Wolf Richter: Here Comes the Second Wave of Big Money in the “Buy-to-Rent” Scheme

Lambert here: The article mentions Ocwen Financial, “the largest servicer of subprime loans in the US.” The NC archives do not disappoint: See here, here, here, and here.

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.

A different set of private-equity firms, at the peak of the market, as brokers constantly blame low inventories of single-family houses for sky-high prices.

The first wave came during the housing bust when large private-equity firms acquired tens of thousands of single-family homes out of foreclosure for cents on the dollar. The biggest players have since been sold off to the public as REITs, such as Blackstone’s Invitation Homes which owns about 48,000 rental houses.

Blackstone was the trailblazer in financializing rents. It issued the first rent-backed structured securities in November 2013. This has become a common funding mechanism. And shortly before the Invitation Homes IPO, it obtained Fannie Mae guarantees for $1 billion in rental-home mortgage-backed securities.

This second wave is different. PE firms are paying prices at the peak of the market, amid ceaseless complaints that there isn’t enough inventory of homes for sale, for folks who actually want to live in the homes they buy.

And these are just the biggest players. There are thousands of smaller players. And all but mom-and-pop investors pay cash and then fund the purchases with leverage at the institutional level.

Here’s the New Wave of Big Money:

August 22: Amherst Holdings, which bills itself as a “financial services holding company with expertise in the real estate, mortgage and related structured finance markets,” is planning to raise $1 billion to buy single-family homes and rent them out.

The new fund has a term of over 10 years to allow it to stay in this business over the longer term, the sources told Bloomberg. A fund with a shorter term, which are typical, would exit the investments after a few years via an IPO or sale and return funds to investors. This term of over 10 years could also be an indication that the next housing downturn is being figured into the plan, and the duration of the fund is designed to extend past it in order to avoid having to exit at a bad moment.

The fund may be in addition to the $600 million Amherst raised for a single-family rental fund that recently closed after fundraising goals had been reached.

According to its website, Amherst has already raised “more than $2.5 billion” since 2012 to invest in single-family rental homes and related activities. According to Bloomberg, its subsidiary, Main Street Renewal, already operates over 20,000 rental houses.

August 20: Cerberus Capital Management is said to be raising over $500 million to buy single-family rental homes. This fund doesn’t have a term date at all, perhaps for similar reasons as above, such as getting through the next housing bust without having to exit possibly at the worst time.

A subsidiary of Cerberus, FirstKey Homes, already operated 11,000 rental homes at the end of 2017. In February, FirstKey CEO Martin Esteverena said the company wants to build a portfolio of over 40,000 single-family rental homes.

Most recently, Cerberus also bought about 200 homes in Miami-Dade, Broward and Palm Beach in July from Property Investment Advisors Group, a Miami-based PE firm, for $47 million. Property Investment Advisors, incidentally, will use the proceeds to buy multifamily properties.

August 9: Front Yard Residential Corp., a publicly traded REIT (RESI), announced that it acquired HavenBrook Partners LLC and its portfolio of 3,236 homes from PIMCO. These kinds of deals are heavily concentrated in some areas. For example, this deal includes 325 single-family rental homes in Broward County, Florida.

The deal was facilitated by a $509 million loan that Berkadia, a joint venture of Berkshire Hathaway and Jefferies Financial Group, originated and subsequently sold to Freddie Mac, a GSE.

“We’re growing the size of the company… and one of the GSEs gave us the money. That’s a good day,” explained Front Yard CEO George Ellison.

Front Yard was tangled up in the investigation by the New York Department of Financial Services of Ocwen Financial, the largest servicer of subprime loans in the US. At the time, Front Yard was called Altisource Residential. Ocwen’s founder, William Erbey, was also chairman of Altisource. In 2014, Ocwen entered into a consent decree with the New York Department of Financial Services that named Altisource as “related party.” Erbey was forced to resign as chairman of Altisource. As part of the consent decree, Ocwen agreed to pay $100 million in fines and $50 million in restitution.

July 9: Pretium Partners – a PE firm founded in 2012 that now has $10 billion in assets – announced that it had closed its new fund after reaching its fundraising goal of over $1 billion. The new fund will acquire, renovate, and rent high-quality single-family homes. It said that over 5,000 homes have already been acquired by this fund.

A prior fund, which had raised $1.2 billion in 2013, is also in this business. Pretium says it’s the largest private landlord of single-family rental homes in the US, operating over 26,000 homes in15 markets. The largest landlords are publicly traded REITs.

June 28: Tricon Capital Group announced a $2-billion joint venture with the Teacher Retirement System of Texas and Singapore’s sovereign wealth fund, GIC, consisting of $750 million in equity ($250 million from each) and $1.25 billion in leverage, to buy 10,000 to 12,000 single-family rental homes over the next three years, to be managed by Tricon’s American Homes platform.

Bernanke Started It.

This big business of buying massive numbers of single-family homes and financializing rents got started in late 2011, initiated and supported by the Federal Reserve as part of its efforts to “heal” the housing market. Then-chairman Ben Bernanke pitched this in various talks. The Atlanta Fed, while lamenting soaring eviction rates at some of the mega-landlords, summarized this beautifully in January 2017:

In unwinding their bank-owned properties, the GSEs [Fannie Mae, Freddy Mac, etc.], U.S. Treasury, and Federal Reserve innovated new structured transactions for disposing of hundreds of thousands of bank-owned homes, also known as real estate owned (REO). The Federal Reserve was the first to suggest that private equity firms were the one group with cash on hand to invest in foreclosed homes (Bernanke, 2012).

In 2012, the Federal Housing Finance Agency (FHFA), conservator of the GSEs, issued a pilot to develop structured transactions that could be used to sell its REO homes in bulk. The private market followed by developing and standardizing financial instruments to allow broader market investment in converting foreclosed homes into single-family rentals. Rental housing, traditionally the purview of mom-and-pop landlords, caught the attention of large financial firms.

This Bernanke-triggered first wave of PE firms ended up buying about 350,000 homes, concentrated in a relatively small number of markets. After that wave, activity subsided somewhat. But now the second wave is washing over the housing market, but under entirely different conditions: peak home prices and rising interest rates.

This is how inflection points show up at the subcutaneous level in all housing markets. Read… Anatomy of the Housing-Market Inflection Point in the Bay Area’s Sonoma County: Insider View

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. Sound of the Suburbs

    Capitalism – back to basics

    Disposable income = wages – (taxes + the cost of living)

    Employees want more disposable income (discretionary spending)
    Employers want to pay lower wages for higher profits.

    The cost of living = housing costs + healthcare costs + student loan costs + food + other costs of living

    Oh dear.

    Employees want more disposable income (discretionary spending)
    There is not much left once you have covered the US cost of living.

    Employers want to pay lower wages for higher profits.
    They off-shore as they don’t want to cover the US cost of living in wages.

    “The interest of the landlords is always opposed to the interest of every other class in the community” Ricardo 1815

    This is what Ricardo was talking about.

    1. Enquiring Mind

      “Buy land, they ain’t making it anymore.”
      – typically attributed to two fine Americans, Mark Twain and Will Rogers

      *alternative view – Hawaii’s Kilauea volcano is making new land, just not very usable for the time being!
      ** alternative view 2 – from Mises Institute

          1. Synoia

            More precisely, land with water and if served by a sewer, ensure your sewage plan is 250fh above current mean sea level.

            Sewage plants are a multiplier for potentially condemned homes. Were I live over 1 million homes would become uninhabitable if the sewage plant, by the beach, became flooded.

      1. Anon

        Land has some inherent value (agriculture) alone. But it mostly accrues to public expenditure on roads, utilities,and security (the Sheriff).

        So, even if they’re not making it anymore, it’s inherent value is enhanced (determined) by social factors and not the Creator.

  2. ambrit

    Someone correct me if I am wrong but, isn’t this the design for a ‘perfect storm’ financial collapse?
    I was taught to “buy low and sell high,” unless you face ruin otherwise. If this ‘second wave’ of investors are buying ‘high,’ doesn’t that mean that they expect housing values to keep rising? Hence, to keep the ‘return to investors’ flowing in a steady and growing stream, they will have to consistently raise rents. From the anecdotal evidence I see around me, the visible increase in homelessness being one such evidence point, the public is hitting a ‘wall’ of financial inability to absorb much more in the way of housing cost increases. The limits are there, and will soon bite this second wave of investors where it hurts; in the pocketbook.
    Once a run on funds involved in the REIT arena begins, who knows where it will end? The REITs can go to blazes for all I care. What I worry about are the banks and institutions underwriting these leveraging loans. When one of them goes under, the contagion will be difficult in the extreme to contain. QE has already been utilized to the near maximum. The FED, or whoever inherits this simmering brew of poison, will have a lot less ‘confidence’ to draw on in it’s dealings with the public and the investment class.
    This time, the ‘haircut’ demanded of the financial class will begin at the neck. Anything less risks civil unrest.

    1. Alexander Innes

      Did i miss something? I reread this story, but it seems they are investing for the rent these home will throw off not the resale value.
      Both ways it looks like a loser investment nowadays anyway.

      1. ambrit

        Good point. I was thinking that what the ‘investors’ are ‘buying’ in the REITs is the revenue stream from the rents of the houses, not the houses themselves. When that revenue stream stops appreciating and reverses course, the REIT becomes a negative investment, something like a ‘buy in’ by the depositors in a failing bank. That’s when the financial aspect of the ‘haircut’ should kick in. My contention is that the public, tired of and sickened, financially and emotionally, by the original rounds of QE used to ‘save’ the banks, is faced with another version of that confidence game, (used in multiple meanings,) it will revolt at the degradation and humiliation proposed.
        As I perceive it, the houses themselves have a financial function tied to their market valuation. Said valuation rests on the perceived ‘worth’ of the unit. Unless we are jumping through the looking glass, the initial financial value and the rent expected from said unit should track each other. Am I wrong in this assumption? Wiser heads than mine will have to parse that one for us.

      2. Jean

        And when organized squatters identify and occupy the unrented corporate owned houses, there will be very little public sympathy and possibly zero law enforcement efforts to clear the houses, especially among the voter selected sheriffs.

        It’s every citizen’s responsibly to identify these corporate owned homes in their neighborhoods to inform and share the information with their fellow citizens who will be hit hard by the upcoming financial shitstorm.

        1. ambrit

          To pull off the plan you envision, we must first decouple the local Powers from the National and International financial elites. Many times, the Coercive Organs of the State do their thing without reflecting on the rights and wrongs attendant to their actions. To split this cadre off from the Globalist Cabal, we must reinvigourate ‘Localism’ as a motivating force in politics.
          One of the sneakier tactics employed by the Globalist Cabal is the supplying of “free” materiel to local police forces. This ties the local gendarmes in with the National State, on many levels. The Militarization of local police forces splits the local forces off from their home populations through a process of identification of the local forces with the National State through clientelism and ‘brand’ association.

    2. Summer

      The point is to squeeze. The carnage to people’s lives won’t matter. Get the money, get out, think of the next way to kill. They’ll raise and raise rents until there’s blood and death in the streets.

      Why should the “funds” care? And it’s probably people from all over the world turning the screws that are putting the squeeze on.

      Yes, this is going to be bad in large numbers of deaths ways before it’s all over.
      Modern feudalism will be worss than the old.

      1. anon y'mouse

        we should start sending the homeless to Washington DC. make gofundme or whatever to give every homeless person who wants one a greyhound to the capital so they can sit outside the Whitehouse and say “why do corporations get money to rape the populace, and yet the populace doesn’t get money to live on?”

        kinda like a homeless general strike. they are the only people who can truly afford the time off!

    3. cnchal

      >. . . The limits are there, and will soon bite this second wave of investors where it hurts; in the pocketbook.

      and those investors are . . . tada . . . public sector pension funds. When the scam goes nuclear, guess who has to come up with the money to make the public sector pensions whole, while the bosses at the Pirate Equity and hedge funds walk away with billions?

      People trying to compete with big money bags to bag a house sure have it tough. While paying rent and taxes to live, part of your taxes go to the pension fund that hands over the money to the crooks, so the crooks can step in front of you at house buying time with what used to be your money and outbid you, dooming you to be a renter for life.

      1. Jim A.

        I think you have it. Just like 10 years ago, when the answer to “Why are the banks making loans that have NO reasonable expectation of being repaid?” the answer is that they are using Other People’s Money. Are we read for another game of “Bagholder, bagholder, who’s the bagholder?”

      2. Enquiring Mind

        and those investors are . . . tada . . . public sector pension funds. When the scam goes nuclear, guess who has to come up with the money to make the public sector pensions whole, while the bosses at the Pirate Equity and hedge funds walk away with billions?

        Where is a CalPERS investment officer when you really need one?

    4. NotTimothyGeithner

      This is where the invisible hand of the market has two interpretations. Government action is needed to rectify the actions of individuals making individual decisions, or libertarian garbage…”I believe in markets.” Basically since Bill promised to reinvent government, the country has been dedicated to the latter.

      Even the ancients had the year of Jubillee probably because they understood this, so they made a hard date where they reset.

      Unlike 2008, the uncertainty of election outcomes and the absence of a willing to act but one who had already ruined his reputation President (except with future #resistance) will present a Congress unwilling or more incapable of repeating the same bailout efforts. If they thought people were mad in 2008…

      1. ambrit

        I agree that “they were mad then,” and I wonder where the inflection point in all this will be. Previously, the public was “mad” but did nothing substantive about the issue. What will make the public act? It’s a game of Social Brinkmanship now. Such a game cannot go on forever. Every Ponzi Scheme collapses eventually. (Unless it’s a Sovereign Nation Pyramid ‘Party Plan.’)

        1. False Solace

          Yeah, the public did “nothing”. Tipped over the switchboards in DC at 92% against. Elected the first Black president (with a Muslim name!). Gave control of Congress and the Presidency to the Democrats. Set up protest camps in 30 cities nationwide (Occupy). Result: nothing.

          We’re working the steering wheel and pedals but the car keeps speeding off the cliff.

          What else is there, violent rebellion? I think we all know how that would turn out.

          1. ambrit

            I was imprecise. I should have said, “nothing effective.” But yes, the next step is Chaos. I see it all around me. People are fed up enough to choose “red, bloody civil disturbance” over more of the Status Quo.
            The Equestrian class in Ancient Rome feared the Mob for good reason.

      2. Synoia

        Actually many large Pension funds are heavily invested in Commercial Real Estate.

        The along come Amazon, which is nuking the Commercial (Retail Based) Estate Market.


      3. Summer

        Radicalizing Americans one rent increase at a time…
        It’s making even the currently comfortable squirm.

        So the ones who will absolutely clean up on theae deals continue to do with the help of corrupt to legislators and they are degenerate enough to want to escape to imagined floating paradises ir other nonsense after the mess caused.

    5. readerOfTeaLeaves

      ambrit, I completely agree that the rents can’t continue going up.
      Homelessness in my area is downright frightful.

      You really ought to read something that’s brilliant, and just out today, and drives home your point:

      Basically, if you look back over the last 17 years, the US government’s willingness to investigate and prosecute white collar crime has evaporated. Yves has been saying it in at least 1,000 ways, and Pro Publica is also saying: crime has been paying phenomenally well. For a few. They have acted with impunity because — arguably — the so-called justice system that should have prevented crime now enables it.

      Add on a neoliberal judiciary, which believes that capitalism-is-always-and-everywhere-good-even-if-the-money-originated-from-drug-lords-and-is-laundered, and you have what Bill Black would call an extremely criminogenic environment. Its apotheosis is a President who claims that ‘flipping’ criminal defendants should be outlawed.

      The thing that constantly amazes me is that the perps don’t seem to recognize they are killing capitalism. Or, like Manafort et al, they don’t actually care — they think the money is endless, and they’ll never, ever be called to account. Why would they think otherwise after the past 17 years?

      It seems like a long time ago that Bill Clinton’s campaign manager won an election on “it’s the economy, stupid.” So too many people figured out how to apply physics equations to debt, and they called it ‘the new economy’, and it became hideously corrupted.

      These days, “it’s the corruption, stupid.”

      We need new economic thinking, desperately.
      Because what we have is a criminogenic tidal wave slowly oozing toward us.

      1. ambrit

        Agreed. Even the judicious application of some old economic thinking would be a major improvement. Where is Keynes when we need him?

  3. PlutoniumKun

    Unless I’m missing something, buying scattered homes for rent seems a terrible policy from the point of view of maintenance and management.

    Professional renter companies (whether commercial, or housing associations, etc), almost always prefer purpose built rented complexes (such as large apartment buildings), partly because management and maintenance costs are far less if you are dealing with all your units on one site, and partly because you can ‘design in’ low maintenance from the beginning (for example, using community heating systems, more robust kitchen furniture, hard-use flooring, painted surfaces, etc). Even just walking past apartment buildings its usually easy to tell the difference between those operated as single unit purchases or those operated for rental use, they are very distinctly different design types.

    I find it very hard to see how an investment vehicle based on a scattergun approach to purchasing houses can possibly be more profitable than one building (or buying) specialist rental units simply because of management costs alone.

    1. Summer

      Is it certain that there is a “scattergun” approach by all of the funds?
      Why couldn’t there be (or evemtually be)ownership of an entire neighborhood?

      1. PlutoniumKun

        You can’t buy up a neighbourhood piecemeal and make money out of it because the prices will go up as soon as homeowners realise someone is targeting their area. This is why all developers know that its futile to build up large sites from smaller land ownership packages without eminent domain powers.

      2. ambrit

        Think big! Some Fell Actors want to ‘own’ the entire works: houses, land, government, and all.

    2. David Carl Grimes

      Yes, the first wave of buy to rent buyers (Invitation Homes, American Homes 4 Rent) bought at low prices but still can’t make money on a net income basis. And they bought in neighborhoods blighted with foreclosures, so many of their homes are close together. Despite this, they do an abysmal job in maintaining those homes, as documented in many NC articles. These companies have probably made money from the appreciation of homes. But I don’t see how this second wave makes any money – home prices are elevated, the homes they buy are probably not as clustered together, and rents are already quite high – unless they are betting incomes will climb much higher, making current rents more affordable.


      1. JTMcPhee

        Maybe these folks who are doing all this buying are just kind of desperate for any place to park all the billions they have accumulated? Since the “stock market” is rigged, bonds maybe except treasuries are scary, and there all those TV “preachers of opportunity” hammering away at the truth that not only is there no more “land” being created, there’s going to be less land as the waters rise? Lots of “last fools” in the “market” now? Maybe the algos have told them something that the great mass of humanity is unaware of?

        The house across the street from me was bought by an “investor” who owns maybe 15 scattered houses across Pinellas County. He bought it out of an estate, did the bandaid schmear of “flip-it” cosmetics, and rents it for “market,” which apparently is nearly $2,000 a month, He himself lives in a swank digs on the Gulf beach and is energetic and flexible and also quite portable, with no loyalties except to himself. The renters are a mixed bag of maybe 6 or 7 young people, (hard to say how many actually live there, supposed per the landlord to only be 4.) The yard is 2 feet deep in weeds, there are cars parked all over the nearby street, and the residents are varying degrees of hostile. Just an anecdote, maybe nothing to be learned from it.

        1. ambrit

          Get a Homeowners Association set up in your area pronto and lever that political muscle with the County to curb the worst abuses of this character. Do it quickly before things get out of hand, as they will. This cat is a classic ‘slumlord,’ only the slum is in it’s nascent phase. At the worst case scenario, emulate Lambert and “Kill It With Fire.”

          1. JTMcPhee

            Having lived under several varieties of “homeowners associations,” no thanks. We do have an active town code enforcement agency, and at least they write big “tickets” for such things and eventually even do stronger stuff like liens. Maybe the other drill is to get any other unhappy neighbors to do one on one contacts with our local legislatures, and show up for and force agenda items on our boards and commissions. Too many of us are go-along-to-get-along…

            And the thing to “burn with fire” is the slumlord guy in his multimillion “Great View Of The Gulf” dwelling, including a beach that washes away i any significant storm, and is “renourished” at the behest of the Chamber of Commerce and hotel and Giant Home and condo development “homeowners association.” Hundreds of millions of dollars to dredge up sand from ‘somewhere else” to build a vastly vulnerable beachfront for the rich folks (and the mopes who are not excluded, as yet, from any beach access — to include pasty, pot-bellied Northerners who bring cash and pay bed taxes and such).

            1. ambrit

              Ah. Perhaps I was confusing a “Homeowners Association” with a “Committee of Vigilance.”
              Too many of us have little energy left after trying to “get along” to do much political activity.
              It sounds like a Homeowners Party political apparat is optimal. Remember, a well organized political crowd can be repurposed as a raging mob easier than thought. Just look at the Anti-Trump Propaganda and Agitation campaign being played out, (played is the exact right word,) now in the American Political Agora.
              Trump would be ostracized but, we don’t make pots any more. Have to order some from Ephesus.

    3. Jim A.

      If you can buy at a low enough price because the banks have made mortgages more difficult to get, so you’re not competing with owner/occupiers, you can make this work, even though you miss out on the economies of scale that come with renting out an entire building or development. At least in areas that didn’t get overbuilt. But the core skills of these guys are deal-making debt-hiding, and asset stripping, not management or preservation of value. And buying at the top of the market is strong evidence that we are in another bubble. Recession ahead.

      1. ambrit

        I see little resilience left in the “Street Economy” from where I stand. Much worse than a Recession lies ahead.

    4. Ken Duggan

      It’s a short term play. PE funds will buy low, sell less low, to Pension Funds and other entities, think Puerto Rico, Greece, etc.

      The originating investor are out way before the collapse. Rinse, repeat in the next depression.

  4. Louis Fyne

    there isn’t much profit in renting out single-family homes without sweat equity (doing your own repairs, being your own leasing agent, etc) or scaling up to something like buying/building an entire subdivision.

    As most homeowners know, the nickel/dime costs to maintain a home are constant. lawn, drainage, appliances, etc. Shoddy accounting/memory, owning a home for non-financial reasons, rising land values, and plain old inflation often paper-over these costs.

    Now institutional renting of SFH is great for asset stripping (ie, buying a nice house, renting it out with extreme minimal maintenance) and flipping it to a bagholding institution.

    If you own a hope that your neighborhood isn’t dominated by institutional landlords. I’ve seen what they do to condominium communities as a third-party observer—bad apple institutions + bad apple mom-pops buy up condos, have lax maintenance and lax leasing standards >>>> drive down the quality of life in the community and create a death spiral where the mindful neighbors move out and transient renters move in.

    1. NotTimothyGeithner

      “the nickel/dime costs to maintain a home are constant.”

      The minor labor such as ripping out plants that moved to close to the house or noticing part of the yard is retaining too much moisture which might mean water could get too close to the house is an issue.

      It gets chalked up as mild exercise and a hobby if you have a handle on it, but its quite a bit of labor that can save you trouble later on. I don’t expect renters to do these things or have the institutional memory of a long term resident of a place which can recognize problems early such as potential for something like water damage.

  5. Tom Stone

    You milk them for cash flow for 2-3 years to make the numbers look good and then get out.
    And since the management company is usually an affiliated entity, high fees are a plus.
    Use your captive brokerage to do the buying and there’s another income source.
    A) God loves the poor.
    B) This will make more people poor.
    C) They are doing God’s work

  6. Alex morfesis

    15% of the population are smokers…another percentage has multiple generations working with vehicles needing a place to park…legacy urban land institute designed panopticon apt complexes are not designed for such human foibles and thus a premium will be willingly paid, especially for those who also have multiple pets…

  7. Jim Thomson

    I was perplexed as well by how the finances of all this work out.
    But as I read the comments it dawned on my that the scheme ( with unsavory connotations intended) seems somewhat like the leveraged buyout operations and the sub-prime operations; thinking of the theme of Bill Black’s book, “The Best Way to Rob a Bank…”
    By this I mean that the purpose of all of these is not to create a viable long-term business, but to create a large cash flow stream, using debt-based financing, from which the execs can siphon lots of money in a short time, and then leave the carcass to be dealt with by the rest of us.
    As mentioned by others, it is just another form of asset stripping at public, or societal, expense.

    1. Anon

      Exactly, it’s the leveraged buyout (LBO) scheme applied to the housing market. It’s about financialization, not innovation.

    2. False Solace

      So awesome. During the crisis they could have forgiven or renegotiated the mortgage of homeowner in America. Instead, Bernanke decided to foreclose on 11 million Americans and give their houses to Wall Street. Yeah, that will make for some contented voters. And now we have Trump.

      This country is a moral cesspool run for the elites’ benefit. We just do the drowning.

  8. Jason Boxman

    I was just walking down the street in Somerville, near Davis Sq, when two women walked out of a multi-family home that’s almost done being renovated, as happens frequently here. It sounds like they just met, one pulling a single travel luggage bag, and was going to talk to her office about the property. No mere mortal can afford to buy a home here, so it’s likely a property company of some sort, and clearly not a local one. Each unit will be rented out for probably 2-3k a month, given it’s all brand new and 6 minutes from the Davis Sq redline stop.

    I’ll probably be moving somewhere else in the US if I ever decide to buy.

  9. McWatt

    There is no way they are going to make any money on buying these homes and renting them out today. Particularly not with, as someone above said, the homes scattered all over the map. They are going make money in some other beggar thy neighbor fashion that doesn’t involve actually running the day to day property business. I have been reading of so many complaints from the tenants of these properties all over the county. They are not running this as a business. If they were, they would be concerned about their reputation, and provide great services. It has to be a pump and dump scheme. How Americans abuse other Americans while those of us watching do nothing about it. I’m ashamed, of them and myself.

  10. Chauncey Gardiner

    Through the magic of debt finance, legal structures that enable a few to enjoy large financial rewards while providing them protective shields, central bank monetary policies that have lead to interest rates well below the rate of price inflation, pension fund managers made desperate for yield to meet their funding requirements, and an ideology that makes it all OK, the former American middle class is being turned into a nation of renters rather than owners.

    The current president said in a television interview earlier this week that the stock market would crash and Americans would all be very poor were he to be removed from office. Why would that be so?…

  11. Freethinker

    Wolf Richter notes, “And shortly before the Invitation Homes IPO, it obtained Fannie Mae guarantees for $1 billion in rental-home mortgage-backed securities.” However, as announced yesterday, FHFA has ended Fannie and Freddie’s single-family rental pilots: “What we learned as a result of the pilots is that the larger single-family rental investor market continues to perform successfully without the liquidity provided by the Enterprises,” FHFA Director Melvin Watt said in a statement.

    Maybe the assertion by Mel Watt, an appointee of Bark Obama, that an investigation into alleged sexual harassment is a politically motivated leak holds merit.

    Perhaps a Trump appointee would be more amenable to reinstituting guarantees in time for the second wave of reducing housing inventory for pure profit and fun.

  12. Synoia

    This second wave is different. PE firms are paying prices at the peak of the market, amid ceaseless complaints that there isn’t enough inventory of homes for sale, for folks who actually want to live in the homes they buy.

    And these are just the biggest players. There are thousands of smaller players. And all but mom-and-pop investors pay cash and then fund the purchases with leverage at the institutional level.

    This will end badly. here in SoCal, Newly Bought Single Family Homes are rarely cash flow positive as rentals.

    In the GFC prices were down over 40%. All this signs in the housing market is that we are some or all of the way to the top of this market.

  13. kernel

    Bonus problem: Most SFH’s are in Suburbs, many built just long enough ago that the infrastructure will be due for a makeover soon. Cost of tearing up roads to install new water/sewer pipes, etc, is roughly inversely proportional to square root of density (pipe length per house = frontage), so it will be much more expensive than it would in a City. Burbs will see big increases in taxes to pay for this at a time when the aging housing stock attracts few people who could afford that.

    Mike The Mad Biologist brought this to my attention:


  14. Ignacio

    Is there a correlation between the upsurge of RE investments by these firms/instruments and asking rental prices/and or different and tougher rental conditions?
    Second, are this rental properties managed using air-bnb like schemes?

  15. Brian Ploszay

    I am a landlord, doing the single family rental model. There is even a bi-annual conference for the single family rental industry. In reality, it’s not super big, and the institutional players only consist of a small percentage of the rental home market.

    I always thought that this was an isolated opportunity for the PE firms who got into this business. There is no way that new firms can buy up inventory at today’s prices. It doesn’t make sense. Super low cap rates.

    There are few economies of scale when you buy lots of homes. With an apartment building, you have one furnace, one roof, one place to go to fix things. With 80 houses, they are spread out everywhere. With different furnaces, kitchen cabinets, 80 roofs. Different municipalities. The operating costs are high.

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