Article on investor homeowners

People often think of condo deconversions when they think of investors buying up real estate, but articles like this make it clear that single family homes are also targets.

I have concerns.

The Big Picture concern is that buying a house is becoming more and more out of reach for those of modest means, and even for those in the upper middle class. As I've mentioned many times, for the average person, home equity forms the lion's share of their net worth. If their employer isn't offering 401(k)s or other retirement plans, they're even in worse shape.

A Not-Quite-As-Big Picture is how HOAs and COAs will fare as institutional investors snap up homes. Individual investor-owners can cause enough trouble for a community association. Tenants who don't follow the rules, owner-landlords who don't give a hoot as long as the rent check is good, and owner-landlords who won't take on any of the work of running the community are all problems.

Institutional investors can be worse. They will most likely be completely uninvolved with an HOA unless they have longer term goals of converting an entire community into rental property. But if they just want to keep the property on the books for the value, they'll probably be even more hands-off. Or they may be aiming to create their own investment assets in the form of real estate investment trust (REITs). I assume that this is Wall Street's eventual goal, since being a landlord is a pain in the butt.

(REITs in a nutshell: these investments allow people who want to own real estate but without owning individual properties to buy shares of these REITs. The shares trade on the stock market just like stocks do and they pay dividends. Many people hold REITs in their investment portfolios for the income they produce. Individual REITs can own property in a wide variety of areas: residential properties, medical facilities, office buildings, commercial facilities, etc. You can even buy shares of REITs that own storage facilities.)

In my more cynical moments, I wonder why Wall Street doesn't just buy up new home builders who are the sources of all the new HOAs and COAs. Eliminate the pesky homeonwer/middleman from the get-go.

Lesson for anyone who currently owns a home in a community association: get your rental restriction beefed up while you're still able to.

In my city they are now building Rent ONLY single family homes. They are not for purchase. Their intent is to "rent" to young families/couples. There are benefits and downside to this option. Not sure if it's an intentional trend for renting or just that no one can afford the housing.

I admit that I took a buy-out of investors for my last house. In my defense that house was always meant to be a 'flip house". I had remodeled it with the intention of selling it for a profit. Circumstances changed and ended up "stuck" in the house. My view set back then was investor minded. Now my view has changed to "I am lucky to been able to buy/built a house".

It is a strange new world in home ownership than it was before. I've survived the "Bubble bursting" in the 2000's. That was hard enough. Today with all the investors grabbing up houses, I am thinking ownership is getting out of reach. Not sure even after owning multiple homes that renting isn't in my future.

Indeed. I'm working with a relative to sell another relative's home. (to help pay for assisted living ) and we really hope we won't have to sell to an investor, but I've seen up close why people end up going that route. If we have no choice, I'd prefer selling it to a single investor who will eventually sell to a young family.

In my own community. I'm a bit surprised one of these "rental homes only" developers hasn't swooped in to try and buy this one. Our documents are written to require 100% cooperation from every owner for that to happen, so that could be a blessing or something else. Time will tell.

The article said the name of this woman is Kathy Enos, a Charlotte, NC real estate agent. What got my attention was this:

When Ms. Enos, 62, the real estate agent, sold her Bradfield Farms home two years ago, she was adamant that she would not sell to an investor.

For years, her brother lived on the same block. Their children and dogs meandered among the houses. As she watched clients jump at anonymous cash offers, she worried that the neighborhood would become transitory. Who would organize the block party if no one lived on the block for long? She sold her house to a neighbor, not an investor.

Yet, she owns stock in Invitation Homes [ticker symbol INVH], the country’s largest owner of single-family rentals. “I would be silly if I didn’t,” she said. “I make really good money from it.”

Enos is 60-something years old. She has a bachelor's in business administration. She served in the Navy for eight years. And she thinks a stock that has been around less than a decade is something everyone should own. Invitations Homes is a REIT, so this means INVH's share price is not going to keep up with the S&P 500. Instead the purpose of these stocks is to provide a relatively stable dividend (since by law, REITs must pay out 90% of their taxable income to shareholders).

The stock currently yields about 3%.

Meanwhile 3-month CDs are paying over 5%.

And the stock price has lagged the S&P 500.

This part of the article is further evidence to me that realtors, while able to flip homes and skim off the fat of the sale, tend to have a single skill and otherwise, should not be expected to have talent.

I did not see anything profound in this article. It's still a small percentage of houses owned by investment companies. If one does not like what corporate America is doing to the country, join 'em, or at least own a diverse portfolio of stocks and bonds.

The April 2023 update is that the couple lost in the Florida appeals court (unanimous decision, three-judge panel). See https://law.justia.com/cases/florida/fourth-district-court-of-appeal/2023/22-1260.html. CathyA3's prediction, that these folks threw away money on this litigation, appears to have come true.

Actually all of this and much more are factors in the affordable housing crisis. 6ou have long time communities (many of color) being forced out of their homes because of high property taxes and peopke having trouble building generational wealth because of the taxes and the high cost of living.

I dony know how many people living in HOAs pay attention to all this - many are howling over not being able to turn their home into an Airbnb or just rent it out because they have rights. Of course they do, but rights come with responsibilities (at least they used to) and sometimes you have to consider that just because you can do something doesn't always mean that you should.

Cathy noted that folks debating rental restrictions in their communities may want to consider this when considering the pros and cons. Since many people dont always think that far ahead, I'd say those who want some sort of control would do well to bring stories like this to their neighbor's attention. Paying attention to the conduct of the owner-landlords and tenants is crucial but you may also need to consider the long term effects, such as an investor with lots of money moving in and dazzling everyone with the thought of big bucks. Not everything that glitters is gold, and you know the rest.

Another article on the same topic:

How Wall Street Bought Single Family Homes and Put Them Up for Rent

Quote from the article:

Industry advocates argue that they do not control enough market share to dictate prices in any market. Large institutions owned roughly 5% of the 14 million single-family rentals nationally in early 2022, according to analysts.

By 2030, the institutions may hold some 7.6 million homes, or more than 40% of all single-family rentals on the market, according to the 2022 forecast by MetLife Investment Management.

This is disingenuous.

First, the homes they own have been removed permanently (unless they sell) from the stock of houses that can be purchased by individual buyers. This will drive up home prices by artificially increasing demand. This move also comes at a time when there are supply chain issues and other factors that have also been raising the costs of new construction.

Second, it ignores the potential impact on the mortgage market since lenders will raise the interest rates for borrowers in communities with a lot of rentals, or avoid those communities altogether. This will remove buyers at the lower end from the market. While ordinarily that would put downward pressure on home prices, it can also create a sense of urgency in sellers who may want to hold out for individual buyers but can't afford to. This creates more opportunity for the corporate investors who will fix up the home and either rent it or flip it, and in the longer term driving up the cost of housing.

Third, corporate investors are driving individual investors out of the market since the little guy mostly can't afford to compete on price. If I'm on the board of an HOA, I would much rather deal with an individual investor if there are issues with a tenant than some faceless corporation. That single home with a problem tenant is much more likely to affect the bottom line of an individual investor, giving the investor more of an incentive to help solve the problem. The corporation can afford to ignore a non-performing asset.

Finally, I'm really concerned about the collision between corporate ownership and the HOA model of home ownership, and if I'm an elected official in any city or municipality, I need to be concerned as well. The whole idea of community associations is that it makes individual owners responsible for running their communities, and I think this model breaks down when corporations become the owners - mostly because they can afford not to give a damn. A corporate owner is unlikely to run for a board position unless the owner is aiming to deconvert the entire community into rental properties. In short, cities and municipalities are losing control over communities in their jurisdictions, and that is a bad thing for everyone in that area.