Massive Real Estate SHUTDOWN *JUST* Announced | WARNING. — Transcript

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1. 0:00other massive company with mass layoffs
2. 0:04and canceling yet another failed
3. 0:07business in real estate Redfin is the
4. 0:11failure we're going to talk about today
5. 0:13and boy oh boy
6. 0:15this is going to be a lesson called
7. 0:18lesson number 101 how not to make money
8. 0:20in real estate
9. 0:21that doesn't sound as sexy as use the
10. 0:24coupon code down below and join the zero
11. 0:26to millionaire course to learn how to
12. 0:28actually build wealth in real estate
13. 0:31and what's great is in that course I for
14. 0:35years have dissuaded becoming a home
15. 0:38Flipper the reason and then I'm going to
16. 0:40give you the news the reason why home
17. 0:42flipping is so challenging is generally
18. 0:45you pay substantial fees and holding
19. 0:48costs to sell property when you buy it
20. 0:52this makes using real estate as a
21. 0:54volatile commodity to trade very
22. 0:57expensive let me give you an example
23. 0:59people like to think oh well I could
24. 1:02just sell my home with a discount real
25. 1:04estate agent for one percent and the you
26. 1:08know cost to sell aren't that high
27. 1:09unfortunately that's not how the game
28. 1:11works typically closing costs are going
29. 1:14to cost you anywhere between six to
30. 1:16seven percent that's because not only do
31. 1:18you have to pay your realtor but you pay
32. 1:20the buyer's agent so maybe you save on
33. 1:22your representation by getting somebody
34. 1:24who's willing to work for a discount uh
35. 1:26and then you still pay the buyer's agent
36. 1:28and usually a normal market rate so you
37. 1:31to track buyers but then you have to pay
38. 1:33your escrow fees your title fees and
39. 1:35sure you can get binder policies and
40. 1:37titles or title to sort of reduce some
41. 1:39of those costs but you've got to pay for
42. 1:41holding costs costs of capital that are
43. 1:44deployed on that property and the fact
44. 1:47that you got to keep the lights on while
45. 1:48the property is sitting there and paying
46. 1:50property taxes as you're trying to sell
47. 1:52it and transact it people have to pay
48. 1:54for houses that are open houses right
49. 1:57this makes logical sense but beyond that
50. 1:59you have to maintain the property and as
51. 2:01buyers beat you up in inspections you
52. 2:04generally get complaints that you won't
53. 2:06get from a tenant now that is very
54. 2:09important to contrast because you want
55. 2:11to do great work for a tenant but let me
56. 2:13put you put it this way if the roof is
57. 2:15old but it's not leaking the tenant
58. 2:17doesn't care if however the roof is old
59. 2:20and you're selling it the buyer might
60. 2:22want you to pay for a new roof or at
61. 2:24least like 70 percent of it very very
62. 2:27typical so home flipping exposes you to
63. 2:30expenses that are usually get a knock on
64. 2:32the door of seven to ten percent let's
65. 2:34just take ten percent to be simple
66. 2:36considering all the repairs that you
67. 2:38might have to throw at a buyer just to
68. 2:39get them to close a deal so let's give
69. 2:41you an example and then give you the
70. 2:43breaking news so if you buy a house for
71. 2:46five hundred thousand dollars you put
72. 2:48fifty thousand dollars in to fix it up
73. 2:50you're probably looking at somewhere
74. 2:52around a six hundred and five thousand
75. 2:54dollar break even when you factor in
76. 2:56those holding costs and selling costs
77. 2:58and concessions to the buyer that's
78. 3:01challenging that extra fifty five
79. 3:03thousand dollars means you basically
80. 3:05blew an entire one hundred and five
81. 3:08thousand dollars the difference between
82. 3:10what the property might sell for 605 and
83. 3:13500 000 you blew that on fix up and
84. 3:17selling expenses not to mention you've
85. 3:18got buying expenses as well and what a
86. 3:21lot of people have been doing in the
87. 3:23flipping Market lately is they've been
88. 3:25speculating so hardcore that they've
89. 3:27been getting into flips where the after
90. 3:30repair value is like six hundred and
91. 3:33five thousand dollars and then they go
92. 3:35in and they say you know what the market
93. 3:36will just appreciate during the three
94. 3:39months we're in this process and guess
95. 3:41what we'll be able to profit off that
96. 3:43market appreciation and if we can now
97. 3:45sell the house for 6.25 now we walk away
98. 3:48with about a twenty thousand dollar gain
99. 3:50that's great if the Market's
100. 3:52appreciating and going in your direction
101. 3:53but what if Jay Powell comes around and
102. 3:56raises interest rates for mortgages four
103. 3:58to five percent and all of a sudden
104. 3:59buyers purchasing power is quickly
105. 4:02eroded and instead of seeing that after
106. 4:04repair value go from 620 or 605 to 625
107. 4:08you actually see it go to 580 and you
108. 4:10take it on the chin
109. 4:12yeah oops not so great and that's why
110. 4:15it's actually really smart for companies
111. 4:17to get out of the flipping business
112. 4:19right now Zillow saw this coming really
113. 4:22smart they got out of this the flipping
114. 4:24business at the end of 2021 and even
115. 4:28though they had to sell thousands of
116. 4:29their homes for a discount in early 2022
117. 4:32they ended up selling those sure at a
118. 4:35slight discount but still when the
119. 4:37market was near highs early 2022 was the
120. 4:41time to sell that's also when I sold 85
121. 4:43percent of my real estate now what's
122. 4:47next well Open Door is still stuck
123. 4:50flipping homes but they're offering
124. 4:52sellers way less money because they're
125. 4:54realizing they're getting smoked they're
126. 4:57losing so much money on deals that they
127. 4:59bought in q1 and Q2 because they didn't
128. 5:01pay attention to the housing market I
129. 5:04think there were plenty of people like
130. 5:05me screaming the housing market was
131. 5:06about to grind to a halt and you should
132. 5:08stop flipping homes yet Open Door didn't
133. 5:10listen and now they're getting burned
134. 5:12pretty substantially and laying off 18
135. 5:14of their staff but the other buyer known
136. 5:17as an eye buyer just like open door
137. 5:19which is basically a website that's
138. 5:21willing to buy your home from you and
139. 5:23then they can either resell it and take
140. 5:24some commissions and fees or they could
141. 5:26try to resell it for a profit and make
142. 5:28money that way either way Redfin was
143. 5:31another big eye buyer Redfin wanted to
144. 5:34give you multiple options and this is
145. 5:37actually smart it was very similar to
146. 5:39what I used to do as a real estate agent
147. 5:41back in like 2013 and 14 when I had the
148. 5:44means to do all these things I used to
149. 5:46say hey I'll sit down with the seller
150. 5:48and here are three options for you I'll
151. 5:50help you list the house for sale I'll
152. 5:52help you fix up the house so we could
153. 5:54sell it for more if you want or we'll
154. 5:58buy it from you all cash but the all
155. 6:00cash offer would obviously be less
156. 6:02Redfin tried taking that model which by
157. 6:05the way let me quickly give you a
158. 6:06spoiler on what I did what I ended up
159. 6:08doing is realizing lending my clients
160. 6:10money because I got my lending license
161. 6:11to help them fix up their homes was a
162. 6:14bad idea because clients and
163. 6:16construction don't really mix well
164. 6:18together construction is fun when you're
165. 6:20Your Own Boss not when you have clients
166. 6:22trying to tell you what to do when
167. 6:23you're the professional whatever that
168. 6:25was not a great model and buying homes
169. 6:28cash
170. 6:30kind of have to almost insult the
171. 6:32clients you're trying to list the home
172. 6:34for so didn't work out very well either
173. 6:37unless of course you wanted to overpay
174. 6:39to give them a good experience but then
175. 6:42by overpaying you'd also take it on the
176. 6:45chin and you don't want to do that you
177. 6:46don't want to be in a business that
178. 6:48loses money and that's folks what Redfin
179. 6:50just announced they're laying off 13 of
180. 6:53their staff and shutting down their home
181. 6:56flipping business here it is on November
182. 7:007th we decided to wind down Redfin now
183. 7:03and reduce our number of employees by
184. 7:06862 which represents 13 percent of our
185. 7:09total employees of these 264 job
186. 7:12eliminations are directly related to
187. 7:14Redfin now wow so 264 are related to
188. 7:18Redfin now getting shut down which is
189. 7:20their home flipping business but that
190. 7:22means another nearly 600 jobs are
191. 7:26getting fired because well ultimately
192. 7:29here you go since June mortgage rates
193. 7:32have continued to climb and expectations
194. 7:34for home sales have continued to come
195. 7:36down remember these are businesses that
196. 7:38make money off of volume the more
197. 7:40transactions there are the more people
198. 7:42can pay for ads on let's say Zillow the
199. 7:45more transactions there are the more
200. 7:47Revenue Redfin can get from Redfin
201. 7:50agents or Redfin partner agents but when
202. 7:52transactions go down even if prices
203. 7:54don't necessarily come down although
204. 7:56they've already come down about eight to
205. 7:58ten percent across the country on
206. 8:00average we expect them to probably come
207. 8:02down somewhere between 15 to 25 percent
208. 8:04during 2023 uh we'll see but anyway they
209. 8:07say the remaining Workforce reductions
210. 8:09are primarily among our Real Estate
211. 8:10Services and headquarters employees in
212. 8:12response to macro economic conditions
213. 8:14and we're seeing layoffs everywhere
214. 8:16today's Workforce reduction assumes a
215. 8:18housing downturn that lasts at least
216. 8:22through 2023 wow I didn't actually
217. 8:27pre-read this section right here that's
218. 8:29incredible they're now predicting that
219. 8:31all of 2023 is going to be a housing
220. 8:34downturn and that's Redfin they provide
221. 8:36some pretty good insights to the market
222. 8:37too I actually respect their blog I
223. 8:39respect their CEO even though he he kind
224. 8:42of never comes on my channel for an
225. 8:43interview even though we've asked many
226. 8:45times but you know what fine don't come
227. 8:49since April 2022 through inventory
228. 8:52involuntary reductions and attrition
229. 8:54we've reduced total headcount of
230. 8:57employees by 27 wow regarding Redfin now
231. 9:00we expect to complete the purchase of
232. 9:02all homes were contractually obligated
233. 9:04to purchase and renovate and sell
234. 9:05properties quickly as of October 31st
235. 9:08the so this is another big buyer leaving
236. 9:10the market so open door is like yeah
237. 9:12we're just not going to buy much at all
238. 9:14anymore zillow's out redfins out you
239. 9:16know the Pension funds and REITs are
240. 9:18stopping buying the home builders are
241. 9:20stopping by you've got a lot of buyers
242. 9:22dipping out of this market so I know
243. 9:24people are like oh but inventory is
244. 9:25still low that's true but a lot of
245. 9:27buyers are just like no thanks bye and
246. 9:30that's how you start building up
247. 9:32inventory just wait I think probably by
248. 9:35q1 of next year we're gonna see big
249. 9:37surge in inventory relative to where we
250. 9:39sit now
251. 9:40as of October 31st the invent the
252. 9:43inventory value of homes was
253. 9:44approximately 265 million with another
254. 9:4692 million under contract by the end of
255. 9:48January we expect to own less than 85
256. 9:50million in homes and expect to complete
257. 9:52the liquidation oh that always sounds so
258. 9:55bad of our Redfin now inventory in the
259. 9:58second quarter of 2023 that's actually
260. 10:00when I think we we might and I'm not
261. 10:03sure yet okay I will know when we're
262. 10:04closer and that's okay I don't have to
263. 10:06make a decision until we're closer but
264. 10:07that's actually when I think I want to
265. 10:09start considering shopping for uh house
266. 10:11hack which remember if you're an
267. 10:13accredited investor go to househack.com
268. 10:14read the PPM there that's your
269. 10:16solicitation we've got some really good
270. 10:18news coming out to investors uh probably
271. 10:20today actually for for house hack which
272. 10:22is great and if you're not accredited
273. 10:24yet don't worry we've got the
274. 10:26non-accredited round probably coming in
275. 10:27January February while the bulk of the
276. 10:30workforce reduction is occurring today
277. 10:31we expect to complete this Workforce
278. 10:33reduction in wind down Redfin now
279. 10:34promptly after selling the remaining
280. 10:36properties currently in inventory into
281. 10:372023 in connection with the preparation
282. 10:40of financial statements we recorded an
283. 10:4218 million write down of inventory oh
284. 10:45that's about that's nearly what eight
285. 10:47percent or so that makes sense uh and uh
286. 10:51let's see here right for now current
287. 10:52estimates of values uh if they were to
288. 10:55sell the homes as of September 30th
289. 10:572022. okay well so you're gonna have
290. 10:59more write Downs basically yikes as a
291. 11:02result of the decision to wind down
292. 11:03Redfin now we plan to report Redfin now
293. 11:05as a discontinued operation wow so there
294. 11:08you have it folks don't flip homes learn
295. 11:10how to actually make money Building
296. 11:12Wealth in real estate as serious this is
297. 11:14probably before I came out with the
298. 11:16stocks course this was always the most
299. 11:18popular course zero to million at real
300. 11:20estate investing I know a thing or two
301. 11:21about real estate I'm starting a real
302. 11:23estate startup that is absolutely going
303. 11:25to crush it we're we're gonna
304. 11:28in my lifetime this will have a
305. 11:29multi-billion dollar valuation
306. 11:31I can't make that guarantee that's my
307. 11:33hope I just want to be very clear I
308. 11:35don't want to make promises but
309. 11:36expectations
310. 11:38um I am so excited for the opportunities
311. 11:40that lay ahead and I want you to learn
312. 11:42with me so check out the zero to
313. 11:44millionaire course and folks we'll see
314. 11:45you soon thanks bye