Zillow Should Treat iBuying as a Marketing Expense

iBuying is a Marketing Expense

In theory, Zillow’s Homes Segment could make money flipping residential real estate. Zillow leadership claims each deal will one day make a small profit according to a preferred metric that omits an actual cost (interest) and all of the overhead. However the target per-deal profit appears uncertain due to structural profit limitations on flipping homes, and is dwarfed by the overhead of building, operating, and marketing the iBuying platform. Zillow Offers, the public brand of

Zillow’s iBuyer Activities

Zillow Q2 2019 Homes Economics Exhibit

Zillow has an iBuying operation. Zillow is also a public company. Therefore they regularly disclose their financial results to the investing public. Their Shareholder Letter and Supplemental Financial Tables contain interesting details about their flipping activities. (Note: There are other iBuyers who are private companies, and the expense analysis likely applies to them too.) Overall iBuying Revenue For the 2nd quarter of 2019, Zillow’s Homes Segment (iBuying) reported revenue of $248.9 million and a loss

The iBuyer is the Newest Type of Flipper

Flipping Houses

The practice of buying and quickly reselling real estate is well established. It generally goes by the name of “flipping.” There are different business models under the broad umbrella of flipping, with different risk and return profiles. At one end of the spectrum Wholesalers try to buy super cheap by finding private deals. At the other end of the spectrum Renovators focus on adding value to a property through construction. Despite the easy profits shown