Opendoor is an innovative company trying to bring changes to the real estate world. While it operates in a risky way right now, the payoff in the future could be big.
|Opendoor Technologies Inc|
|Real Estate Services|
|410 N Scottsdale Rd, Tempe, AZ, United States|
With slightly over a year’s worth of time on the stock market, Opendoor has had an interesting time in a market that wasn’t conducive to many companies.
As the world continues to recover and markets look uncertain, let’s take a look at what Opendoor is about and if this stock could be worth including in your portfolio.
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Opendoor is an online company that tries to make buying and selling homes easier. Using its online tools, Opendoor allows both itself and its users to make instant cash offers on homes, speeding up the transaction time for buying and selling real estate.
The company is based in San Francisco and started its operations in 2014. Over the last eight years, Opendoor has since grown out of the San Francisco market and now operates in 44 different real estate markets across the United States.
The way Opendoor speeds up transactions on buying and selling homes is through an iBuyer process. Basically, people bid on homes on Opendoor until the seller accepts a bid.
Once accepted, Opendoor gives the cash to the seller from the buyer, charging a series of fees similar to what a real estate agent would charge as commission and closing costs.
From there, Opendoor carries out maintenance or renovations to the property before turning the house over to the new buyer. On average, Opendoor holds property for 90 days, which tends to be enough time for cosmetic and minor structural renovations to finish up.
In addition to these services, Opendoor also launched mortgage services via their Opendoor Home Loans service in 2019. This financial service gives homebuyers a way to finance a house within the Opendoor ecosystem, making it that much easier to get a house.
Also in 2019, Opendoor acquired OS National, a title and escrow company that allowed Opendoor to incorporate escrow and house closing services into its platform.
In 2020, Social Capital Hedosophia Holdings Corp II announced that it would merge with Opendoor, which was evaluated at $4.8 billion at the time.
The merger was approved, causing Opendoor to hit the New York Stock Exchange in December 2020 under the ticker symbol OPEN.
The case for buying Opendoor stock comes down to several factors:
- Opendoor is an interesting market opportunity to add real estate exposure to a portfolio. Real estate is a complicated and slow market, meaning that it takes a while for things to get moving compared to other markets. Stock prices change by the hour, but real estate can take weeks or months to move.
- Opendoor gives the seller a way to get their money sooner. Between this and providing the buyer a guarantee on the product and renovation as needed, Opendoor can offer something other real estate firms can’t.
- The platform has a chance to bring more first-time buyers into the market. Old-school real estate tends to be dealt with in realty offices and with real estate agents and brokers. As Opendoor expands the scope of its real estate services, it can offer more of these services under one name and deliver them faster.
- Opendoor is doing what it can to ensure these services increase their revenue. The newest escrow and closing services introduced by Opendoor have great margins, meaning that they bring in far more money than they cost to run. Having this kind of low-cost cash flow means the company can work on reinvesting that cash into other projects or expanding its markets.
In the end, Opendoor is expected to grow alongside the real estate market. Prices for real estate have been on an upward trend for a while.
This trend appears to be continuing for the next few years, meaning that Opendoor will have customers and houses all but guaranteed these next few years.
The reason why Opendoor expanded its range of real estate services comes down to more than just convenience for their customers. These services offer a cash flow that Opendoor desperately needs.
- Opendoor runs at a deficit, having never turned a profit since 2014. Opendoor reinvests a majority of its revenue, which has allowed it to expand. However, this also means that the company relies on venture capital and thin margins to stay afloat.
- A series of poor months or years could mean that Opendoor goes under. While Opendoor is doing what it can to grow quickly and turn a large profit for its shareholders, there are no guarantees in real estate.
- Since its merger with Social Capital Hedospohia II, the stock price of Opendoor has been volatile. While this price action might not bother someone who has a long-term view of the company, short-term holders might not appreciate this stock’s fluctuating price.
- Other companies like Zillow and Redfin operate in the same way as Opendoor. As these companies vie for portions of the market and build up in different areas, there could be a future where these services localize geographically.
- It could be impossible for Opendoor to make its way into new markets, stunting its growth. Even worse, if other platforms claim markets before the business becomes profitable, it could mean that Opendoor runs itself dry before reaching a critical mass of market share.
The target date right now seems to be 2023 for Opendoor’s profitability. Current projections put the business as being profitable in the second half of that year.
However, time and market forces will tell how well this prediction holds up for long-term investors.
Opendoor, like many new tech and real estate stocks, is a tricky one to make a call on. Innovation of any kind draws excitement, but improper execution of the idea can kill a company.
It seems unlikely that folks will stop using online platforms to buy and sell real estate soon, but Opendoor’s current strategy makes it a risky investment.
Overall, Opendoor seems like it will be a solid investment if it can reach a stage where it generates reliable profit. However, this requires that Opendoor survive another two years of losses to reach that point.
If your risk tolerance allows for that, then a small allocation into Opendoor could mean better-than-average returns for a real estate stock in five years.
Should you invest $1,000 in Opendoor right now?
Before you consider the Opeendoor, you'll want to hear this.
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I’m Donny. I’m a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.