Key Points:
- Zillow terminates their house flipping program.
- House flipping is not ‘easy’ and comes with unique risks
- There are four main things to consider when purchasing a home with the intent to flip.
Recently, Zillow decided to terminate their home buyer program. The company originally began this new venture as an automated house flipping business, but has cited “problems with their algorithm,” necessitating the closure of the program. Previously, the company had paused this aspect of their business due to a labor and supply shortage, keeping them from flipping homes fast enough. Now, however, they are moving forward with shutting down the house flipping process entirely.
We at Grace Property Management think there is more to the story than labor shortages and incorrect algorithms. This is what has been going on at Zillow:
- Zillow is laying off 1 out of 4 employees.
- Zillow lost $381 million last quarter (this equates to thousands of dollars per property purchased).
- Zillow expects to lose 5-7% on every home they sell.
- Zillow’s stock has plummeted.
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What real estate investors can learn from Zillow’s mistakes:
House flipping is hard. Flipping a home is both time and labor intensive. There is no algorithm that will allow you to effectively buy, flip, and sell properties. Each property must be inspected in detail in order to assure that there are no hidden problems.
Vendors matter. When vendors are working on a property, they need to be monitored. Finding good vendors that do quality work is important. At Grace Property Management, we know the value in overseeing the vendors we hire. For more information on vendors, check out this post.
Technology doesn’t solve everything. We believe that property management is not a technology business. It is a people business. Technology is not the solution to property management or flipping homes, because relationships with people are at the heart of this business.
It is possible to overpay. Housing prices are high right now. The competition among real estate buyers continues to drive prices higher. There are very few “deals” or opportunities to buy at a discount right now. Given the current market conditions, It is hard to buy low and sell high. We recommend caution in purchasing a property with the intent to flip the home. Make sure that your real estate is well-positioned! (What about inflation?!)
We at Grace Property Management are always ready and willing to help in any way we can. If you are trying to make real estate investment decisions, our below resources and online calculators are a great starting point. Visit our website, call us at 303-255-1990, and check out the tools we provide:
