Velocity & Scale in Acquisition Strategies
What SFR Investors Can Learn From iBuyers
by Josh Jensen
The process of buying and selling homes is complex and there is plenty of room for improvement. In today’s lightning-fast market, investors need all the help they can get. Low housing inventory and record-high buyer demand have created a frenzy in the U.S. real estate market. And it is not just the COVID-19 pandemic that is causing the demand. Millennials are reaching their prime time to purchase their first homes and Gen-Xers are hitting their peak years for move-up buying. And interest rates have been historically low.
What does it take to stay on top of your game in this market? Fueled by massive amounts of venture capital, real estate tech continues to advance and introduce innovative companies and new models. Adapting your playbook is not only a need; it is a requirement. Success depends on acquiring homes faster than ever before.
Why iBuyers?
An iBuyer, or “instant buyer,” is a real estate company that uses technology and algorithms to buy and sell homes quickly. iBuyers focus on speed, certainty, and simplicity, but they still have a way to go to gain market share on real estate transactions. In 2019, they accounted for 60,000 transactions (or 0.5% of the market), which had doubled from the previous year. Growth seemed promising, but due to the pandemic, iBuyer transactions were down 50% in 2020. However, they still have a growing national presence.
Clustered in about two dozen markets, they are currently expanding into previously untapped markets, such as the northeast. On average, iBuyers purchase homes valued in the $250k-$300k range which is around the US median price point. This could mean additional competition for investors already competing with homebuyers. To gain ground, major iBuying players lose tens of thousands of dollars per home on average. But while they may be losing profit, they are learning valuable lessons on assessing and acquiring homes quickly and at scale.
Lesson 1:
Acquiring Homes Quickly
With limited inventory and rising prices, investors need to be able to assess and react to available homes quickly. According to Zillow, home values have increased 13.2% over the past year and they predict values will rise an additional 14.9% in the next year. This means when you do find a home to fix & flip, you need to ensure the condition and cost of repairs still leaves room for profit. A home inspection is the most surefire way to gauge the condition of a property. An inspection will tell you a home’s cosmetic issues in addition to the state of the major systems and components such as structural, electrical, plumbing, HVAC, roof, attic, basements, foundations, windows, and doors. Every home has issues, even most new construction builds, but is the biggest issue a leaky faucet or is it a foundation issue costing upwards of $100k to repair? A good inspection will leave you with the answers to those questions and give you the confidence to move forward or to turn and run.
To move forward quickly with an acquisition, investors need a qualified inspector onsite right away. The traditional method of finding an inspector is by looking at websites, listings, reviews, and calling or checking their booking system to see if they are available. This is tedious, time-consuming, and uncertain, which is why a lot of the major home-buying players, like iBuyers, are going in a different direction. Inspector marketplaces, like Inspectify, offer an easy way to book an inspection anywhere in the country in mere minutes. This not only saves valuable time but also gets a qualified professional on-site in days, not weeks. They can also provide added benefits like repair cost estimates.
Lesson 2:
Getting the Right Data
When it comes to assessing and acquiring a home to invest in, an investor’s needs differ from those of a traditional homebuyer. Most inspections are standardized, but it is up to the inspector (and their state minimum requirements) regarding what information will be in that report. When considering a home to fix & flip, you may want to know additional details about the home such as countertop square footage, door and window dimensions, or measurements of the walls and floors. Those items are not found on a typical home inspection but could be a gamechanger when deciding on an investment property.
There is no better time to collect that information than when an inspector is already on site. You could create a form for the inspector and hope they answer it or that they send somebody else onsite to collect that data. However, iBuyers have found a better way. They are working with companies like Inspectify to create custom inspection templates that collect the data they are most interested in and then feed it into their pricing models and acquisition processes. This approach is saving them valuable time and resources and is helping mitigate their investment risks.
Lesson 3:
Scaling and Cutting OPEX costs
With iBuyers purchasing homes in dozens of metros across the country, they are learning that it can be hard to scale into new territory. You may have your acquisition process down pat in your area but that may not be where the next best investment opportunities are. Finding listings nationwide has become increasingly easier over the years since the birth of search portals like Zillow in 2005. But how do you get through the next part of the acquisition process from miles away?
At first, iBuyers were setting up shop in each new metro and building internal teams to execute on home acquisitions. However convenient, hiring and keeping employees busy 40 hours a week brings a lot of overhead to the organization. It also keeps them limited to that geographic area and unable to pivot quickly when the market shifts. Now, iBuyers are taking a different approach and relying on companies like Inspectify to be their internal team. They can get the customized inspection data they need quickly and fed directly into their systems via API, saving them time and reducing opex costs by thousands of dollars on every transaction.
iBuyers still have work to do to make their business model more profitable. However, they are making strides in creating efficiencies in their processes to get them there. Those tactics are something every real estate investor should consider implementing into their own acquisition strategies. The market is still unprecedented and venture capitalists continue to fuel innovation in real estate technology. Today’s investor needs to be more agile than ever before to stay ahead of the evolving landscape.
