3 real estate disruptors in fire sale reviews

Few industries need disruption as badly as real estate. The process of selling a home is cumbersome at best, brokerage fees haven’t changed much in decades despite many technological advances in the industry, and there aren’t many clear leaders in property management.

However, as with most other industries, most of the fast-growing real estate disruptors have been crushed in the recent market decline, and some of the most promising companies are trading for a fraction of the highs. Here are three in particular that look appealing right now.

The only big broker trying to solve a big problem

The brokerage business is cumbersome and full of inefficiencies. As several innovative real estate firms focus on technology to improve the home buying and selling process, redfin (RDFN 8.79%) is the only one that not only uses technology but also breaks the traditional pricing model.

If you’re not familiar, the standard commission when selling a home is 6%, with half going to the seller’s agent and half to the buyer’s agent. Redfin charges 1.5% or less for seller’s commission and gives buyers rebates for the commissions their agents receive, saving the average home seller thousands of dollars.

In addition to its brokerage business, Redfin has a large mortgage business, ownership and back office services, and an iBuyer (RedfinNow) that buys homes directly from sellers. Recently, the company also acquired RentPath’s valuable brands (including Apartment Guide and rent.com). With stocks down 87% from their 52-week high, now could be a wise time to consider this truly disruptive company for your portfolio.

This leader has a share of less than 1%

The vacation rental industry is surprisingly fragmented. Sure, there are millions of properties listed on Airbnb and similar portals, but managed by many different property managers and individual homeowners. So much for the actual holiday rental management goes, no company has more than 1% market share.

Vacasa (VCSA 6.23%) hopes to change that and become the first nationwide vacation rental manager to achieve scale. It currently manages over 35,000 vacation rentals, but that’s less than 1% of the market. Opportunities abound here: the vacation rental market is valued at more than $200 billion in annual spend globally, and full-service management margins are high. The demand for travel is also increasing as the restrictions from the pandemic period have largely been lifted.

Gross booking value flowed through Vacasa’s platform in Q1 2022 of $494 million, more than doubling year over year, and the company expects full-year revenue of approximately $1.15 billion. Although the company is currently operating at a loss, management expects to be profitable by next year on an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) basis. With a market cap of less than $1.4 billion and a solid balance sheet, Vacasa is certainly a company to watch.

Selling a home requires process improvement

While Redfin is doing a great job of innovating in brokerage, the iBuying model is also beginning to gain traction. With nationwide home sales approaching $6 trillion in a typical year, there’s plenty of room for both models to succeed. However, iBuying solves some of consumers’ biggest pain points.

Especially by using a company like offer block (OPAD -0.33%) When you sell a home, you simply receive a cash offer, accept it and close it on a date of your choosing. There’s no need for showings, negotiations, worrying about repairs, etc. And with the real estate market slowing down significantly, the iBuying model can be even more appealing to sellers who want a quick transaction.

Offerpad isn’t the biggest iBuyer out there, but it is the most efficiency-oriented, which can be an especially important feature in a tough economy. The company was profitable for the first quarter of 2022 and for all of 2021 (on a GAAP basis, not an adjusted basis). As the company scales and adds more features, things could get interesting if the company can continue to increase profitability.

These are Not low-risk stocks

To be clear, I think all of these have transformative potential and could generate 10x returns (or more) if they can execute on their respective visions. But it’s important to remember that no stock capable of doing this falls into the low-risk category.

All three are likely to be fairly volatile — at least in the short term while in a fast-growth mode — and all could certainly come under pressure if growth slows unexpectedly. Disruption doesn’t come easy, but the risk/reward profile of these three companies makes a lot of sense at current levels.

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