Zillow’s Buying Spree Gone Wrong (LA 1630)
Zillow’s Buying Spree Gone Wrong (LA 1630)
Transcript:
Steven Jack Butala:
Steve and Jill here.
Jill K DeWit:
Hello.
Steven Jack Butala:
Welcome to the House Academy show, entertaining real estate investment talk. I’m Steven Jack Butala.
Jill K DeWit:
And I’m Jill DeWit, broadcasting from the valley of the sun.
Steven Jack Butala:
Today, Jill and I talk about Zillow’s buying spree and how it’s gone wrong.
Jill K DeWit:
I feel bad.
Steven Jack Butala:
I don’t.
Jill K DeWit:
I know.
Steven Jack Butala:
I feel great.
Jill K DeWit:
I know. It’s true, but somebody’s head’s going to roll.
Steven Jack Butala:
Zillow is pretty much a household word. It’s a place to go look at what’s for sale for all real estate types. It’s a place to go get data. It’s a place to post properties. If you buy, like us, buy and sell land. And it’s been around for a while. I’ll give all the stats here in the regular show, but they started in 2005. And as a tech company, are a huge example of success. And recently they decided to go buy a bunch of houses under the guise of, well, we have all the data, we’re going to make better decisions and it totally backfired. And I’ve been on record saying that they’re what’s called an iBuyer, which is a… It accounts for 1% of all the acquisitions for SFRs in the country, which sounds like a lot, but it’s not. I’ll get into the numbers in a minute here.
Jill K DeWit:
I have numbers too.
Steven Jack Butala:
Oh, good.
Jill K DeWit:
Just don’t think that I can’t come up with numbers.
Steven Jack Butala:
Before we get into it, let’s take a question posted by one of our members on the landinvestors.com online community, it’s free and don’t forget to subscribe on the Land Academy YouTube channel and comment on the shows you like.
Jill K DeWit:
David wrote, hi, Jack. After Career Path, I’ve done six land deals that I probably would’ve walked away from if I didn’t go through Career Path. So I want to say, thanks for that. I still haven’t sent mail for land yet because my house flipping business has essentially doubled in volume. I range about 13 deals per month over the last four months. It’s a lot.
Steven Jack Butala:
So, I remember David during Career Path.
Jill K DeWit:
That’s a lot, that’s great.
Steven Jack Butala:
He’s a franchisee of a very popular home company that advertises on 800 Number, where if you want to sell your house you can get an offer. And so what he’s saying here is, Career Path really helped him with being a franchisee for this company. Just gets me thinking.
Jill K DeWit:
So, just hadn’t had the capacity to add another asset class yet. I actually went through the process of putting together and pricing mailer with concierge data and offers to owner. But my team’s a bit overwhelmed right now. So, I’m holding off until they catch their breath. I’ve heard through the podcast that you and Jill have started doing a little more with House Academy. Right now, we’re aiming to start that in the first quarter, after I’m completely out of X company.
Jill K DeWit:
I actually think it would be a little easier to lift to add the land/house [inaudible 00:02:46] process to what we’re doing in the flipping business. Now in a perfect world, my business would never rehab a house again, kudos to that. With that being said, are you still doing consulting calls? And where could we cover some of that? Or are you planning any additional training, like the intensives that you’re doing or Career Path, that focus on houses? If some definitely interested, hope Paul as well. Thanks, David.
Steven Jack Butala:
Next year, we’re doing all that. We’re releasing multiple Career Path scenarios because everybody wants it. And we will focus on houses with one of them. For sure.
Jill K DeWit:
I agree.
Steven Jack Butala:
Today’s topic, Zillow’s buying spree and how it’s gone wrong. This is the meat of the show. Around 2005, Zillow was created by private investors. They raised up a bunch of capital through a company called TVC and Benchmark. If you’re in that world, you know who these companies are. They raised three series of equity and then took the company public as an IPO in 2011, which is no easy feat. I’ve done this myself and there’s a lot involved, a lot of reporting, just ton of stuff involved. And you can’t do it with no revenue. And so good for them. I think that’s great. So they’re chugging along. Right now they’ve actually even got 5,000 employees. So, for a tech company and a startup to be profitable and have all of that and go publicly traded, they’re doing something right. So, this is not a Zillow bash by any stretch.
Jill K DeWit:
However.
Steven Jack Butala:
What happened is, they saw… As you probably may or may not know, there’s one or two ways for it. There’s exactly two ways for a publicly traded company to grow and thereby increase shareholder value and stock price through acquisitions of other companies or internal, what we call same store growth. And so they bought some small little startup companies, which is tougher and tougher to do these days, because none of them make any money. And then they got the bright idea to become an iBuyer.
Steven Jack Butala:
iBuyer is the non-brand name for institutional companies like Zillow or private equity groups to look at a data set like we do, decide which properties they want to buy, make a bunch of offers for the right amount and then resell them for more. And so great, you got all this data. What they failed to realize is, it’s not like buying stock on a computer screen and then selling it when it goes up. These people are tech people and they’re money people. They’re not real estate people. If you’ve ever bought and sold a house, if you’ve ever lived in this house and sold it, there’s a lot of crap involved. That’s where they failed.
Steven Jack Butala:
We’ve bought hundreds of houses, Jill and I, hundreds very successfully without exception. Actually now that I’m thinking about it, I’m trying to think if we ever lost money on a house.
Jill K DeWit:
Nope.
Steven Jack Butala:
Here’s the key.
Jill K DeWit:
We just knew we could make more money and our time was not spent as well.
Steven Jack Butala:
Here’s the key with buying and selling a house profitably. You can’t renovate it.
Jill K DeWit:
You got to buy it right.
Steven Jack Butala:
You cannot improve the property or you will go broke. All this stuff on HGTV is fiction. It’s hosts twice as much as you think and takes twice as long, if you’re lucky.
Jill K DeWit:
So, here’s where they failed. So this started what, I think it was 2017, I read that they started doing the house thing. Everything was going great. Someone decided to tweak the algorithm to make the offers higher, this is all the research that I did a little while ago, to make the goal a 1.3% spread. They were going for volume. I know.
Steven Jack Butala:
1% on a real estate deal?
Jill K DeWit:
1.3% spread. Somebody thought that was a good idea. The problem was like you said, they’re data people, they’re not house people. And of course it backfired because they were behind the game here. So, what ended up happening? Well, that in the Q3 this year, they went nuts obviously. They bought more homes in the third quarter this year than they had bought in the whole of time they’ve been doing this.
Steven Jack Butala:
7,000 properties is what I’m showing.
Jill K DeWit:
Well, 7,000 homes are offloading. They bought more than that. That’s just what they’re offloading around now.
Steven Jack Butala:
$2.8 billion.
Jill K DeWit:
So, I have even… You have 2.8? What was my number here?
Steven Jack Butala:
Add up hundreds of millions of dollars of loss.
Jill K DeWit:
I have three point… Oh, billion? Okay. I thought just maybe the whole thing, I have a-
Steven Jack Butala:
Yeah. $300 million loss.
Jill K DeWit:
Yeah. 328 million in just Q3 loss. So again, someone tried to tweak the algorithm to make higher offers, to buy more homes. Well, that’s great. But what ended up happening is now, where they are in Atlanta and Phoenix, even just Phoenix right now. Because they bought too much. They did it wrong. They shut that down by the way.
Steven Jack Butala:
Bought the wrong houses too.
Jill K DeWit:
Yeah. So now, they have 250… Right now this month, this is November of 2021, they have 250 listings for sale and they’re all priced at 6% less of their purchase price. That’s the average.
Steven Jack Butala:
I’m sure.
Jill K DeWit:
That’s a hit.
Steven Jack Butala:
I mean that’s just pricing-
Jill K DeWit:
For $29,000.
Steven Jack Butala:
… That’s not real estate agent fees and all kinds of stuff. They’re just not real estate people. Really, there’s a lot of ways to lose money in real estate. If you don’t really look at the asset and buy the right stuff, that’s part of it. And you can’t buy volume like that and actually go through a real due diligence process.
Jill K DeWit:
$29,000 average less than what they bought it for on 250. That’s just one area. Phoenix, Atlanta, they were saying are the biggest ones where they really went for it. But there’s plenty of other areas across the country that…
Steven Jack Butala:
I’ll put this in perspective. There’s 141 million SFRs in this country or let’s just say, households where you can take title… You own the APN, whether they’re condos or detached houses or whatever, or townhouses. So, this is not a dent. Again, the media just went nuts on this. Oh, these big iBuyers are buying all these properties that we’re never going to be able to buy a house. Well it account for it, first they failed at it, which we said they were going to fail at it. They’re not real estate people.
Steven Jack Butala:
And in their heyday, they were responsible for 1% of the acquisitions that went on, which is back not even now. Because there’s way more houses being traded now than there ever was. So, they failed at it and we knew they were. So, don’t let this affect your decision about anything.
Jill K DeWit:
Oh yeah.
Steven Jack Butala:
That’s what I want to convey here.
Jill K DeWit:
I’m not worried.
Steven Jack Butala:
It’s fun to watch people on Wall Street fail or people in Silicon Valley in this case. I love that stuff. Because they’re so good at doing certain things, they think they can go do anything.
Jill K DeWit:
I have two questions. One is, how do you think this is going to change how the general public views companies like this?
Steven Jack Butala:
It’s nothing good.
Jill K DeWit:
That’s [inaudible 00:09:37]. That’s going to make them like me even more. “Oh you’re not a Zillow guy?” I’m like, “Oh God, no. That’s not me.”
Steven Jack Butala:
Would you rather buy a house from Jill or from Zillow? I mean sell a house.
Jill K DeWit:
Right. Okay. And then number two, could we pick up some cheap property from Zillow? Make them some crazy offers?
Steven Jack Butala:
I think you said that before over the last week since this hit the media and I say-
Jill K DeWit:
I’m almost like, “Hey, I’ll buy that off you.”
Steven Jack Butala:
I mean, I say, why mess with the… Zillow owns houses in markets that we like anyway.
Jill K DeWit:
Right.
Steven Jack Butala:
They’re going to get an offer. So I say, send out the offers like we always do. If Zillow happens to call, great. If not…
Jill K DeWit:
Great. You’d say, “What else do you have? I know you have a lot.”
Steven Jack Butala:
I fall in the group where I don’t want to do… I do not want to buy… Can you imagine the signature process from buying a house from Zillow?
Jill K DeWit:
Oh gosh. There’s that.
Steven Jack Butala:
Would you rather buy from Sally Smith or Zillow? Geez.
Jill K DeWit:
That’s true.
Steven Jack Butala:
It’s not hard.
Jill K DeWit:
That’s true. So, at the end of the day, I feel bad.
Steven Jack Butala:
Again, I don’t get that. What do you feel bad about?
Jill K DeWit:
I don’t know. It’s just sad. Somebody really goofed. You know what? On the other hand, hold on a moment. No, you’re right. I feel thrilled for the people that got that money because they sold their houses for more than what they were worth, clearly. And they saved money because they call it convenience fees. They didn’t do the normal broker percentage. So, they got good money.
Steven Jack Butala:
Let me try to shed some light on what this is like from… I’ve been involved in acquisitions for companies, huge companies and little companies and ultimately myself, my entire professional career for 25 year. Some kid graduated from an Ivy League school, maybe an office building floor full of children that graduated from an Ivy League school. And they went into a board meeting and some old guy with gray hair like me said, “We have raised…” Fill in the blank. “$2 billion. I want you guys to write an algorithm.” And they all got with their brains… They have no experience.
Jill K DeWit:
Right.
Steven Jack Butala:
Their brains together wrote a great, probably an amazing algorithm that said, we can justify this for 1.3% margin.
Jill K DeWit:
We’re going to kill it.
Steven Jack Butala:
So, and then the old guy, like me said, “Great, you guys need to spend about $200 million a month. And these are two hot markets, that’s what the data says, Phoenix and Atlanta. “Oh kids, have you ever been to Phoenix or Atlanta?” Oh God, no. That’s a flyover state. I would never go to Phoenix or Atlanta.
Jill K DeWit:
I change planes there.
Steven Jack Butala:
I have seen the airport 13 times. There’s a great lounge in the Atlanta airport.
Jill K DeWit:
Oh there we go.
Steven Jack Butala:
Flyover states. And so they proceeded to go spend $200 million a month. They made their boss happy.
Jill K DeWit:
Sure.
Steven Jack Butala:
They got a promotion and it all ended in a fiery ball of tragedy because they never intended to real estate deal. They-
Jill K DeWit:
Oh, you mean we need to sell them too?
Steven Jack Butala:
Do you mean we need to look at this asset to see if there’s mold? See if there’s access? Is there even a house there at all? That’s why I don’t feel bad. Because I’ve been that, that snotty kid in the boardroom banging my chest saying, I can’t fail at anything. I graduated from college. I got this great job. I’m a partner in a publicly traded firm. I’ll never mind, I’m 24 years old.
Jill K DeWit:
Snotty kid.
Steven Jack Butala:
Can’t wipe my own nose.
Jill K DeWit:
Thank you for not being a snotty kid anymore. And if you are, I’ll let you know.
Steven Jack Butala:
I’m sitting in this seat because of decades of doing stuff wrong and thinking I was doing it right.
Jill K DeWit:
I understand.
Steven Jack Butala:
And finally I said, oh my gosh, there is a lot to this. You actually can’t cut corners. You got to do it right.
Jill K DeWit:
I agree with that one. Thank you.
Steven Jack Butala:
So no, I don’t feel bad, Jill.
Jill K DeWit:
Okay. Got it.
Jill K DeWit:
Happy you could join us today. Five days a week, you can find us here on the Land and House Academy show.
Steven Jack Butala:
Tomorrow, the episode on the Land Academy show, well it’s Jack Thursday and I’m going to talk about getting to know your zip code. You are not alone in your real estate ambition. Every episode seems like a Jack grant now.
Jill K DeWit:
I’m noticing that.
Steven Jack Butala:
No, I don’t feel bad at all for these people. Not at all.
Jill K DeWit:
That’s good. That’s so fun.
Steven Jack Butala:
All they do is have a failed quarter and go raise more capital.
Jill K DeWit:
That’s true. They’re going to be fine. Everybody says, you know what they’re going to do? They’re going to go back to doing what they did best, just be a data company.
Steven Jack Butala:
Be a tech company.
Jill K DeWit:
Just provide the information. That’s all we need you to do. Don’t go crazy everyone.
Steven Jack Butala:
And no, I don’t see this. The real point to this whole episode is, there’s no competition here at all.
Jill K DeWit:
Oh yeah. No, I’m not worried about it. It’s great. If anything, now Zillow’s off the table. That’s good. Thank you for tuning in. We would love to connect with you by the way on Clubhouse. Join me and usually Stephen, every other Thursday at 1:00 Pacific time in the Land Investing Cub. So go find us on Clubhouse. We’re Steven and Jill.
Steven Jack Butala:
We’re Steven and Jill. Information.
Jill K DeWit:
And inspiration.
Steven Jack Butala:
To buy undervalued property.
____________________________________________________________________________________________________________________________
If you enjoyed the podcast, please review it in Apple Podcasts . Reviews are incredibly important for rankings on Apple Podcasts. My staff and I read each and every one.
If you have any questions or comments, please feel free to email me directly at steven@BuWit.com.
The BuWit Family of Companies include:
I would like to think it’s entertaining and informative and in the end profitable.
And finally, don’t forget to subscribe to the show on Apple Podcasts.
