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3 growth actions that are transforming the real estate sector

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The real estate market is booming right now with low interest rates driving high demand and inventory shortages crippling supply. It’s the perfect storm for soaring prices, and first-time homebuyers are struggling to break into the market.

Real estate technology companies have been the big beneficiaries of this environment as more and more consumers turn to digital platforms to buy and sell homes. The real estate industry is historically labor intensive and expensive for both buyer and seller, and these companies are presenting new ways of doing business much more efficiently.

These three high growth companies buy and sell thousands of homes each year, creating value for their customers and great opportunities for investors.

Image source: Getty Images

Offer block

Offer solutions (NYSE: OPAD) is the newest entrant in the revolutionary direct-buying real estate industry, where companies buy homes directly from sellers with the intention of reselling them for a profit.

Founded in 2015, Offerpad began marketing in early September and the company is growing rapidly with noticeable acceleration over the past 12 months.

Metric

2018

2019

2020

2021 (Estimate)

TCCA

Returned

$ 856 million

$ 1.08 million

$ 1.06 billion

$ 1.78 billion

28%

Data source: Company deposits. 2021 revenue estimate based on the midpoint of the management guidance range. CAGR = compound annual growth rate.

The company sold 4,281 homes in 2020 and is expected to crush that number this year, with management leading up to 6,000. But the amount of money it makes per home sold is an even bigger improvement to which investors should pay attention. In the second quarter, Offerpad increased that figure to $ 31,500, down from just $ 1,400 in the same period last year.

Favorable market conditions (rising house prices) have helped Offerpad achieve this growth, but it is clear that the company is quickly reaching scale – the point where it sells enough houses for the company’s fixed costs. become less impactful.

Offerpad has now exceeded its contribution profit estimates for the year 2021 in the first six months of the year. To drive growth, the company purchased a record 2,025 homes in the second quarter, so there will likely be continued strength going forward.

Red tuna

While Red tuna (NASDAQ: RDFN) has a strong direct buying business like Offerpad, she has also found success in applying technology to improve the traditional real estate sales process. Where small agencies charge high fees and manage a small number of listings, Redfin has employed an army of thousands to sell homes the old-fashioned way, but with a significantly lower listing fee of 1%.

This large-scale business model has saved consumers over $ 1 billion in listing fees since Redfin’s inception, and the company’s share of all homes sold in the United States continues. to grow.

Metric

2018

2019

2020

Q2 2021

Redfin’s share of US home sales

0.81%

0.93%

1.00%

1.18%

Data source: Company deposits.

On the direct buy side, Redfin sold 583 homes on a rolling 12-month basis, which is far less than its main competitors. But the 292 homes it sold in the second quarter represent an 80% year-over-year increase, indicating its growing volume.

The segments combined have resulted in strong revenue growth for the company, proving that a hybrid real estate sales model that involves traditional practices can still deliver great results. Based on consensus analysts’ estimates for 2021 revenue of $ 1.78 billion, Redfin will have achieved compound annual growth of over 50% since 2018.

But Redfin’s second quarter revealed that its growth is accelerating. It saw a 121% year-over-year increase in revenue and a 174% increase in gross margin. The best years of the business are still ahead of it as consumers continue to look to the business for their growing real estate needs.

An aerial photo of dozens of houses and the beach in a coastal suburb.

Image source: Getty Images.

Zillow

Zillow Group (NASDAQ: Z)(NASDAQ: ZG) is the dominant player in the field of direct purchasing, but this is not its only strength. With a market cap of over $ 24 billion, it is almost five times larger than Redfin.

He has achieved this scale by creating a suite of nine real estate-related brands, which include Brokerage Services Platform as Software as a Service (SaaS), Premier Agent, Zillow Closing Services for title and escrow, and Zillow Home Loans, an in-house mortgage lender.

The combined companies are expected to generate more than $ 6.5 billion in revenue this year.

Metric

2018

2021 (Estimate) *

TCCA

Returned

$ 1.33 billion

$ 6.59 billion

70%

Data source: Company deposits. * Estimate from Yahoo! Finance. CAGR = compound annual growth rate.

The only segment of the real estate industry in which Zillow does not operate is traditional selling. But it helps consumers list their own homes on its website and organize their own open houses. In addition, through Premier Agent, it helps independent agents create networks which in turn can lead buyers to take over Zillow’s various ads. These strategic steps ensure that Zillow captures revenue from all aspects of the traditional labor-intensive and costly sales process without actually having to operate there.

Direct purchasing is the most important segment of the business, accounting for almost 60% of total sales. It relies on artificial intelligence to continuously monitor the real estate market in the United States, which allows it to offer willing sellers an “estimate” through its website within days of a request for an offer.

Zillow sold 2,086 homes in the second quarter alone. With such volume and a plethora of other successful real estate businesses, this action could really be worth your portfolio in the long run.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool owns and recommends Redfin, Zillow Group (A-shares) and Zillow Group (C-shares) shares. The Motley Fool recommends the following options: $ 65 short calls in September 2021 on Redfin. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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