New start-up flips homes and cars

When Luke Dalien and his family needed to quickly sell their Phoenix-area house, they didn’t turn to a real-estate broker. Instead, they sold the home within two weeks to an Internet startup eager to pay cash.

The startup, OpenDoor Labs Inc., resold the house a month later, pocketing an estimated $20,000. The San Francisco company has repeated this profitable flip scores of times in the past year, catching the eye of Silicon Valley insiders.

OpenDoor is among a small group of startups armed with data scientists and software that believe they can identify the right prices on homes and cars and simplify the sales process online. Shift Technologies Inc., for example, guarantees it can sell people’s cars for a certain price within 60 days, and pays the difference if they sell for less.

But OpenDoor is unique in that it owns all the homes it lists for sale, countering the prevailing trend in Silicon Valley of solely running a marketplace that matches buyers and sellers. As a result, OpenDoor’s strategy is steeped with risk, potentially backfiring if the economy tailspins.

“We’re introducing liquidity to a marketplace that doesn’t have any,” said the company’s co-founder, Keith Rabois, a venture capitalist who was an early executive at payments firms Square Inc. and PayPal Holdings Inc.

That is sort of good news, and you can think of that as a partial response to the housing finance overregulation in some parts of Dodd-Frank.  A second and less obvious lesson is that an economy with higher income inequality is more dependent on leverage in some of its corners, but also can resort to corners and pockets which don’t require much leverage at all.  That creates new potential solutions to liquidity problems, requiring only a minimum of coordination.  That all said, this is also a potential longer-term source of reemergent systemic risk.  No matter how sound this start-up may be, you can see the potential for less well-capitalized and less well-run successor firms.

The full story is here, via the excellent Samir Varma.