Other massive company with mass layoffs and canceling yet another failed business in real estate. Redfin is the failure we're going to talk about today And boy oh boy, this is going to be a lesson called lesson number 101 How not to make money in real estate that doesn't sound as sexy as? Use the coupon code down below and join the zero to millionaire course to learn how to actually build wealth in real estate. And what's great is in that course. I For years have dissuaded becoming a home. Flipper The reason and then I'm going to give you the news. The reason why home flipping is so challenging is generally you pay substantial fees and holding costs to sell property when you buy it. This makes using real estate as a volatile commodity to trade very expensive. Let me give you an example. People like to think oh well, I could just sell my home with a discount real estate agent for one percent and the you know cost to sell aren't that high. Unfortunately, that's not how the game works. Typically closing costs are going to cost you anywhere between six to seven percent. That's because not only do you have to pay your realtor, but you pay the buyer's agent. so maybe you save on your representation by getting somebody who's willing to work for a discount. Uh, and then you still pay the buyer's agent and usually a normal market rate so you to track buyers. but then you have to pay your escrow fees, your title fees, and sure you can get binder policies and titles or title to sort of reduce some of those costs. But you've got to pay for holding costs, costs of capital that are deployed on that property, and the fact that you got to keep the lights on while the property is sitting there and paying property taxes as you're trying to sell it and transact it. People have to pay for houses that are open houses, right? This makes logical sense. But beyond that, you have to maintain the property. and as buyers beat you up in inspections, you generally get complaints that you won't get from a tenant. Now that is very important to contrast because you want to do great work for a tenant. But let me put you put it this way, if the roof is old but it's not leaking, the tenant doesn't care if, however, the roof is old and you're selling it, the buyer might want you to pay for a new roof or at least like 70 percent of it. Very, very typical. So home flipping exposes you to expenses that are usually get a knock on the door of seven to ten percent. Let's just take ten percent to be simple, considering all the repairs that you might have to throw at a buyer just to get them to close a deal. So let's give you an example and then give you the breaking news. So if you buy a house for five hundred thousand dollars, you put fifty thousand dollars in to fix it up. You're probably looking at somewhere around a six hundred and five thousand dollar break. Even when you factor in those holding costs and selling costs and concessions to the buyer, that's challenging. That extra fifty five thousand dollars means you basically blew an entire one hundred and five thousand dollars. The difference between what the property might sell for 605 and 500 000? You blew that on fix up and selling expenses. Not to mention you've got buying expenses as well. And what a lot of people have been doing in the flipping Market lately is they've been speculating so hardcore that they've been getting into flips where the after repair value is like six hundred and five thousand dollars and then they go in and they say you know what the market will just appreciate during the three months we're in this process and guess what, we'll be able to profit off that market appreciation. And if we can now sell the house for 6.25 now, we walk away with about a twenty thousand dollar gain. That's great if the Market's appreciating and going in your direction. But what if Jay Powell comes around and raises interest rates for mortgages four to five percent and all of a sudden buyers purchasing power is quickly eroded and instead of seeing that after repair value go from 620 or 605 to 625, you actually see it. Go to 580 and you take it on the chin. Yeah, oops, not so great. And that's why it's actually really smart for companies to get out of the flipping business right now. Zillow Saw this coming. Really smart. They got out of this the flipping business at the end of 2021 and even though they had to sell thousands of their homes for a discount in early 2022, they ended up selling those sure at a slight discount. but still. when the market was near highs, early 2022 was the time to sell. That's also when I sold 85 percent of my real estate. Now what's next? Well, Open Door is still stuck flipping homes, but they're offering sellers way less money because they're realizing they're getting smoked. They're losing so much money on deals that they bought in Q1 and Q2 because they didn't pay attention to the housing market. I Think there were plenty of people like me screaming. The housing market was about to grind to a halt and you should stop flipping homes yet. Open Door Didn't listen and now they're getting burned pretty substantially and laying off 18 of their staff. But the other buyer known as an eye buyer just like Open Door, which is basically a website that's willing to buy your home from you and then they can either resell it and take some commissions and fees or they could try to resell it for a profit and make money that way. Either way, Redfin was another big eye buyer Redfin Wanted to give you multiple options and this is actually smart. It was very similar to what I used to do as a real estate agent back in like 2013 and 14 when I had the means to do all these things I used to say hey, I'll sit down with the seller and here are three options for you: I'll help you list the house for sale I'll help you fix up the house so we could sell it for more if you want or we'll buy it from you all cash but the all cash offer would obviously be less Redfin tried taking that model which by the way let me quickly give you a spoiler on what I did. What I ended up doing is realizing lending my clients money because I got my lending license to help them fix up their homes was a bad idea because clients and construction don't really mix well together. Construction is fun when you're Your Own Boss not when you have clients trying to tell you what to do when you're the professional. Whatever that was not a great model and buying homes cash kind of have to almost insult the clients you're trying to list the home for so didn't work out very well either unless of course you wanted to overpay to give them a good experience, but then by overpaying you'd also take it on the chin and you don't want to do that. You don't want to be in a business that loses money and that's folks. what? Redfin Just announced they're laying off 13 of their staff and shutting down their home flipping business. Here it is on November 7th. We decided to wind down Redfin now and reduce our number of employees by 862, which represents 13 percent of our total employees. Of these 264 job eliminations are directly related to Redfin Now Wow. So 264 are related to Redfin now getting shut down, which is their home flipping business. but that means another nearly 600 jobs are getting fired because, well, ultimately, here you go. Since June mortgage rates have continued to climb and expectations for home sales have continued to come down. Remember, these are businesses that make money off of volume. The more transactions there are, the more people can pay for ads on. Let's say Zillow the more transactions there are, the more Revenue Redfin can get from Redfin agents or Redfin partner agents. But when transactions go down, even if prices don't necessarily come down, although they've already come down about eight to ten percent across the country, on average, we expect them to probably come down somewhere between 15 to 25 percent during 2023. Uh, we'll see. But anyway, they say the remaining Workforce reductions are primarily among our Real Estate Services and headquarters employees in response to macro economic conditions. and we're seeing layoffs everywhere. Today's Workforce reduction assumes a housing downturn that lasts at least through 2023. Wow. I didn't actually pre-read this section right here. That's incredible. They're now predicting that all of 2023 is going to be a housing downturn and that's Redfin. They provide some pretty good insights to the market too. I Actually respect their blog I respect their CEO even though he he kind of never comes on my channel for an interview even though we've asked many times. But you know what? Fine, don't come. Since April 2022, through inventory, involuntary reductions and attrition, we've reduced total headcount of employees by 27. Wow. Regarding Redfin Now we expect to complete the purchase of all homes, were contractually obligated to purchase and renovate and sell properties quickly. as of October 31st The So: This is another big buyer leaving the market, so open door is like yeah, we're just not going to buy much at all anymore. Zillow's out, redfins out. You know the Pension funds and REITs are stopping buying. The home builders are stopping by. You've got a lot of buyers dipping out of this market so I know people are like oh, but inventory is still low. that's true, but a lot of buyers are just like no thanks bye and that's how you start building up inventory. Just wait. I Think probably by Q1 of next year, we're gonna see big surge in inventory relative to where we sit now. As of October 31st the invent the inventory value of homes was approximately 265 million with another 92 million under contract by the end of January We expect to own less than 85 million in homes and expect to complete the liquidation. Oh, that always sounds so bad of our Redfin now inventory in the second quarter of 2023. That's actually when I think we we might and I'm not sure yet. Okay, I will know when we're closer and that's okay I don't have to make a decision until we're closer, but that's actually when I think I want to start considering shopping for uh House Hack which Remember if you're an accredited investor, go to Househack.com Read the PPM there that's your solicitation. We've got some really good news coming out to investors. Uh, probably today actually for for house Hack which is great and if you're not accredited yet, don't worry, we've got the non-accredited round probably coming in. January February While the bulk of the workforce reduction is occurring today, we expect to complete this. Workforce reduction in wind down Redfin Now promptly after selling the remaining properties currently in inventory into 2023, in connection with the preparation of financial statements, we recorded an 18 million write down of inventory. Oh, that's about. that's nearly what. Eight percent or so that makes sense. Uh, and uh. let's see here. right? for now: current estimates of values. Uh, if they were to sell the homes as of September 30th, 2022. Okay, well so you're gonna have more. write: Downs Basically, yikes. As a result of the decision to wind down Redfin Now we plan to report Redfin now as a discontinued operation. Wow, so there you have it folks. Don't flip homes, Learn how to actually make money Building Wealth in real estate as serious this is probably before I came out with the stocks course. This was always the most popular course. zero to million at Real Estate investing I Know a thing or two about real estate? I'm starting a real estate startup that is absolutely going to crush it. We're we're gonna in my lifetime, this will have a multi-billion dollar valuation I Can't make that guarantee. That's my hope I Just want to be very clear I don't want to make promises but expectations. Um I am so excited for the opportunities that lay ahead and I want you to learn with me. So check out the zero to Millionaire course and folks, we'll see you soon! Thanks Bye.