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The Future Amazon of the $1.6 Trillion Real Estate Market

Have you ever sold a home before?

If yes, then you know that selling a home is probably the worst process in the world.

It takes forever, usually about three months to close a sale.

It costs an arm and a leg, with agent fees, staging costs, closing costs and selling concession fees often taking out more than 10% of the sales price of the home.

It’s highly complex, with an average of six counterparties per one home sale.

It’s terribly volatile, as ~20% of potential transactions fall through due to inflexible timelines, buyers backing out, and financing delays.

I’d venture to say that selling a home is the single most inefficient retail process in the world today.

Why is it so inefficient?

Because the real estate market is stuck in the stone age.

If you remember, buying electronics also used to be inefficient. You had to get in your car. Drive down to Circuit City. Fight through crowds of people. Talk to a sales rep. Sit in a checkout line. Pay for the item. Drive back home.

Then… along came Amazon… a company that centralized, streamlined and simplified the shopping process with a single e-commerce platform… so that buying an electronics item became as easy as opening up an app, searching for an item, and tapping “Buy.”

Amazon leapfrogged shopping into the digital era, and in so doing, dramatically improved the shopping experience.

Wayfair has done the same in the home goods sector.

Carvana has done the same in the automobile world.

Chewy is doing the same thing in the pets category.

Across all verticals, retail shopping processes are being modernized, digitized and optimized for consumer convenience.

Except in the home shopping world… where less than 0.1% of homes sold last quarter were sold online.

The real estate market is stuck in the stone age.

But it won’t be forever.

One small, emerging tech company is on the cusp of pioneering a breakthrough, e-commerce solution across the entire U.S. real estate market, and in so doing, will finally leapfrog this $1.6 TRILLION industry into the digital era.

Today, we will tell you all about this up-and-coming real estate market disruptor, and show you how it could one day turn into the “Amazon of houses.”

A $100 Billion Online Home Shopping Powerhouse in the Making

Amazon became Amazon by doing three simple things.

One, the company created a superior digital shopping experience with an unmistakably strong value prop.

Two, Amazon leveraged that strong value prop to attract tons of shoppers and establish early leadership in the market.

Three, the company turned around and leveraged early leadership to drive network effects, which enabled a positive growth flywheel and allowed Amazon to retain market dominance forever.

A small, freshly public company by the name of Opendoor (NYSE:IPOB) is set to follow that exact playbook to turn into the Amazon of real estate over the next 10 to 15 years.

Opendoor is an e-commerce platform where consumers can buy, sell and view homes online.

In essence, Opendoor acts as a virtual “flipper” that buys homes directly from sellers, and turns around and sells those homes directly to buyers. The company makes money on the delta between its buy and sell prices, and through a service fee charged to sellers.

The value prop here is that by streamlining and digitizing the home selling process, Opendoor simultaneously:

  • Accelerates the home selling timeline (by leveraging big data and algorithms, Opendoor can accurately price a home in minutes, and sellers can close a home sale in as few as 3 days).
  • Cuts out costs (by eliminating profit-takers in the supply chain, Opendoor reduces all-in home selling costs from over 10%, to just 6%, comprised of a 5% service charge and 1% closing costs).
  • Reduces hassle (by simplifying and streamlining the real estate supply chain, Opendoor turns selling a home into a super-easy, one-to-one process between the seller and Opendoor).
  • Improves visibility and reliance (by taking on all staging and buying duties, Opendoor removes risks for the seller — once you sell your home to Opendoor, you get the money, and that’s that).

The value prop is unmistakable.

Opendoor’s digital platform for buying and selling homes offers a significantly superior shopping experience to the status quo.

Opendoor has leveraged this significantly superior shopping experience to attract tons of home sellers to its platform over the past few years. The company operates in 21 markets, and has served over 50,000 homeowners, sold $10 billion worth of homes, and grew the number of homes sold through its platform by over 500% from 2017 to 2019.

Thanks to this enormous early success, Opendoor is the unrivaled leader in the online real estate market, selling more than 4.4X the number of homes as its next biggest competitor.

Going forward, Opendoor will turn its unrivaled size into unbeatable network effects — the more home sellers Opendoor has, the more home buyers the platform will attract, which will bring in home sellers, so on and so forth — to eventually and inevitably turn into the Amazon of the real estate market.

The potential upside in Opendoor stock is enormous.

Nearly 6 million homes are sold in the U.S. every year. Thanks to the digitization megatrend, about a quarter of those homes should be sold online by 2035, or 1.5 million online homes. Amazon controls about 40% of the U.S. e-commerce market. A similar market share for Opendoor implies 600,000 homes sold in 2035.

The average sales price of a home in the U.S. is close to $350,000. Taking that average, Opendoor’s revenues could be $210 billion by 2035. Management’s targeting long-term EBITDA margins of 5%. Assuming the company can hit that target, then my modeling suggests that $6 billion in net profits is doable by 2035.

Put a 20X multiple on that, and that’s the math behind Opendoor turning into a $120 billion online home shopping powerhouse one day.

Big picture: Opendoor is a $100+ billion “Amazon of houses” in the making, and an early-stage investment in Opendoor stock today could generate life-changing wealth over the next decade.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

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