Open Door Labs Inc., which buys and resells houses, is in talks with investors to raise at least $200 million at a roughly $2 billion valuation, a deal that would help it purchase more homes and expand to new cities, according to people familiar with the company.
The target funding amount would bring the company’s total equity capital raised to over $500 million since its founding in 2014. It also has raised more than $1 billion of debt to help finance its purchases of homes, said a person familiar with the matter.
The new money is intended to help fund an expansion of its business in its six U.S. metro areas, where it needs additional equity to finance the purchase of more homes, and to enter new markets across the U.S., these people said.
Previous investors include Access Industries, Felicis Ventures, GGV Capital, Khosla Ventures, New Enterprise Associates and Norwest Venture Partners.
The company, which does business as Opendoor, is the largest of a new class of companies that offer cash to buy homes online, and then seek to resell them at a slightly higher price after making basic improvements. Smaller companies include OfferPad LLC and Knockaway Inc.
By growing quickly, Opendoor hopes to achieve economies of scale that will help it squeeze more profits out of each house flip, according to the people familiar with the company. It juices returns with leverage, borrowing about 90% of the purchase price of the home, a person familiar with the matter said.
The company makes more money the faster it can buy and sell homes. It now also makes money by offering title insurance services and helping to secure mortgages.
A key risk, these people say, is if the housing market cools, which is a growing concern as the Federal Reserve lifts borrowing costs. In that situation, Opendoor might be stuck holding more homes on its balance sheet, potentially eating into the company’s equity if they decline substantially in value.
Opendoor executives have said they could spot a decline in the market earlier than others and decrease their offer prices to manage risk. They argue that they might also be able to raise their fee for buying a home, which today is about 7% to 8%, since the service they provide might be more valuable with fewer buyers in the market. Opendoor also hopes to spread risk by diversifying across more local housing markets, said people familiar with the matter.
The company is on the cusp of moving into Charlotte and San Antonio, these people said, with plans to reach a total of 20 metro areas by early next year, said one of these people.
Executive Chairman Keith Rabois said at a recent technology conference that Opendoor bought $1 billion of real estate in 2017 and plans to buy $3 billion to $4 billion this year.
Opendoor’s impact is growing in the Phoenix real-estate market, where it first set up operations three years ago. In February it bought $60 million worth of homes in that area, about 3% of all purchases, according to Mike Orr, publisher of The Cromford Report, which analyzes Phoenix real estate. The prior February it bought $13 million worth of Phoenix homes, or about 1% of the market, he estimates.
Last year, Opendoor hired Gautam Gupta as its new chief operating officer. A veteran of ride-hailing company Uber Technologies Inc., Mr. Gupta is refining a “city playbook” for Opendoor to guide local employees on how to grow quickly in new markets, similar to Uber’s expansion strategy.
Write to Rolfe Winkler at rolfe.winkler@wsj.com