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darkmarket

Opendoor: Using Technology To Flip Homes. $110Mm In Investments.

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http://techcrunch.com/2016/06/07/a-startup-that-pays-cash-to-buy-homes-now-offers-money-back-guarantee/

A San Francisco-based startup disrupting the worst VC investment ever category.

"Wu says Opendoor has also raised “hundreds of millions of dollars” in debt in order to carry the homes on its balance sheet while it works toward re-selling them."

"To keep from buying any real lemons, Opendoor won’t purchase any home built before 1960. It also sticks with homes that range in value from $100,000 to $600,000, which apparently covers 90 percent of homes in the U.S."

"Most obviously, if the market were to turn sharply, Opendoor could be stuck holding properties it can’t sell. But Wu argues the frictionless marketplace that Opendoor is creating more than makes up for that risk."

"As for profitability, Wu says Opendoor isn’t focused on it just now, despite nervousness in the investor market. Opendoor is purchasing more than $50 million worth of homes in Phoenix a month, and $25 million per month in Dallas."

No mention of international expansion or UK partnerships, unfortunately. /s

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What got me was it chose "to carry the homes on its balance sheet."

It's a long time since I've heard of a startup that actually carries stock. But obviously it couldn't run as a pure platform, because common sense.

So the tech here is completely secondary, the in-house economist presumably paid not to criticise the model. Another sign of madness in global markets "surfing a wave of free money", as you say.

I'd expect it to go the way of LendingClub before the year's out:

http://www.wsj.com/articles/lendingclub-postpones-annual-shareholder-meeting-1465325361

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Wow, another phenomenally bad idea coming out of silicon valley. If you have a house where a really poor location impacts the price without it affecting the comparative statistics, you know who to sell it to.

18houses-600.jpg

Edited by richc

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Like the vast majority of San Francisco tech startups it's not viable at all then

Without the global debt ponzi, who's to say even the handful that have proved viable would still be here now?

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Without the global debt ponzi, who's to say even the handful that have proved viable would still be here now?

Take a company like the payment processor, Square. Their tech is genuinely innovative, it improves on the offer previously available under legacy banking and their success has also been based on product updates responsive to client feedback. Certainly their number of clients and the wider number of transactions has been greatly helped by the credit bubble, but they're trying to create a decent business in a competitive environment. Overall, I'd say they're the kind of company you want in an economy.

Opendoor has a huge number of staff who'll be made redundant as soon as the market turns, many of them may be using their inflated salaries to take out mortgages on SF property. The quality of their pricing algorithms is almost irrelevant, the market creates no incentive for them to deploy resources on that. Which is reflected in the tiny number of engineers they employ compared to 'operations' staff. Overall their contribution is to destabilise an economy.

The positive, for me, is this is further evidence of late-stage boom mentality. They presumably have an exit strategy, but the timing doesn't add up unless the US avoids a shock for another five years at least.

http://www.cnbc.com/2016/06/07/bank-requires-few-loan-documents-seems-like-housing-deja-vu.html

This is a business based on a Dodds-Frank loophole for "mission-driven financial institutions that take a market-based approach to supporting economically disadvantaged communities." They're using it to sell no-doc (liar) loans to poor people. My suspicion is that the next crash will come from the US via Japan. China can't save the world this time, at 300% debt-to-GDP. And the stories confirming that suspicion are piling on by the day.

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