Opendoor Labs Inc. just joined the “unicorn” club of startups valued at more than $1 billion (£800 million) following its fourth and latest funding round, led by Norwest Venture Partners, Bloomberg reports.
The San Francisco startup, founded in 2014, has a simple business model — it buys houses in cash, makes some minor repairs, then resells them at a higher price.
Co-founder and CEO Eric Wu’s LinkedIn profile says: “Our mission is to make residential real estate liquid, changing the traditional sales process by making it simple to buy and sell real estate online.”
It currently only purchases homes in Las Vegas, Phoenix, and Dallas-Fort Worth, according to its website, but it’s using the $210 million (£168 million) it just raised to expand to 10 cities next year.
The company claims 3,875 homeowners “have made a better move with Opendoor” on its website, such as those that need to sell their house quickly.
A UK startup with a similar proposition, Nested, recently raised £3 million ($3.8 million). London-based Nested, which wants to be “the Amazon for house sales” promises to sell your house within 90 days or else lend you a guaranteed amount of interest-free cash to buy your next property.
Earlier this year London property crowdfunding startup Property Partners — which fronts up the cash for a deposit on a property, underwrites the deal but then crowdsources investors to fund the whole price — laid off 29% of its staff as part of what it’s calling a restructuring of the business to “focus on our core business proposition.”
The property companies are part of a growing number of startups that brand themselves as “PropTech.” A potential problem with these business models is that they are based on the assumption that both rents and property values will continue to rise, which is not an idiotic assumption over the long term, but what if they stop?
It’s worth noting that Phoenix and Vegas, two of Opendoor’s three covered areas, were two of the worst areas for house-flipping during the 2007 US property bubble.