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The Rise of Robo-Real Estate?

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Real estate firms Opendoor, Offerpad, and Zillow are developing services that purchase homes, improve them slightly, and then flip them to new buyers using apps to do most of the sales work.

In my series Dead or Alive? The Future of Long-Term Investing, I questioned the benefits of using robo-advisors in place of real, warm-blooded, human beings. As I wrote then, what happens in a crisis; “We’ll see how well they do when markets crater and the phone lines light up like a Christmas tree. It’s happened twice already this century, and that’s when it matters most.”

The question is now, are Americans willing to buy their homes via app? And what happens when one of these firms buys up a whole neighborhood, and can set prices how it sees fit? The Wall Street Journal’s Ryan Dezember and Peter Rudegeair report:

Consumers might also find that a few big players could gain an outsize influence over prices and the upper hand in buying in the most desirable neighborhoods. In Phoenix, the housing market cooled in 2013 when rental-home investors pulled back. Around the time the flippers revved up a year later, home prices resumed their rise. A prospective buyer who needs a mortgage can have a hard time competing against a big investor making an all-cash offer on a house.

And what happens to these businesses when prices start to fall? Dezember and Rudegeair continue:

Still, should house prices decline in a down market, the high-tech flippers could run into trouble with creditors and be forced to dump their inventory at a loss.

Arizona’s capital is an ideal proving ground. It’s one of the country’s fastest-growing metro areas. The houses are relatively inexpensive and tend to be newly built and fairly homogenous, which aids the algorithmic appraisals that guide big landlords and house-flipping firms alike.

Before you rush to use any new technology, ask yourself what the benefits of working with a real human being are, and if that can be replicated.

Originally posted on Your Survival Guy.

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.