rip opendoor & housing market

Hey everyone, me Kevin here. It has been

a minute since we've done a property

tour and we also have the dirty cybert

truck with uh well of course now the CT

rack which is awesome. I actually

transported some uh 12T 2 by sixes

yesterday which is awesome. But anyway,

I wanted to walk through a property with

you really quickly and mostly talk about

Open Door. So, one of the things that a

lot of folks right now and sort of this

momentum army are talking about with

Open Door is that, hey, Open Door is now

going to be this this great fintech

company because you've got a CEO with

this technology background and all this

blah blah blah. The thing that you have

to remember about Openoro is

yes, it already is a great technology

company. And I know some people might

think you're like, "Wait, what Kevin?

You're saying something good about Open

Door?" Open Door already is great tech.

Like, look at the app store and you're

going to find people love this. People

rave over the Open Door app. They don't

think about the real estate. They think

about, "Ah, yeah, this is so cool. I can

go to a house and I can show the

property myself by downloading the app,

you know, taking a picture of my

driver's license or uploading a picture

of my driver's license and then I can

unlock the door of the property myself,

show it to myself, and if I want to

write an offer, I could do it through

the app myself. I've gone through the

process as a buyer, well, doing it with,

you know, one of the folks in the office

who went through the process of buying

and I'm like, this is great. We went

through the whole process. Their

technology aspect is great. That's not

what makes Open Door good or bad. That's

like already solved. The recent

enthusiasm with Open Door has been that

this, you know, change in leadership is

going to lead the stock to permanently

re in higher prices and higher share

prices because of this leadership

transition that'll finally make the

company great again, make Open Door

great again. The problem is

they've got a lot of switching up to do.

So, let's touch on this for a moment.

First of all, when we look at a property

like this, obviously fixer upper needs a

lot of love. We ripped out the cabinets

that were here, just threw in some new

boxes, but I mean, you you could tell in

the feeling of what this was. There's a

lot left to do. We got to take these

plates off. We got to scrape these

ceilings. Uh we've got to get rid of the

rest of uh the flooring and the

transitions over here. Uh we got to

again scrape the ceiling, deal with this

wall paneling. There's a lot to do here.

The reason I mentioned this uh is

because when I come to projects like

this and I do little basic things like,

oh, I'm going to go deliver the fart

fans so that way the electrician has

them when the electrician shows up.

Something we find uh is here they are.

Here are the fart fans for the three

bathrooms. Something we find is that

human touch is what's missing at Open

Door. Open Door has a very systematized

process of using technology to buy and

sell properties. And really what they're

doing is they're advertising themselves

as a cash buyer. I don't know that

they're really using technology and

analyzing their deals because a lot of

the deals that I find that Open Door is

buying, they end up selling for a loss.

And so I'm not really optimistic about

the Open Door earnings coming out over

the next few months. I mean, you could

look in almost any market right now. And

uh anytime I look at Open Door listings,

I'm seeing deals like there's one in

Ventura, California. You could look it

up yourself. There's one

>> I really enjoyed being in that

environment.

>> There's NPR, not fully defunded yet. Um,

there's one in Ventura, California

where, you know, it's listed for $7.99

and they want it in the 800s for it

because they bought it for like the

high7s. And so with holding costs and

what they're into it for, they're not

going to make any money once they

actually pay a buyer's broker

commission, which they do, and escrow

and title and holding cost, they're

going to be upside down on that

property. Part of the reason is Open

Door is missing two massive components

and I hope they can solve it but two

massive components are missing at Open

Door. Number one, they need humans on

the ground who are actually going to

appropriately renovate the properties

that they buy and sell. When they buy

properties that need renovations, I

don't think they do a great renovation.

I think they mostly do really crappy uh

lipstick on pig style renovations and

people get sandbagged with bad

properties. Now, you might be thinking,

"Oh, but Kevin, you know, you somebody

in your office bought an open door

property." The irony of that is that's a

property that when I regularly sold real

estate to clients, I renovated, then

sold it uh for a seller. That buyer sold

it to Open Door. And then when I saw it

come up, I'm like, "Oh, I know this is a

good deal cuz Open Door didn't renovate

it." The big irony is that the very

property the person in my office buys is

one that I renovated, not Open Door. And

so, number one is we need that human uh

real estate experience. And that's hard

to come by. The CEO is on record saying

we have 1,800 too many employees right

now or too like we're overstaffed by the

tune of 1,800.

That's a lot of people you're going to

get rid of in dealing with transactions

and pushing paperwork and appraisals and

uh selecting which properties to buy or

whatever. But it's also going to end up

accessing the most important part and

that is establishing your reputation as

somebody who's a credible renovator.

Now, you know, am I going in always

replacing every element of a property?

No. But what I touch, I do correctly.

That's the most important thing. What we

do, we do it right. That doesn't mean

we're going to go into every single

property and go, "That's it. This needs

a brand new roof and brand new windows,

but we're going to choose flooring

that's going to last. When it's the

right move, we're going to put in new

kitchen cabinets. When it's the right

move, we're going to put in brand new

appliances." is this is all getting

brand new appliances, too. We're going

to put in new plumbing valves and new uh

fixtures where necessary. Actually, new

plumbing fixtures everywhere, but new

plumbing valves everywhere to minimize

the is risk of a longer term leak. Uh

because we don't want to deal with it.

You know, we don't want a tenant to have

their property destroyed because, you

know, somebody didn't want to spend the

$8 on a valve and and then some, you

know, 300 bucks for a plumber to go

around and install, you know, 10 or 15

of these $8 valves.

So that's number one that long-term will

be the hardest thing for open door. You

have to remember real estate is a people

business and scaling a people business

is very very difficult. I know because

we do it with house eye and I'm involved

heavily with everything that we do

because I know how much of a people

business it is. as soon as you try to

cut people out of the renovation process

or uh you know I mean you could you

could use AI which we're doing with

house hack for example you could use AI

to tell you hey do this renovation not

this that's great but as soon as you try

to cut people out of hiring the local

vendors or communicating with your

vendors

it's a problem it ain't going to work

this is why the Cybert truck is is

getting outfitted as a vehicle that I

could also transport material with

because when I go to my different job

sites, I may as well bring certain

supplies if I'm going there anyway. It's

an opportunity for me to check in to

make sure our jobs are progressing the

way we want them to progress. So, that

said, the second problem with uh Open

Door is this impression that tech like,

oh, now they're going to become a

technology company because of this new

executive or whatever. That that's not

their problem. Their problem isn't

technology. They already have great

basic kind of app technology and

infrastructure. That's fantastic. The

problem is they're not, in my opinion,

utilizing artificial intelligence in

valuing their properties. So, they're

getting sandbagged. They're going, "Oh,

okay. Yeah, you want to buy or you're

willing to sell a property at this for a

cash price? Cool. We'll take the 5%

closing fee and we'll make you pay the

escro and title. Great." So, they're

charging this convenience fee, which is

basically like these people may as well

just hire a realtor and sell it. Uh, but

people don't want to deal with the

hassle of open houses or, you know,

buyers coming through their homes or

whatever. So, they pay open doors

extortion fee basically. Uh, which, you

know, is going to get competed away.

Like, even house hack for example, if we

had more capital, even just in local

markets, we can already do it. We can

tell people, hey, we'll buy your house

cash as is and we won't charge you a 6%

convenience fee, right? So, like this is

an easy thing to compete away. But the

difference is we're actually going to

focus on buying good deals. Open Door

isn't focused on just buying good deals.

They're focused on buying all of their

deals that come across their deck

because they want that convenience fee

and then they're going to try to flip

it. Now, that model works really well in

an appreciating market, but in a market

that's flat, doesn't work that well.

doesn't work that well at all because

the the selling costs and the holding

costs alone, especially if you're

overpaying, are going to screw you. So,

I'm personally surprised that Open Door

hasn't uh done better at valuing their

properties on purchase. And to me, what

it says is you have a lot of people

working at Open Door who don't actually

know real estate. And that's my biggest

concern for Open Door is an executive

staff that doesn't actually know how to

renovate real estate and doesn't know

how to value real estate. And so they

don't actually have whether it's

artificial intelligence or whatever it

is, whatever. I mean, it doesn't even

have to be AI. It should be AI at this

point, but they don't have that. Uh, at

least as far as I'm aware. Uh, then then

you're going to keep overpaying for

properties, and you're going to keep

having this reputation. This is the

worst combo, by the way. You're going to

end up with a reputation that you're a

bad renovator, and you're going to end

up with bad deals. That's the worst

combination. Now, think about that. You

overpay for properties and you have a

reputation for being a bad renovator,

which then makes people not want to buy

your real estate. Again, looking at Open

Door Properties, fantastic. They've done

a they've done a really bangup job on

the on their app, being able to unlock

doors remotely through their app by

uploading your ID. This is great

technology. You could use this in a

long-term property management point of

view as well where people can show

rentals to themselves in the longer

term. You know, we're going to be doing

that with House Hike as well. Like

that's not super proprietary, but they

are one of the first to do that. I got

to go get a Cortado at Starbucks. Dude,

I love this Cybert truck. It's freaking

awesome. It's so awesome. I love this

thing. It's a little bit of a mess right

now. I I'll show you really quick. But,

uh, I did a few things back here. I got

the little separators. I got my bungee

cord. Got some paint I got to deliver.

Um, but I also on the Elra rails put um

these little mounts over here so I could

have bags in here with markers and tape.

Uh, you know, always need a tape

measure, little extra bags with goodies

in it. Love this thing so much. So, so

let's try to piece this together. I

promised that I would make a video

talking about Open Door and that I would

talk about, hey, you know what? What can

Open Door do better? The two main things

Open Door can do better. Number one,

they need to focus on people who know

how to renovate so they can really

maximize their reputation as a quality

renovator, not lipstick on pig. Once

once they can establish that, great. We

build that reputation, but they also,

you know, need to get better deals. And

I think that actually contributes. Oh,

there it is. Hold on one sec.

Thanks.

>> Oh, no.

>> You saved it.

Well, that was entertaining. Uh, anyway,

I think if they got better deals, they

wouldn't be so stingy on their

renovations. That's the other thing.

It's like, you know, the project we just

looked at like, man, can we, you know,

can we replace some of the cabinets? Can

we save them? We're like, no, man. Like,

they're falling apart. We can't do this.

We just need to do it right. Let's

replace the drywall behind. Let's

replace these cabinets. We've done that

on a couple projects we're doing right

now with House. And you know, we're not

looking at like, oh man, now that's

going to cost us an extra three grand

above and beyond painting it or

whatever. We're looking at it going, eh,

you know, we're going to keep this

property for the long term. We're not

trying to like quick flip this and we

have the budget. Why do we have the

budget? Because we got a good deal. When

we get a good deal and we're not trying

to flip it right away, it doesn't really

matter to us if uh, you know, we spend

an extra three or four grand here or

there. uh we're okay doing that because

we see it as a long-term capital

investment into assets that we're going

to keep. We're going to rent them out

for the long term. Our tenants will be

happier. They'll live in a better

quality property and then we can have a

reputation ideally in the long term as

America's best landlord. You know, some

people, you know, they'll they'll watch

this video, Kevin just doesn't like Open

Door competition. There's no competition

for real estate. There's only a

competition for capital. There are

plenty of deals that exist uh in real

estate. The difference between us and

Open Door is we buy and hold and you

know we're also developing artificial

intelligence uh which we're really

excited about. We're running our

Blackwells and we can't wait for our Q4

beta release uh of our AI product. Uh

and then hopefully we can go mass market

with it in Q1. Like we think that's a

gamecher. Uh you know we're not a public

company. Open door obviously spacked and

so they can raise money really quickly.

they can take advantage of the momentum

movements that occur in the stock market

and raise money very quickly which is

good for them but the problem is when we

look at the fundamentals of the actual

business their margin on their flips is

like 6%. Which is really bad. So when

you look at you know revenue and then

bring it down to income you're looking

at a really bad profit margin. Like you

may as well be operating you know at

Cheesecake Factory margins which oh I

feel like they almost are like a

restaurant level margins there. I mean,

there are certainly worse margins than

McDonald's. Like, the restaurant

business is known for horrible margins.

And why does Open Door have terrible

margins? Well, again, they're cutting in

the wrong places. In my opinion, they're

not focused on a quality product that

they're selling. They're trying to hide

behind ASIS transactions and bury people

with bad renovations. In my opinion,

that's my take when they do renovations.

Uh, and then number two, they're

blatantly overpaying. And they don't

mind overpaying because think about how

the stock market works for a moment.

They don't mind overpaying because they

just want to show revenue increase. If

they say, "You know what? We're going to

be more choosy with our deals," their

revenue will go down. And then Wall

Street's going to be like, "Oh my gosh,

your your company is is failing."

Because remember, their revenue is

flips. The more flips they do, the more

revenues they have. Uh so if they start

getting choosier and they focus on

margins, then it looks like their

revenue is going down. and then it looks

like they're shrinking business and they

get punished on Wall Street. So, best

thing they could do in my opinion is uh

use some of this gain in share value to

issue stock, raise some capital, get

people who understand real estate

renovations, rental renovations,

like property managers. You need people

with property management experience.

That's who you need. Then you need

artificial intelligence to stop

overpaying for deals because when you're

going in making your 6% fee, you know,

on I don't know, $600,000, call it

whatever that is, $36,000,

uh, you know, 1% going to escro title.

So, you're making a $30,000 fee. So, you

buy a place for 600, let's say, uh,

which means you're basically in it net

for 570 because you you got this fee.

So, let's just take that off for a

moment. But then it's going to take you4

to $50,000 to renovate it. Now, you're

into it for 620 or 630. And if the place

is only worth 630,

then you're already upside down day one.

And if the property is worth 640, then

if you hold the property on the books

for more than two months because you bad

bought it at a bad time of the year or

you didn't properly forecast what was

going on with real estate prices, well,

you hold the bag very very rapidly. So

that's why I think their margin is so

terrible is because they're they're not

they don't know how to value real estate

at scale. And that's scary and it's

unfortunate for Open Door because it to

me it sets up a little bit of a standard

of like uh like this is what happens

when people scale. They don't they don't

focus on on quality and they don't focus

on proper price. And I get it. That's

what's made real estate hard. That's why

I go to all the properties. This is why

I'm involved. And that's not to say you

can't scale it. It's just the problem

with open doors. They're trying to scale

it so damn fast. And they'd rather do

more deals that are worse than fewer

deals because they don't want to show

that revenue decline by cleaning up the

business because that would hurt the

stock even more. Now, in the short term,

real estate plays are probably actually

really clutch. Now, why is that? Let's

think about real estate plays for a

moment and why real estate plays could

be clutch for a moment. First, let me uh

take a little sip of this Cortado. Looks

like everything's still rolling. We're

doing good. Okay, we're filming on the

uh iPhone 17 Pro Max handheld here. So,

you'll have to let me know what you

think of the quality.

That's good. All right. So, now think

for a moment.

What uh

is the benefit to house or uh to uh to

open dooror in a declining rate

environment? Well, in a declining rate

environment, you should be able to have

buyers with more purchasing power. They

should be able to pay higher prices.

Well, the problem is you're making that

bet that rates are going to keep coming

down

while using that potentially to cover up

the fact that you guys aren't good deal

analyzers. See, they did really well

during COVID when they spacked 2122

because you didn't have to be a genius

at valuing real estate. Real estate was

skyrocketing. So, it didn't matter. Real

estate was like straight up moonshot.

So, even if you bought a crap deal, just

wait two months and it was a good deal,

right? Uh because prices were going

straight up. That's fantastic

for Open Door in in a boom time. That's

when everybody wants to be a flipper.

But it's times right now that you have

to actually build the better margins and

the AI

on your valuations verified by humans

and not cut all your staff to try to

squeeze margin on the staff. So that way

when the next boom time comes, you've

got a good system. See, if this CEO is,

oh yeah, we need to cut staff,

then I don't think they realize that

what they really need to do is cut out

the bad deals and then have better

staff. not less staff and let's just

keep doing crap deals. So that's my take

as a real estate professional.

So my opinion, let me know what you

think. In the short term, we've had a

lot of momentum in Open Door. We've been

targeting Open Door since it was 60

cents. And in fairness, from 60 cents,

we were really bullish on Open Door. I

started turning bearish around five.

Now, yeah, it ran up to nine bucks after

that, but that still means, you know, we

were there for the eight bagger,

not the 2x. We got the 8x, not the 2x,

right? So, that's what we talked about

in our course member live streams. Uh,

because we were so early on tracking

this upward momentum for open door. We

were very, very, very early. But now at,

you know,8 to$10, it's a very expensive

stock. I think a lot of the hope is now

priced in that people are hopeful the

CEO is going to lead to a big turnaround

and we're probably going to have some

bad earnings in the next, you know, two

or three quarters still mostly because I

don't think prices are covering up all

their ailments and all their problems

yet.

Like I'm still seeing Open Door take L's

on properties. That's going to hurt

their margin. Of course, again, their

margin is padded by their commission,

but I mean consider this. If their

bottom line commission is or if their

bottom line margin is 6% or 7% whatever

it is and they're charging a 5%

convenience fee, that means their

ability to handle real estate is only

worth about a 1 and a.5% margin.

That's terrible. That tells you

everything right there about the

underlying fundamentals of the work they

actually do. So yes, technology

fantastic. And their ability to market

that you should pay us 5% instead of

realtors 5%. fantastic. They've done a

great job there. But actual value

creation,

that leaves something to be desired.

Anyway, uh thanks so much for hanging

out and watching. Uh by the way, couple

reminders. Uh I'm a big fan of having in

your car, especially if you're involved

in real estate, meta glasses, so that

way you could document your renovations

when you visit them. Uh and then if

you're kind of like me and in the winter

months when it gets uh dark early, you

still go to properties because you don't

stop working. Shut up.

Make sure you have u a little headlamp.

Very very useful. I actually keep it in

here and then I charge it with the USBC.

So uh super useful. And then always

extra things to have hand sanitizer and

of course orange cream pop ice breakers

because

why not?

Anyway, uh thanks for watching this

breakdown on Open Door. Uh hopefully it

was useful to you. If you liked it,

consider subscribing and uh hey, follow

for more. We'll see you in the next one.

Have a good one, folks. Goodbye and good

luck out there.