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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.
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