Single Family Rental

From Wall Street Landlords to Mom and Pop Real Estate Investors to is a new world for investors in single family rental (SFR) homes.

From Wall Street to Mom & Pop, investors are gobbling up single family homes to rent to households who can no longer become homeowners.  Will this new model work?

Developing single family homes for rent-some new/empty; some new construction. 

read here (registration required or see appended at the bottom of the page.) More on Wall Street landlords here and here

NIce primer:  When Wall Street becomes a landlord

Huber Heights Ohio  Investor housing in SW Ohio. read here

Examples of Wall Street investors
Blackstone Group

Land contract sales: Wall Street latest scam on low income people

In the wake of the Great Recession, Wall Street financial corporations started buying up foreclosed houses and turning them into single family rentals.  Now a new crop of Wall Street financers are repackaging formerly foreclosed houses and offering to sell them on land contracts aimed towards low income families who can't obtain a conventional mortgage.

Two New York Times (NYT) articles on 
February 20th and on April 17th focus attention on a home sales practice that authors Matthew Goldstein and Alexandra Stevenson call "contract for deed”. In the April 17th article, the authors look at Shelter Growth Partners, a firm founded to sell formerly foreclosed homes to low income contract buyers. "As the head of Goldman Sachs’s mortgage department, Daniel Sparks helped make the bank more than a billion dollars betting against the market as housing prices began to crash in 2007. Today, he is betting on home buyers who no longer qualify for mortgages in the fallout of that housing crisis."

Unlike a conventional rental where tenants can expect landlords to maintain properties, these homes are sold "as is" at prices above their appraised value, often with exorbitant interest charges. In one example in the article, investors who bought foreclosed homes at an average price of $8,000 “sold” an Akron property for $36,300 at 10 percent interest, Instead of a refundable security deposit, a contract buyer pays a “downpayment” and sometimes other fees.

Unlike a conventional home purchase, the contract buyers don't get a title to the property until all the installment payments are made. Therefore, if the contract buyer misses a payment, the seller can simply evict the buyer without going through a lengthy foreclosure process. In its editorial the NYT describes how the business works. “These contracts enriched the sellers by draining the buyers, who built no equity and were often evicted for minor or alleged infractions, at which point the owner would enter into a contract with another buyer. In the process, families and neighborhoods were ruined.” In the editorial, the NYT explores the racist roots of the practice back to a time when African American families were steered into a bogus form of homeownership.

The NYT's February 20th article focuses, in part, on Akron Ohio, where Harbour Portfolio Advisors was a major player. "Ten of the more than 50 homes Harbour bought in Akron have been torn down after being condemned and two others are slated for demolition...” according to the City Housing official Duane Groeger." It is ironic that Harbour obtained its stock of houses from Fannie Mae, the Government Sponsored Enterprise, which went belly up in the Great Recession and is now in Federal receivership. Fannie Mae moved back to profitability by unloading hard to sell properties in “bulk sales.” “Harbour, which raised more than $60 million from wealthy investors, was the single largest buyer of foreclosed homes from Fannie Mae’s bulk sale program from 2010 to 2014...” As far as code compliance goes, “Mr. Groeger said getting Harbour to respond to outstanding code violations on homes had been 'an exercise in futility.'” The Times article suggests that Harbour is moving out of the direct sales business and selling instead to new companies entering “the business.”

Besides the NYT coverage, news about this new business model is leaking out in some other media stories. On April 7th, Crain's New York Business profiled another of these Wall Street financers, Apollo Global Management, and described the business model as shadow banking. “As the biggest banks retreated from mortgage lending, and the market for riskier borrowers dried up, firms such as Apollo—so-called shadow banks—have filled the void. Whether the process is called a land sale, contract-for-deed, bond-for-title or something else, the idea is the same: While it gives some low-income Americans a path, though long and winding, to homeownership, it can also be a way for investors to profit from borrowers who don't qualify for mortgages.” 

In a call to action, the NYT Editorial Board calls on the Consumer Financial Protection Agency to take jurisdiction of this business. "The Consumer Financial Protection Bureau must assert its authority over these contracts, which are legally murky and hard to track. Some states do not require that they be recorded, and in states that do, noncompliance is high. The bureau’s mandate is to stop unfair, deceptive or predatory lending. Contracts for deed are all three."

For contract buyers the message is know your rights and talk to a lawyer before signing any agreements. For service providers, make sure that your program participants aren't falling for a “too good to be true” scheme. And for community leaders, find out if a predatory seller is operating in your community. Rather than building a base of “owners,” this business model promotes the spiraling downward of already troubled communities. The article in Crain's New York Business warns: “A 2012 study on people with the agreements in Maverick County, Texas, showed that 45% of them were canceled within a 23-year period, an indication that many residents lost money on the deals. Fewer than 20% of the people with contracts ever became full owners of the properties, according to the study by University of Texas at Austin. "While these types of agreements can sometimes benefit buyers with no other avenues to homeownership, they have a 'predatory history, particularly in minority communities, said Sarah Edelman, director of housing policy at the Center for American Progress in Washington.”  
 posted May 1, 2016 Thanks to JasonS for suggesting a correction.
What's news?

July 25, 2017, Nonprofit Quarterly, Remaking the American Dream without Homeownership: Implications for Nonprofits

March 21, 2017, Realty Trac Single Family Rental is big in the Rust Belt Metros
"Among 40 counties with a population of at least 1 million people, those with the highest gross rental yields were Wayne County, Michigan, in the Detroit metro area (17.3 percent); Cuyahoga County, Ohio in the Cleveland metro area (13.2 percent); Allegheny County, Pennsylvania, in the Pittsburgh metro area (10.6 percent); Philadelphia County, Pennsylvania (10.1 percent); and Franklin County, Ohio in the Columbus metro area (9.9 percent)."

Wall Street landlords won't rent to former felons...even financial criminals like themselves!
Daily Beast has a good article about the Wall Street Landlord business. Unfortunately someone (author or editor) chose to highlight the business ties to Hillary Clinton instead of the truly shocking rental terms being charged by Progress Residential for single family rentals. 
  • Application fee is $45, followed by a $500 “holding fee” when the application is submitted.
  • Where the utilities are in Progress Residential’s name, "tenants agree to a utilities payment plan,” with an added $25 “enrollment fee” and $9.99 monthly “service fee.”
  • Tenants who fail to obtain renter’s insurance for at least $100,000 are hit with an unspecified monthly “exemption fee.”
Luckily, Progress Residential does not seem to be operating in Ohio. Still, predatory rental practices have a way of spreading like wildfire through the industry.
Too bad the real story got lost in some Hillary bashing.

April 26. 2016 The Daily Beast, Wall Street landlords won't rent to felons...even financial criminals
The Daily Beast profiles how a Clinton donor operates his single family home rental program including unconscionable "charges" in addition to rent. Unanswered questions: Where is RentProgress operating 

Metropolitan Planning Council in Chicago has been developing management tools for Single Family Rental (SFR) investors. Read more here and visit their site.

12/21/14: 5 Ways America’s Newest Landlords Can Win the Public’s Trust
"Analysts and community groups have viewed the emergence of single-family rental companies as presenting both opportunities and risks. With a shortage of quality rental housing stock, particularly affordable rental units, the country needs the rental housing these companies can help bring online. At the same time, however, these firms have also encountered suspicion and distrust. News stories about high eviction rates and substandard property conditions abound, and several high-profile lawsuits have been filed against prominent, single-family rental companies. The resulting damage to a company’s reputation or brand could make it harder for firms within this industry to attract investors and to expand into new communities in the future." Here's the ways (more than 5) suggested in the article:
  • Commit to core tenant protections
  • Companies should not terminate leases without good cause and should offer longer-term options 
  • Companies should provide tenants a reasonable buffer between a missed payment and an eviction 
  • Companies should minimize rent increases and give tenants advanced notification of rent increases 
  • Treat all renters fairly and provide greater opportunity by accepting rental vouchers 
  • Companies can help with efforts to reduce concentrated poverty by accepting rental vouchers 
  • Preserve Affordability 
  • Companies should not turn down an applicant based on one metric 
  • Companies should commit to maintaining affordable rents Fees should be transparent, fair, and not overly burdensome 
  • Ensure the community knows who owns the home Invest in the surrounding neighborhood, and when it’s time, leave responsibly 
  • Companies should build good relationships with community stakeholders 
  • Investments should address needs identified by the community 
  • Firms should have a responsible exit strategy 

7/13/14: Big Money investors thought they had the perfect plan to buy up rental properties. There was just one huge problem. "Word is getting around in these communities about the pitfalls of renting from Invitation Homes, leading renters to seek other options. To take one example, in May, a couple in Los Angeles sued Invitation Homes over the slumlike condition of their rental property, which featured mold and rotted plumbing. The couple got sick from the mold, moved out and then could not retrieve their contaminated belongings for months. The company still contacts the couple, demanding back rent for the months when they didn’t occupy the home." Let's see:
1. single family homes go vacant
2. "fire sale" pricing for investor owned properties depress home prices for everyone
3. displaced homeowners who rented from investors are displaced again
comment: Cite with caution: until this report is corroborated by another source, take it as opinion. More here and here.

6/14/14 On the 'flip side' of Wall Street Landlords is single family suburban renters
Atlantic Cities writes: Why Renters Are Ending Up in the Suburbs: Most new homes being built in the U.S. are multifamily apartments, but more and more people are opting for an even cheaper rental option: the traditional suburban single-family home.

3/26/14 Single Family Rental Industry "Lobbies Up"
If you thought that the bubble of Wall Street Landlords was a place to park capital til other investments rebounded, maybe think again. NEW RENTAL HOME COALITION LAUNCHES “Major owner-operators in the single-family rental home industry today launched the National Rental Home Council (NRHC), a non-partisan coalition focused on increasing education about the professionally managed single-family rental industry and advocating for the benefits brought by this sub-sector of today’s rental market. … The NRHC offers a wealth of information and will serve as a resource for policymakers, media, market observers, industry leaders and local officials 

Securitizing rent what could go wrong?
  and here When Wall Street Buys Mainstreet

Another Ohio example 

Can investors be good landlords?
Can Wall Street do maintenance? read here

Code enforcement is struggling to protect Tenants and Neighbors
Slumlord Watch of Columbus