DOOP is death, we’ve established that. I’ve known for months that the iBuyers either don’t know or don’t care that money costs money, but it does, regardless. And as soon as you account for the cost of money in iBuyer transactions, all of the imagined profits go up in imaginary smoke.
Every other flipper knows this, of course. DOOP – Days-out-of-Pocket – is just my name for the span of time the funds are borrowed and invested, the days for which interest on that money will have been paid. If a flipper can’t seem to remember how many days his funds have been lent, his hard-money lender will be kind enough to phone every day to remind him.
DOOP matters because all real estate investments are funded by hard-money loans – even if the investor is lending himself his own money, since he could invest those funds elsewhere, instead.
Attention all iBuyers and other pie-eyed ‘investors’: Until you have accounted for the interest costs of your hard-money loans and the other carrying costs of owning and marketing a real property investment, you do not know your profit or loss.
None of this is news to fix-and-flip investors (for whom I also have some fun iBuyer-milking tricks), I just gave the need for fast turnovers a named metric – DOOP – the single most important number in iBuying.
As real estate investors and retailers, the iBuyers seem to lack grounding in real estate, investing and retailing, so I want to be clear about this: The goal of retail real estate is turnover – not of the houses, of the money.
If there are big scores in flipping, they are easily counter-balanced by the huge losses. People who make steady money fixing-and-flipping houses do it the same way everyone makes steady money – by grinding. They know which house to buy, what to do to it and how to make it sell in a sprightly fashion. They do the same things over and over again, shaving off slim profit margins on fast turnovers – of the money.
Even if you only net a few percentage points per investment, if you can do six deals a year – or twelve – your nest-egg will grow impressively year over year.
Accordingly, DOOP rules. You can’t count your proceeds until the hard-money lender has been repaid.
As we established last week, all three Phoenix iBuyers are inept at real estate retailing, so what we’re going to talk about now is what could be, not what is. I don’t know that this could actually make a profit, after everything, but it will come closer, at least. So let’s build a new iBuyer on different ideas. Let’s name our company after Thalia and call it SpyBuyer.
Our company-wide goals: 7-7-7 – triple-sevens – seven days bought to listed, seven days listed to pended, seven days pended to sold. Another name for that goal: DOOP 21. To do that, we need a company-wide seven-days-a-week work ethic. SpyBuyer has no days off. SpyBuyer takes no holidays. And status for managers is earned by getting things done, not by taking weekends off. We don’t want to work the people to death – very much the contrary – but we want to flog the houses nonstop until they are gone.
DOOP rules, so it starts with buying discipline – buying only properties that can be counted upon to evaporate in seven days-on-market or fewer. iBuyers have focused on buying slow-sellers at lower prices, but DOOP is always death, so making a little more while losing a lot more is always an error – no matter how many times you make it.
I have a scheme for a pricing engine that will do what the iBuyers lie about right now – make instant offers online – but its killer feature is knowing when to quit: Deploying a fallback scheme to know when it has made too many compromises to be relied on. What matters is not software but knowing which houses won’t sell quickly.
I think I can cut the pre-list timeline to four days – and maybe half that. The tasks can be done by teams and overlapped, with specialist spaces – like landscaping, garage, kitchen and baths – easily isolated. Paint and flooring can’t be done at the same time, and staging and photography have to come last, but all of this is fairly quick work – especially if it is undertaken 24/7.
Staging? Good god, yes. Not for the marketing period, just in and right back out for the photos. Decorator staging is fine, but a house that doesn’t look homey won’t sell as quickly as it could have.
We list sanely at Fair Market Value, of course. I could sing the rhapsodies of FMV all day, but the best news is this: Everybody knows your number is right, right from the start. Maybe even the buyers find it satisfying, but the buyer’s agents know you’re right on the money – and so they know they need to jump if they want to snag the property. Everything SpyBuyer does is about fast, frictionless transactions, and FMV is how we make that happen.
Here’s more: A $1,000 Day Zero Bonus: The buyer pends the property on the day it lists, he gets a credit of $1,000 at COE for any use he chooses: Non-recurring closing costs, buy down the rate, chop down the prepays, whatever. The point is closing in zero DOM, whenever possible. It counts as a one for averaging, of course, but selling in zero days counts everything in bragging rights.
But it’s once we’re pended that we crash into the two biggest icebergs in real estate: The lender and the title company. Accordingly, SpyBuyer will do both – not for extra profits (although why not?) but to cut all the delays out of the process. Title is America’s last horse-and-buggy business, so there’s no end of room for improvement there – and the houses SpyBuyer buys are all title-risk-free, anyway! And since we’re going to incentivize the buyer to use no lender but SpyBuyer, we can have all the buyer pre-qualification, property and loan underwriting and title work done before buyer meets property.
Right now, this crap – all of it completely redundant paperwork – takes about 45 days on average. Do you think SpyBuyer can cut it to seven days? How about four? A car dealer can do a financed transaction in around four hours. That’s the target to aim for.
We talked about a good listing the other day. Done the SpyBuyer way, that home would only(!) lose around 3% of FMV as a real estate investment, but could gross around 7.5%, on average, in fees-disguised-as-sales-commissions – buy-side, sell-side, loan and title fees. Those margins will shrink over time, so DOOP matters everything, always: It literally takes no time at all to chew up the little bit of meat left on the bone – even before any of the staffing and capital costs of SpyBuyer are considered.
Is iBuying even doable? Certainly not the way it’s being done. Could it be done profitably this way, the SpyBuyer way – in DOOP 21 on average? I won’t say “No” – not alone because I’m dying to say “Yes!” But if real estate investing and retailing is to be profitable, it will be done by retail methods at retail margins, not the way the iBuyer bigwigs are failing to do get it done now.