Zillow flipping homes business model

6 Replies

Originally posted by Account Closed:

As some of you may be aware, Zillow is now flipping homes in the Phoenix market. Here is a link to an article about the first house they've flipped in the Phoenix market. 

What are your thoughts about their business model? 

https://www.geekwire.com/2018/inside-look-zillows-...

 They are dumb. ;-)

There is no way they are going to make any money doing this. The high volume low margin business in my opinion is not something Zillow should be getting in to.

I mean really? They bought a house for $410,000 and are trying to sell it for $425,000? What about carrying costs, closing costs, taxes, etc? What a joke!

@Mayer M. My thoughts exactly. If I have to guess, they can only apply this model to very cosmetic projects. Maybe just homes that involve paint and carpet as I don't see them investing too much of their time in the rehab process. 

Originally posted by @Mayer M. :

There is no way they are going to make any money doing this. The high volume low margin business in my opinion is not something Zillow should be getting in to.

I mean really? They bought a house for $410,000 and are trying to sell it for $425,000? What about carrying costs, closing costs, taxes, etc? What a joke!

 And what about when the market changes, what then? Plus, as a large business they have to do a LOT of volume to make it worth doing. The hedge funds were smart when they bought in 2009-2012 at the bottom of the market, now Zillow is trying to replicate that kind of success at the top of the market. 

Someone made a very good point when this was asked a while ago:  Zillow is actually using the leads they get to feed to the real estate agents that advertise on Zillow. Seems the ads weren't particularly effective in bringing in business for Zillow real estate agents and Zillow had to do something so the agents would keep advertising.

One of the razor blade companies had a similar and brilliant concept. Give the razors away and charge an arm & a leg for the blades.

They are getting into a market by overpaying with the hope that it drives out the competition, they write off the losses, and then when the competition moves on, they change to a more profitable model. Think Walmart but for house flipping....

They will definitely be losing money using this model. Spending $410,000 on the house even with the most minor cosmetic upgrades and then trying to resell it for $425,000 is a losing model, in a big way. I’m sure they also had to bring on additional staff for these projects aside from all the regular cost involved with house flipping.

Competition will always be around. If their business model is the push out the competition and then create some sort of Monopoly it will not work. Competitors will just sit back and wait for the right deals, that’s what I would do.

I think in the next couple of years you’ll see Zillow Exit the house flipping market and focus on their bread-and-butter.