow surprises investors by buying up homes
#8I get the feeling a company like this would only make this kind of leap because they have the data to show it will pay off. I.e. they can formulate algorithms to make the best purchases and the most profit. I foresee big gains from this
It’s rarely a good idea to compete against your customers
Re: Zillow surprises investors by buying up homes
#9So what does it mean for me if I buy a home straight from Zillow? Better price?
It would be worth it for convenient financing options/on click, even if the price isn’t lower
Re: Zillow surprises investors by buying up homes
#10I get the feeling a company like this would only make this kind of leap because they have the data to show it will pay off. I.e. they can formulate algorithms to make the best purchases and the most profit. I foresee big gains from this
It’s rarely a good idea to compete against your customers
Zillow has captured the user base so effectively that the customers will have no choice but to continue paying.
See also: Amazon