How Zillow Abandoning House Flipping Affects Real Estate
Q: I read that Zillow closed its iBuying arm. Does that surprise you? Curtis, Nyack, NY
A: Another one bites the dust. Yes, Zillow announced last week that it would sunset its iBuying arm, which was its fix and flip business. Zillow also announced it will be laying off 25% of its staff. Zillow’s foray into house flipping is outside of their focus and capability and was doomed to fail from the beginning. Many Wall Street backed real estate start-ups end up overpaying for property so they can raise more money, hoping for short-term appreciation–they obviously don’t understand the difference between investing and speculating. I’m skeptical of most wall street backed real estate start-ups because residential real estate fundamentally is not a passive investment-you have to actually work and manage the asset after you buy it whether you’re maintaining a portfolio of rental properties or doing fix and flips as zillo was trying to do. The fix and flip properties Zillo will now sell will add much needed housing inventory to the local real estate markets where they purchased. Most of these Wall Street real estate startups aspire to achieve monopoly power which is a very tall order–anyone can raise money but running a real estate business requires experience and local market knowledge. When they are in buying mode, these Wall Street real estate start-ups end up distorting local real estate markets–luckily their focus is usually short term, so hopefully they’ll soon find another shiny object to chase and get out of the real estate game altogether. Thanks for your question, Curtis.
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