FAR 571, Why the iBuyers Will Fail

Opening:

I’ve been paying attention to real estate and real estate investing for a long time. I watched the rise of the so-called iBuyers, and I’m fairly confident I will be here to see their demise.

If you listen to the show much, you know that I’m a positive upbeat kind of guy. I never set up my interview guests for embarrassment, I do not thrive on controversy, and although I don’t shy away from healthy disagreement, I’m not here to argue with anyone.

That said, part of my purpose is to expose the bad guys – those who build large businesses with a fundamentally dishonest business model. I’ve spent a fair amount of airtime criticizing in particular the Hotel Room Real Estate Gurus and the iBuyers.

Sometimes the premise is noble enough and the vision is grand enough, but at some point someone behind the scenes realizes this thing isn’t going to work unless we make some adjustments. This usually comes in the form of high pressure manipulative sales tactics from the Gurus and deceptive practices, including hidden or junk fees and unexpected repair bills.

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News and Resources:

I have previously predicted the iBuyers will fail. https://www.cnn.com/2022/11/09/homes/redfin-job-cuts-home-flipping-shutdown
Told ya. https://www.seattletimes.com/business/real-estate/seattles-redfin-to-cut-workforce-by-at-least-13-stop-flipping-homes/

Topic: Why the iBuyers will Fail

What is an iBuyer?

An iBuyer is an institutionalized large scale less honest real estate investor.

Hidden fees

Surprise repair requirements

No amount of computer modeling can make up for the lack of local knowledge.
They do not have a profit motive. Surprising, right?
Their business model relies in part on deception. People can be fooled, but not forever.
Their business model relies in part on above average home appreciation. There is an “average” for a reason. The past seven years have been above average, but all they did was balance out the losses of 2008-2012.

Listener Questions:

Edward, Decatur, GA “I have a fully rehabbed property. It’s listed but we are not getting any offers. What can I do to sell it?

The market is slowing down for sure. I have one like that in Dothan AL right now. What I do is a small price reduction every two weeks. That keeps the property on the “hot lists” on the MLS so it keeps it in front of the realtors.

My rule of thumb:

At least 5 calls (or saves online) per week
At least 3 showings per week

OR the price is too high.

Steady price reductions should increase traffic and then it will sell. Don’t panic. And don’t hang on at too high a price. You don’t want the listing to get stale.

Quote of the Day

Today’s Michael Scott Quote:

“I saved a life. My own. Am I a hero?… I really can’t say, but yes!”

Expected Air Date: Wed 11/16/2022

Guest: none

Transcript

[0:00] I’ve been paying attention to real estate and real estate investing for a long time I watched The Rise of the So called I Buyers and I’m fairly confident I’m gonna be around to see their demise.

We’ll talk about it today on this episode of Flipping America.

[0:18] Music.

[0:32] Show that teaches you how to make money in real estate wherever you are whatever your situation there is an opportunity for you. And now here’s that flipping America guy Roger Blankenship. Thank you Kathy Curtis hello America.

If you listen to this show very much you know that I am a positive upbeat kind of a guy.

I never set my interview guess up for embarrassment.

I don’t drive on controversy and although i don’t shy away from a healthy disagreement I’m not here to argue with anybody that said part of my purpose is to expose the bad guys.

Those who build large businesses with a fundamentally dishonest business model and I’ve spent a fair amount of time on this show,

Criticizing in particular the hotel room gurus and the i buyers.

[1:26] And the vision is grand enough but at some point someone behind the scenes realizes this thing isn’t gonna work unless we make some adjustments this usually these adjustments usually come in the form of.

High pressure manipulative sales.

That’s coming from the eye buyers. Now, we’re not gonna talk about the hotel room gurus today. We are gonna talk about the eyebuyers and in just a few minutes, I’m gonna tell you why the iBires are doomed

To fail.

Evidence to that we’ve got the news out this week that Redfin is getting out of the house flipping business. Why? Because they’re losing their fannies on it.

Because they, well, it’s not that they don’t really know what they’re doing but there are fundamental problems with this entire business model. Alright, if you wanna reach us here at Flipping America, all you gotta do is.

[2:27] Well look to your to any podcast platform out there and when you do

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[2:51] YouTube now YouTube. Com slash flipping America. We need some love over there. Come on everybody. We just started the YouTube channel back up. We we try to year so go. Didn’t have any idea what we’re doing. I still don’t really know what I’m doing. But,

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To 205858 flip. This (205) 858-3547. You enter your email address. You’re gonna get subscribed to our free weekly newsletter. It’s a 5 to 7 minute read,

That includes real estate news invest and investing tip a joke and a blessing and links to the.

[4:01] Media that we produce the previous week.

[4:16] Derek Dumbeck is back with us today he’s somewhere up close to Green Bay or in the Green Bay Area right.

[4:25] For close to Green Bay and it’s currently snowing in about 22°. It’s beautiful. Awesome,

Anyway what we’re gonna talk about what and and.

You know when we signed off does you that don’t remember I had Derek on the show a few weeks ago but,

When we sign off I realize there’s something else I really wanted to talk to about is this generations of wealth conference,

And gives you an opportunity to get out of the frozen tundra and down to Cancun to do this thing but the location yeah that’s nice but I wanna talk about the conference tell us what is this conference all about.

[5:08] Well Roger the conference came about because friends of ours had put on it the the identical scenario at sea on a cruise ship for about 8 years and we we were a part of seven of those.

And when they decided to no longer host that event they they really encourage us to take it over.

And we change the name to generations of wealth for the main reason initially was because.

Those were our initial colleagues, friends, mentors, handing that their knowledge down to.

[5:43] Moving forward.

So, the conference itself is a 5 day event in Cancun, Mexico at a beautiful, inclusive resort.

Speakers. I mean, these these topics that we talk about Roger, they’re not really for newbies. Not that we discourage anybody from coming but these are we really advanced topics for going to the next level.

And.

Our speakers are not up on stage pitching products or or trying to get you to run to the back of the room to buy something it’s it’s really just content.

And from 1 o’clock until through dinner time after dinner time it’s just networking it’s the time for you to get to know.

Then, we come back in the evenings for a couple hour town hall session which is more interactive. Might be some case studies, might be some exercises.

Things of that nature.

[6:51] The kids as I mentioned are encouraged especially ages 10 and up to be a part of as much or as little as they would like.

They are not really there to learn about advanced real estate strategies that many adults don’t understand.

They’re there to build a network of other kids who have parents that are freaks like us that don’t conform to.

Normal society don’t conform to what they’re told in in their public school system every day.

And my goal is for my kids and all these kids to build a network in their teenage years.

To do whatever they want moving forward but to do something that I never did at that age yeah and me either.

I hate to tell you about the quality of the kids that I ran with in my neighborhood but you know it’s it’s just in being in that neighborhood I suppose alright so.

The thing that treats me is the whole subject of financial literacy for the kids.

You’re not doing some programming of instruction form but your least exposing them to this kind of thinking.

[8:04] Well the part that is really been beneficial to my kids so I have a 16 year old 11 year old and a 5 year old.

Is there not afraid to walk up to anybody that that they meet at this conference or or that we introduce them to and other you know just ventures of ours.

And ask questions and talk to anybody.

She was knocking on doors making offers at 12 years old.

[8:41] Doing just little goofy loans back and forth. You know, a friend of mine on a sale.

To my daughter McKenna.

He’ll give her.

50% rate of return in 24 hours and they’ll do the math and these types of exercises that have been happening for my kids and my family over the last few years.

It really shaped the way they think and I wanna open that up for other kids yeah.

Yeah, I like it. Alright, so this is February the 26th through March the fourth,

And the website is GOW Voyage. Com.

One you’ve given a good reason why the kids should come give me one really capella reason why every adult listening to this should come.

[9:39] The content is awesome I’m not gonna lie I got some of the best speakers in the country bar nun,

Especially in these changing markets,

These are people from all over the country you can have the time to sit there and discuss anything you want but especially what’s going on in your region and what your area,

And I know that my biggest mistake in the first half of my career was being a closet investor I did not have a network.

And one side you know embraced building in that work.

Whenever we have a challenge when COVID happened.

And that was huge and I I really that’s what I’m passionate about.

[10:30] Yeah what.

Voyage G oh W voyage. Com and then am I getting it right.

Hey Eric GOW stands for generations of wealth.

[11:03] Thank you so much Roger. Appreciate it. Alright. Talk soon. And we’ll be right back.

[11:08] Music.

[11:16] Hey are you ready to learn this business for real.

It includes 25 home study courses inclusion at all weekend training events for life group coaching calls for life and monthly one on one calls for a full year,

Invest in yourself and be a part of my flipping america family for life flipping America. Net forward slash.

We have a question for one of our listeners. This is from Edward in Decatur, Georgia. I have a fully rehab property. It’s listed but we’re not getting any offers. What can I do to sell it,

Alright. Edward, I don’t know how long you’ve been a real estate investor but thanks for your question and we do get this question from time to time. You know, I spent I’ve been in this business now for a little over 20 years,

And four.

[12:13] The first 15 years or so I I don’t think I received more than half a dozen full price offers the last 5 years,

Nothing but full price or above market offers that’s the way it’s been. So, if you’re new in this, you may be thinking that’s the way it’s supposed to go. You put it properly out there and you get a full price offer. That hardly ever is the case,

Are teaching in their mentoring program is to let people know that you’re probably gonna have to drop the price and people are gonna come in with a lower offer in a normal market people make a lower offer

Every time

10 $15 thousand less than you’re asking price expecting you to counter back and split the difference so we make a price we make an offer knowing we’re gonna get a lower offer knowing that,

But we really want is that number that’s sort of splitting that difference and

We keep that in mind as we are setting our price to begin with. So, we have a pricing strategy Edward in here’s the thing.

Real estate is inventory don’t get too attached to these properties.

[13:27] I’ve had houses that well you know things didn’t go exactly right in and how it look really.

Quiet up to my standard but I was gonna take an extraordinary amount of money.

Unrepaired that’s that needs to be repaired but in other words to fix the problems just get the aesthetics of where we want them we’ve listed the houses anyway because it would just cost too much and lo and behold.

They sold quickly. We’ve also had perfect rehabs, beautiful every single details, spot on and just a gorgeous house and they just set there.

[14:05] We’ve had over variety of experiences in between and one thing we know is you just can’t get too attached to the price,

Property you can’t get too proud of your rehab,

You just have to be prepared to let it go,

So we move on as quickly as we can and here’s a little pricing strategy that we’ve used for years and I’m gonna share it with you here.

[14:40] What we do is we do a small price reduction every 2 weeks. The reason is the 2 week thing keeps it on the realtor’s hot list so it always be in front of them and it’ll show price reduced and shows that in that demonstrates that you’re willing to deal and you’re probably willing to look at

And,

Keep this in the front of their mind if you’re getting bad feedback from them about the property you need to fix those things first and then start reducing the price you’re gonna have to reduce it anyway,

Calls per week and at least,

A five calls and three showings a week it’s gonna sell and so we drop the price and we monitor the calls and the showings.

[15:34] And I wanna thank somebody on our team does now is she watches the Zillow saves that sort of a new thing in our Lexicon around here but I guess that’s a thing and she’s got in her mind,

What those numbers need to be. It has to become a part of our official

A for not getting five calls and three showings in 2 weeks you know before the next 2 week period is up,

What would you surprise again and we’re only talking about reducing it by a few $1000 at a time

The main thing is we it just needs to be able to have some change in the listing status and that keeps it

On the MLS. Thanks for your question Edward. If you have question about real estate or real estate investing, send it to questions,

At Flipping America. Net we answer every question we will answer yours and some of them make it to the show.

[16:26] Alright. Now, promise I would talk about eye buyers. I buyers. Well,

What is an eye buyer if you’re in a market and there are a lot of markets across country where the i buyers aren’t even operating. So, if you’re in one of those markets where they don’t operate, you may not even know what I’m talking about,

And and you know again I remind you I don’t normally call people out by name but I have done this consistently with this category and I’m going to continue to.

Open door,

Offer pad and for a while zillow and redfin there are some others out there too some smaller ones orchard in different things but those are the main ones well what is an i buyer and

I came up with the definition for it as a joke with the staff of the day and and I’d say you know what I’m gonna use this here’s an ibiar,

An ibire is an institutional large scale but less honest real estate investor.

[17:23] That’s really what they are and institutionalized large scale but less honest.

Real estate investor.

Their deals come with hidden fees and surprise repair requirements. It works something like this. You call up this i buyer, you go on their website, you put it in your address, and they send you back and automated offer. Yay. They

They use an automated valuation method AVM and it gives them a price and they say you know exchange for the convenience of being able to close when you want and get the cash right there

We’re gonna ask you to take a little bit of a discount. Okay, you say you you take the discount. They send you a contract. You sign the contract which means now you are in a legally binding agreement,

And you cannot sell that property to someone else even if a realtor brought you an offer that was,

More like the full price you cannot sell if you’re under contract with this i buyer you see but,

The contract states that the it is subject to some terms and conditions one of those is they’re gonna come out and they’re gonna look at the property and they’re gonna tell you what needs to be repaired you either agree to make the repairs or

Price.

[18:37] Add a price a day recommend for so that they can make the repairs and when I saw that I thought good grief

I make that offer every day

We make our offers based on the fact that we wanna make a little profit so there’s a discount built in and in exchange for that,

Discount we’re gonna let you sell it as is and we’ll make the repairs. Oh, if you wanna make the repairs yourself, then, we’ll give you more money

Just like the eye buyers the difference is we’ll tell you that upfront we won’t ask you to put the house in a binding legal agreement the contract

A reasonable offer. Now, okay, not all real estate investors make fair and reasonable offers. Okay, out grant you that. But I’m talking about what we do. We make an offer that allows us to make a profit and allows the the seller to get.

As as much as they can for the house as much as you know it’s it’s gotta be a mutual win win right okay.

[19:49] You know, you know, let’s say, I’m gonna give you 150 1000 for this house and they’ll get an offer from an i buyer for 180 1000. That hurts me.

Cuz people are gonna sell it for 180 1000 then a couple weeks later the i buyer comes back and says will we been out and we’ve looked at the property and you need to make $20 thousand in repairs no by the way there’s a six% commission and no by the way there’s a handling fee and another

And those add up to.

In some cases as much as 16% of the selling price and in the final analysis they’re getting less from the ibire than they would have for me.

[20:24] And many times no more from the i buyer than they would have from me.

Put a little deception into it to make it sound better than it is and guess what.

In the relying on this deception to make their model work there’s something else that they do too they believe that the housing market is gonna continue to go up,

Up indefinitely

Are just dumb enough to spit out what you ask them to and if you say look at the last 4 years and and project from that what the rate of,

Appreciation on house prices and

They’re gonna come up with some number that looks crazy to us who’ve been around for 20 years and then they’re gonna make a decision based on what we’re gonna hold over this long amount of time and where we’ll discount we’ll sell it for a little bit more and so they’ve got that built in guess what doesn’t work.

[21:29] Here are four reasons why the i buyers are destined to fail,

The big ones I’m talking about all of them they are destined to fail I I I really think that in in enough time all of these eyebrows are gonna be out of business first of all none of them have ever made money that I am aware of.

And.

Secondly, I think that is sooner or later,

Number one.

It doesn’t matter that you have computers and you and you are right on top of the MLS data and you can get access to the sole data even in Texas and other states that don’t disclose that somehow you figured it out even if you can do that.

You don’t know that there is a hog rendering plant next to that one side of the neighborhood that makes those houses slow sellers,

And no one wants to buy over there or you don’t the computers don’t know.

[22:45] I’m not sure that their computers taken to account for example the rating of the schools.

[22:55] No amount of computer modeling can make up for a lack of local knowledge. Number two, they do not have a profit motive.

[23:04] It should. It’s surprises me that these companies can raise hundreds of millions of dollars from unsuspecting investors because the people have I don’t know, fancy credentials,

And they’re raising all this money and they’re talking about all this sophisticated technology but they don’t really intend to make money.

[23:23] They’re really intend to move the money,

They’re business model and maybe they think they wanna make money. Okay, let’s give them that.

But their business model says that they can’t. Now, I’ve got a couple of articles and the notes today. One of them is a CNN article and the guy for red film, you know, Redfin just got out of this business. Zillow got out a year ago after losing, I don’t know.

880 1000800000000. I can’t remember.

Redfin is getting out of the business now laying off 313% of their workforce at 264 people just in the eye buying division alone that’s all of them and they’re getting out of this business why,

David made it that they are paying

For prices for houses and they can’t sell them for as much as they’re paying. Well, hey, I think that’s rule number one in Rogers two simple rules of real estate investing, rule number one is buy it for less than you can sell it for.

[24:21] But they’re not even adhering to that one basic rule. It reminds me of the stupidity involved in the lending programs of the early 2000’s where it didn’t make any difference if you could pay the loan back if you stated an income you could borrow the money.

Alright. Number three, their business model relies in part on deception. I’ve already gone on.

People can be fooled but not forever

Now I’ve also said that the eye buying model is they’re trying to bring something similar to the used car business in here. Well, I would say that the used car business has a quite a bit of deception in it as well. The difference is

In a used car business you’re talking about a lot less amount of money and you’re talking about local used car dealers who for the most part.

Have a profit motive and there are some exceptions that in the used car business I do understand that but there are also quite a few cars that they won’t deal with.

You know and I can’t I don’t have time to get off into that whole thing. There are some similarities. There’s an analogy but there are enough differences that use cars are here to stay.

The used car model for house buying i don’t think is.

[25:45] I don’t think it can work.

[25:54] And then number four,

And when you build a business relying on extraordinary circumstances then you’re set yourself up for failure.

[26:13] It may sound good when you’re talking to the investors,

But if the investors have been paying attention to trans long enough or even if they understood the basic rules of logic. You know, there is a reason.

It’s because it’s the average.

To build your business and then you get average results.

[26:46] They’re not making money.

I don’t know if you heard it here first but you certainly heard it here and I’ve been saying it from day one i didn’t appreciate what they were doing it took me a little while to come to the point to realize that,

It’s just gonna fail.

[27:11] I wanna wrap it up today by saying a big, big thank you to everyone who bought my book, House Flipping in 10 days, or flipping houses in 10 days. If you haven’t bought it yet, please head over to Amazon. Com and order a copy now,

It is all ready and international number one best seller and I’m thrilled about that and so pleased.

So many of you thought it was valuable and worst buying. So, pick it up in the Amazon store and let me just give you a sneak preview. You know, what I do, flipping houses is it isn’t for everyone.

[27:43] There are i have documented 86 different careers in real estate.

Here on the show, we’ve done a couple of shows about it where we’ve talked about them, we’ve broken them down, and so forth, and what I’ve decided to do in this next book project is already underway, and it’ll come out sometime in 2023.

[28:00] We’re I’m going to bring in some of the really interesting and talented and knowledgeable people that we’ve had here on the show over the years,

And we’re gonna put together a book,

To highlight the different ways that you can make really good money and have nice careers in the real estate industry,

And I expect that book to be released in 2023 we’re working on it now and if you could just read a story from a different person in every chapter about how they made it in real estate,

I think that’s gonna be interesting and compelling and I’m pretty sure it will be a best seller also. So, thank you so much.

Add for your support and we’ll be we’re gonna be setting up a preorder page for that book Roads to Real Estate Riches here pretty soon.

[28:55] We’re at the end of our time together today and I wanna thank you for joining us and say a special thank you it’s around Veterans Day as we record this say thank you to everyone who is serving and everyone who has served,

I love this country and I love and appreciate each one of you what you’re doing to sustain our freedom.

[29:15] Now we’re gonna turn our attention to our Michael Scott quote for the for the show we’ve been quoted Michael Scott from the office and here it is for today.

I saved a life.

[29:31] That’s it for today everybody. Keep your eyes open.

You’ve been listening to flipping America real estate investing for everyone. Listen three times a week on stations across the country or on the flipping America app free in the app store,

Be sure to like us on Facebook find and follow us on Twitter and Instagram and keep your eyes open.

[29:54] Music.

Flipping America