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Buying and selling hundreds or even thousands of homes at the same time gets pretty expensive — just ask Opendoor and Offerpad.

The two real estate companies are leaders in the increasingly competitive “iBuyer” market, and they’ve both raised gobs of cash to buy and sell more houses, up their product offerings and expand to more markets. Both announced blockbuster nine-figure funding rounds in just the past week.

These huge raises come as Seattle real estate heavyweight Zillow embarks on a big shift and goes all in on buying and selling homes directly. The war chests amassed by Opendoor and Offerpad demonstrate how much capital is required to buy homes from sellers, fix them up and then sell them directly to buyers in a market that is becoming more competitive all the time as new companies jump in and incumbents continue to grow.

This week, Opendoor raised a whopping $300 million at a valuation of $3.8 billion, TechCrunch reported. Opendoor is currently live in 20 markets, and it has raised $1.3 billion in equity and $3 billion in debt over its lifetime.

Offerpad last week announced a Series C round that brought its total debt and equity funding to $975 million. The company declined to say how much it raised in this round specifically, and it is unclear how much is equity versus debt. A few days later, Offerpad announced plans to expand to its 13th and 14th markets: Austin and San Antonio.

Rich Barton at Zillow Premier Agent Forum 2017 (Geekwire Photo/Kevin Lisota)

Zillow last month unveiled a surprising plan to refocus the bulk of its energy around buying and selling houses. It’s a bold move to disrupt the housing market, and to accomplish that goal, Zillow wants to exert influence over the entire process, from finding a house — which was the company’s original business to buying it, to financing it.

The major business shift, which coincided with the return of Zillow’s co-founder Rich Barton as CEO, puts the company in the same bucket as Opendoor and Offerpad. In discussing the shift with GeekWire last month, Barton said he knows it’s a risky proposition.

“We’re taking [the media business] and using profits from that to fund what some people believe is a speculative business that is unproven, that requires capital investment, that has low gross margin — but has radically larger scale potential,” Barton said.

Fellow Seattle tech-powered real estate company Redfin also jumped into home sales and officially made the Redfin Now program part of its long-term strategy last year. However, Redfin, which went public in 2017 and has a market value of $1.7 billion, is not re-aligning the majority of its business around buying and selling homes the way Zillow is.

In an interview with Stratechery, Barton acknowledged the importance of being well-funded, but he pointed to geography as another important piece of the equation. He said “leverage is going to come from scale/density in geography,” which could lead to lower costs and reduced fees for customers.

Zillow, which brought in $1.3 billion in total revenue in 2018, sees its home sales operation becoming a $20 billion business within three to five years. To get there, Zillow will rely on volume, with a goal of amping up home purchases to more than 5,000 a month.

To finance these transactions, Zillow has secured $1 billion in borrowing capacity. According to its most recent earnings report, Zillow had drawn $117 million from its “credit facility” for its home sales business as of the end of 2018.

The home sales business is not yet profitable, with the homes reporting segment it falls under reporting a loss before income tax of $62 million on $52 million in revenue for 2018. Barton said profitability will come as the sales business scales up, but he didn’t give specific timing.

“It’s definitely going be awhile, and it could happen in the three-to-five-year time frame, but honestly we just don’t know,” Barton said of profitability in the homes segment. “A lot of it will depend on how rapidly it grows for how long, and how big ultimately this way of buying and selling homes can get.”

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