By Deborah Goonan, Independent American Communities
Why more of your neighbors may be renting than buying
When the real estate market crashed and the foreclosure crisis was in full swing, large real estate investment firms such as Blackstone, Invitation Homes, Waypointe, Starwood, and American Homes4Rent began purchasing under-valued detached single family homes by the thousands.
Large corporate investors had a substantial bankroll, so they could spend millions acquiring and renovating vacant, unsold properties, as well as foreclosures and bank owned homes, for the purpose of renting them. They took advantage of high demand for rental property from many former homeowners and households relocating for employment.
Many of the houses corporate investors have purchased are located in homeowners associations (HOAs).
Here’s just one example in Florida:
Corporate landlords on the rise
Percentage of home renters climbs in aftermath of recession
MIKE SCHNEIDER The Associated Press
Originally published July 4, 2016 at 03:03a.m., updated July 4, 2016 at 03:03a.m.
APOPKA, Fla. — Many of the single-family homes in the Piedmont Park neighborhood of Apopka used to be owned by families. Now, they’re owned by companies associated with big real estate investment firms, and the occupants are tenants.
The percentage of renters in Piedmont Park rose from a bit over 10 percent to more than 35 percent within a decade.
Piedmont Park homeowners complain that the result is more transient neighbors, less engagement at homeowners’ meetings and difficulties reaching absentee corporate landlords.
Read more here:
One point not mentioned in the article – but one that can be inferred – is that the market had a vast oversupply of unsold vacant properties and existing homes for sale at the same time that there was a low supply of available rental properties.
According to the Survey of Construction (Census Bureau) in 2009, at the start of the real estate bust, 62% of single family new construction for sale was in a homeowners association. In 2015, the percentage of new single family construction in HOAs has increase to 73% nationwide. (It appears data was not collected on this variable prior to 2009.) So it’s not surprising that many of these corporate purchases happened in HOAs, at least until some associations worked with their members to enact new restrictions capping the percentage of rental properties.
In Associations with high vacancy and/or delinquency rates, however, it would have been difficult to impossible to attain a super majority vote of members to prohibit or restrict the rights of owners to rent their homes. And selling homes to investor-landlords was preferable to allowing zombie foreclosures or unsold new construction to languish and possbily attract squatters.
It makes sense that more mature HOAs, such as Piedmont Park in Apopka, will tend to have more rental properties. As homebuyers re-enter the market, many will prefer newer homes in more recent developments.
Is the rental property sell-off underway?
As the economy slowly began to recover in the last few years, the market has become tighter for homebuyers seeking affordable price points. Part of the reason is that, in recent years, institutional investors have crowded out homebuyers by snatching up listings with quick cash sales while prices were still low.
In the meantime, rents have skyrocketed across the nation, making it more difficult for renters to become owners, because they cannot save up for a down payment.
Now that sale prices are increasing in some markets, however, the same corporate real estate investment companies are starting to sell off their rental homes.
And it just so happens that some of their tenants are ready-made buyers. The companies are more than happy to finance the mortgage for the sale of their own properties to their tenants.
Kind of a cozy arrangement for real estate investors and shareholders, but maybe not so great for home buying consumers, and an arrangement that may not sit well with federal regulators.
Landlords giving tenants a shot at buying their rental houses
Heather Perlberg, (c) 2016, Bloomberg
(c) 2016, Bloomberg
Melissa Suniga and her mother had been renting a three-bedroom Phoenix house for less than a year when their landlord, Blackstone Group’s Invitation Homes, gave them the chance to buy it.
Suniga, a 40-year-old childcare worker, used her security deposit and $2,000 she’d saved from her income-tax refund, along with a county grant and a credit from Invitation Homes that together provided her with $10,600 more for her down payment and closing costs. She expects to complete her purchase of the $150,000 house this week.
Now, Suniga is buying the renovated place for $150,000 with a loan from the Blackstone-owned Finance of America Mortgage. A bankruptcy from more than a decade ago, along with a past sale of a home for less than what was owed on it, had raised flags with other lenders Suniga talked to, even though she’s brought her credit score up to 660, she said.
While Invitation Homes said its renters-turned-homebuyers are free to use any lender they want, the company is working with a small number of mortgage providers that are more familiar with the new buying program, including Finance of America.
Read more here:
In essence, large real estate investment firms have played the housing market to their advantage (and that of their shareholders). In the process, their actions have manipulated the market to the point of a housing affordability crisis in the rental market and a short supply of homes for sale at entry-level price points.
The potential hazard of allowing investor groups to purchase significant quantities of single family homes your in HOA: corporate real estate entities accumulate votes for each property they own, giving absentee corporate landlords potentially more sway on financial and management decisions of the Association.
Starter Home Inventory Drop Burdens First-Time Buyers, Report Reveals
America Has an Affordable Housing Crisis
Survey of Construction – Homeowners Associations (see table 2)