Real Estate Shows Tech Is No Holy Grail
Kanebridge News
Share Button

Real Estate Shows Tech Is No Holy Grail

In iBuying, just because you bet on technology, it doesn’t mean you’re a winner.

By Laura Forman
Mon, Jul 5, 2021 10:57amGrey Clock 3 min

Everyone wants to be a tech company. Office-sharing, meat substitution, ride-hailing, fashion styling, fitness—they are all technology businesses, according to founders who covet the high-flying valuations the appellation can garner in the public markets.

But just having technology doesn’t automatically make an investment superior. Consider real estate’s digital home flipping: Here is a business that is undoubtedly “tech” but where the value of the technology isn’t yet clear. With iBuyer Offerpad’s merger with blank-check firm Supernova Partners expected to close early this quarter, the value of technology—or lack thereof—is something that online real-estate investors will want to consider as they place their bets in a crowded field.

So-called “pure play” iBuyers Offerpad and competitor Opendoor Technologies both describe themselves as technology companies. Opendoor says it is a “digital platform for residential real estate.” Offerpad says it is focused on “tech-enabled real estate solutions.” Both companies have a chief technology officer and some version of a data scientist, presumably there to hone the technology investments and analyze their utility.

These companies may be solving similar pain points in seamlessly digitizing real-estate transactions, but they seem to be approaching the problem in different ways—Opendoor with money and Offerpad with experience. As of its March presentation, Offerpad said it had raised less than 9% of what SoftBank-fueled Opendoor had, though it had bought and subsequently sold 38% as many homes. And whereas Offerpad is led by a former real-estate agent, Opendoor is led by someone from the real estate technology business.

Opendoor’s deep pockets have no doubt fueled its rapid growth. It is now active in 39 markets with the stated goal of entering 42 by year-end—double the number of markets Offerpad is targeting this year, despite being only one year younger. But bigger doesn’t necessarily mean better: Opendoor lost far more money last year.

According to company presentations and regulatory filings, both companies had roughly the same gross margins last year, suggesting they are equally good at pricing homes and timing the market. An analysis by scholar-in-residence at the University of Colorado Boulder Mike DelPrete shows the difference in economics lies in “indirect costs” such as technology, the sales and marketing of that technology and the salaries of the people who build it.

Mr. DelPrete’s analysis shows Opendoor sold a little more than twice as many homes as Offerpad last year, but its technology and development expenses were about eight times higher over that period. A look at regulatory filings from both companies shows that dynamic was also true at least in the two years before the pandemic, albeit at a slightly lower ratio. The takeaway: Either Opendoor’s technology isn’t all that it is cracked up to be, or its investments have yet to pay off.

Opendoor says it isn’t blindly pursuing growth for growth’s sake, but making strategic investments in pricing, technology and operations platforms as it scales. The goal, according to the company, is to build a platform capable of high volume. With the real-estate market on fire, it is certainly working that angle: Opendoor’s spent almost as much on technology and development in the first quarter as it did in all of 2019.

The business of iBuying is still nascent: Opendoor says just 1% of real-estate transactions today occur online and iBuyers claim that they are competing against the traditional agent model of buying and selling rather than one another. But the slice of the market open to iBuyers has become crowded, creating a land grab atmosphere. Especially, as the pandemic has shown a generation of tech-savvy millennials finally seem to be hitting the home-buying market, time is of the essence.

Offerpad’s SPAC deal reportedly gave the company a post-transaction value of $3 billion, well below Opendoor’s current fully diluted market value of $11 billion. When comparing the two, investors should at least consider the fact that technology is only as valuable as its competitive advantage.

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: July 4, 2021.



MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

Related Stories
Property 2024
Property
How Much House Can I Afford?
By Josh Bozin 12/04/2024
Property
The 7 key insights into the Australian property market you need to know
By Bronwyn Allen 11/04/2024
Property
Live in a WWII-Era U.S. Embassy in London for £21.5 Million
By LIZ LUCKING 11/04/2024
How Much House Can I Afford?

Expert tips for prospective buyers looking to purchase a home in 2024.

By Josh Bozin
Fri, Apr 12, 2024 3 min

For aspiring homeowners, be it a first-time buyer, downsizer, or investor, picturing your idea of homeownership bliss is the easy part. But before deliberating on furniture choices or scouting for that perfect neighbourhood coffee, understanding your purchasing power stands out as the most important step in ensuring your success in homeownership.

And with the Australian property market gaining momentum in 2024, there’s never been a better time to come to grips with your financial options.

In 2023, amid the changing financial landscape that saw rising interest rates and the cost of living skyrocket, among other factors, the total amount borrowed for property purchases across Australia was estimated at $300.9 billion, a 12.7 percent decrease from the previous year, according to PEXA’s latest Mortgage Insights Report.

Each mainland state also experienced a decline in new lending, according to the report, with Victoria and New South Wales seeing the biggest drops to $84.1 billion and $109.5 billion, respectively.

While this trend reflects the repercussions of such financial hardships on the everyday Australian, John Morello, director and auctioneer at Jellis Craig, said we’re seeing renewed confidence in the property market during the first quarter of 2024, particularly in Melbourne.

“Auction clearance rates have started the year strongly and consumer sentiment is rising. This lift is driven by cooling inflation and an improved outlook on interest rates. At Jellis Craig, as with the rest of the market, we are experiencing an increase in volume of property compared to the same period in March last year (up 28% in 2024),” Mr Morello said.

“Melbourne’s property market, in particular, is showing its ongoing evolution and resilience.”

PEXA’s report revealed that, while borrowing saw a decrease in 2023 in Australia, Australians still invested $613.0 billion in property purchases in 2023. In 2024, purchasing confidence is only going up, as prospective first home buyers, seasoned downsizers, and savvy investors look to capitalise on a flood of new property hitting the market, coupled with the lowering of interest rates across the board.

“With more certainty in the economic outlook, along with an increase in volume of property available, we are seeing these factors translate to early signs of a boost in confidence in both buyers and sellers,” said Mr Morello.

“Further encouraging data shows that whilst there is more property available to purchase, more people are inspecting property, again indicating that demand has increased broadly across our marketplace.”

If you’re in the market for a new property, the biggest question you must ask yourself is how much house can I afford?

A great starting place is to speak with your mortgage broker or financial professional, who can guide you on your lending options. This is critical, as you need to know what your future repayment options might look like, and ultimately, what you will typically be able to afford.

A useful tool for judging whether you can afford a specific property is to factor in the 28/36 rule — a rough guide that suggests you should not spend more than 28 percent of your gross monthly income on housing, and no more than 36 percent on all debts. Another useful tool is the idea of a debt-to-income ratio (DTI); a formula whereby an individual can divide all of their monthly debt payments by gross monthly income to arrive at a number that one can measure as a way of managing monthly mortgage payments.

Mr Morello emphasised the need to understand affordability and what’s feasible for each individual when looking to make a purchase, no matter the budget, on a property in 2024.

“It’s pivotal to work out what you can afford. Get your finances in order. Consider all associated costs with buying, and research what concessions and grants are available,” said Mr Morello.

“It’s easy for individuals to begin the process today. Start actively searching potential properties on a weekly basis, and research areas you are interested in. Check weekly sales results, attend inspections and auctions, to get a feel for the process. Just remember, it’s important to be really comfortable in understanding your living expenses, and what the ongoing expenses will be once you have bought a property.

“For example, mortgage repayments, council rates, water, power, owners corp fees, insurances, maintenance costs; if you are buying as an investment, the Land Tax payable on that property which is an ongoing tax. There’s many factors to consider.”

To see what’s possible for your specific circumstances, visit our Finance Portal for specific tools, guides and tips—as well as our own mortgage calculator—to assist you on your property journey.

 

MOST POPULAR
35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

Related Stories
Money
Surplus to requirements: Australians are making more energy than we can use
By KANEBRIDGE NEWS 27/11/2023
Property
Desperate Chinese Property Developers Resort to Bizarre Marketing Tactics
By REBECCA FENG 24/01/2024
Money
Barron’s 100 Most Sustainable Companies
By LAUREN FOSTER 25/02/2024
0
    Your Cart
    Your cart is emptyReturn to Shop