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Old 02-14-2019, 11:53 AM
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The Housing Market and predatory investors


So I recently read an excellent article in the Atlantic: "When Wall Street Is Your Landlord".

https://www.theatlantic.com/technolo...street/582394/

And a few things stuck in my craw.

For one, the shift from small landlords to massive investment firms further shifts the tenant-renter balance of power. Suing your renter when they're a single person is already fraught and costly. Suing your renter when they're a massive corporation with a big legal department is worse. Suing your renter when they're a massive corporation with a big legal department who owns most of the homes in the area seems borderline suicidal if you don't plan on leaving the area.
In some areas, renters say that it is difficult to find properties that aren’t owned by the big institutional investors. Heather Bryant’s Invitation Homes property in suburban Georgia had unreliable air-conditioning, a sewage system that frequently backed up, and a rodent problem that the company refused to address, she told me. But she and her husband kept re-signing the lease. “So many of the rental houses in Georgia are owned by them that it is nearly impossible to find someone who owns privately,” she told me. Iyesha Stringer moved out of one Colony American house in the Atlanta area, disgusted with the company because it had withheld 60 percent of her deposit and didn’t fix mold or flooding issues in the house. “I said I’d never rent from a big company again,” she told me. She moved into another property, only to find out a few months later that Colony American had bought the house and was going to start managing it. It’s now managed by Invitation Homes.
This power imbalance, it won't surprise you to hear from me, is deeply disturbing. It's the same common problem in systems where corporate malfeasance has to be dealt with in civil court - it's a huge risk to even come forward, and you're fighting a huge uphill battle. And when it comes to things like "your basic living conditions", that's kinda fucked up.

And guess what - these companies were absolutely shitty landlords. The article details a number of ways in which this is true - corners were cut on repairs and maintenance, customers were squeezed for every penny, and most of their profit came from not spending money to do their damn job.
American Homes 4 Rent increased the amount of money it collected from “tenant charge-backs” (essentially billing tenants for repairs after they move out) by more than 1000 percent between 2014 and 2018, according to company earnings reports, though it only grew the number of homes it owned by 70 percent over that period. In some states, Invitation Homes keeps the utilities in its name, and charges tenants a monthly $10.99 “utility service fee,” which is in addition to the cost of water, gas, and electricity. The company increased its “other property income”—the amount it collected from resident reimbursement for utilities, service charges, and other fees—by 114 percent between the first nine months of 2017 and the first nine months of 2018, despite only growing the number of homes it owned by 71 percent. On an earnings call in 2017, Invitation Homes’ then-CEO John Bartling said that “automated charges to residents” drove profits in the quarter, leading to a 22 percent increase in “other income.”
Much like many other cases where wall street came in looking to make a quick buck, expenditures get cut to ribbons, and services along with them. The company looks to squeeze every penny it can from the equation. But unlike a business they can ransack and file for bankruptcy, this is a lot more like the American medical system, where largely inelastic demand (everyone needs homes) meets monopoly conditions (in some areas you can't get a home from anyone else) and the result is morally abhorrent.

(Whoever it was who told me the other day that capitalism has done a great job dealing with housing humanity: consider this my rebuttal.)

Another thing of note, these investors have bought up so much housing that it has significantly pushed up the cost of buying a home, and made it harder for others to compete in the renting market. This paragraph is particularly galling:
In 2016, with the real-estate market heating up in metropolitan areas across the country, single-family rental companies also started pushing the limits of how much they could raise rent every year. American Homes 4 Rent raised rents by 11 percent between 2016 and 2018; the average rents in the top 30 markets in the country increased by just 6 percent over the same time, according to Zillow. American Homes 4 Rent owned 70 percent more properties in the first nine months of 2018 than in the same period in 2014, but it collected 150 percent more rent. “It’s up to us to educate tenants in a new way that there will be annual rental rate increases,” David Singelyn, the CEO of American Homes 4 Rent, said at an investor’s forum in 2017. “This has been a very passively managed industry for 30, 40 years, up until the institutional players came in.”
(Bolding mine.)

If your instinctual gut reaction to that is not disgust and anger, consider that you may in fact be a vogon wearing a human skin suit. These people are soaking renters screwed by the 2008 financial crisis (and often are the same people responsible for the crash of 2008) by invading the market for something everyone needs to live and making it increasingly hostile and expensive for tenants, while making it harder to compete in the market both in terms of "other rentals" and "alternatives to renting". And no, they aren't competing with each other much either, thanks to extensive mergers. As usual, the capitalistic model turns out to be extremely bad at ensuring healthy competition.

This all comes on the back of the government encouraging them to do this, in a policy that may have been necessary at the time but was ultimately probably a terrible idea, and another great example of what I like to call "peak neoliberalism".

Everything about this article is infuriating. And I really have to wonder - why do we let them get away with this? Why aren't heads literally rolling by now over actions this predatory?

TL;DR: https://media.tenor.com/images/468b8...9b7c/tenor.gif

Last edited by Budget Player Cadet; 02-14-2019 at 11:55 AM.
  #2  
Old 02-14-2019, 01:14 PM
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Who were the people responsible for the real estate bubble again? The government? The government responsible for the student loan problem? Who knew free money had unintended consequences.

Answer me this, what’s the point in buying real estate if you can’t make money off of it in the long term? Why would a corporation invest in a property to rent just to let it decay unless there was policy in place that creates an incentive to do so?
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Old 02-14-2019, 01:42 PM
Jonathan Chance is offline
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Originally Posted by Budget Player Cadet View Post
If your instinctual gut reaction to that is not disgust and anger, consider that you may in fact be a vogon wearing a human skin suit.
Two things.

First, it does your argument no good to include something like the above in it. It poisons the well and makes people not wish to engage in debate with you.

Second, and to address your point, all you're really arguing is the 99th iteration of 'there's a huge power imbalance between individuals and corporations in the United States and possibly between government and corporations'. I agree that's bad. But what's really bad is the fact that those appointed to regulate such things - government - is also captured by corporate power. That's what needs fixing, not this particular thing.
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Old 02-14-2019, 01:49 PM
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Originally Posted by Budget Player Cadet View Post
(in some areas you can't get a home from anyone else)
I'm not sure why you believe this.

There is one anecdote in your Atlantic article about a couple getting screwed by their corporate landlord, vowing not to deal with another large company again, only to have their new rental bought out by another big company. That sucks. Having a shitty landlord sucks. Only 22 interviews in that article, but it seems likely that many of these companies make shitty landlords. But the only piece of info I see in that article about market saturation is that in one zip code in Atlanta, "institutional" owners have managed to snatch one fifth of rental units. That's quite an enormous number of places.

But that also means that the number of rental units not owned by our corporate masters is 1 minus 1/5.

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Originally Posted by Budget Player Cadet View Post
(Whoever it was who told me the other day that capitalism has done a great job dealing with housing humanity: consider this my rebuttal.)
This is a remarkably silly thing to say.

There are all manner of regulations that limit the supply of housing.

We have another thread going on, right now, from a California property owner who delights in the local zoning ordinances that keep his property values higher at the expense of the renters and developers. He's happy to maintain high prices to keep the riffraff out of his city. "Capitalism" isn't some perfect magic wand, but most of the time when people are complaining about bad economic outcomes, they're complaining about extraordinarily heavily regulated industries. Like housing. The primary reason why housing is expensive in many parts of the US are the regulations that are deliberately designed by established interests to keep it expensive. Often this comes with false slogans about how these regulations are for the "people", in order to get it through city hall. Homeowners are deliriously sensitive to local building regulations in a way practically no other local interest group can match, and local government is forced to notice.

Demand curves slope down.

Housing would be cheaper if there were more of it. And there'd be a LOT more housing if local governments were more willing to allow more construction. I'm not saying that Texas is a perfect shining ideal, but nevertheless if California zoning regulations were more like Texas, the result would be a MAJOR improvement in the standard of living for some of the most poorest people. If you don't care about housing regulations, then you simply don't care about poverty in the US.

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Originally Posted by Budget Player Cadet View Post
If your instinctual gut reaction to that is not disgust and anger, consider that you may in fact be a vogon wearing a human skin suit.
Your assertion of moral superiority might not be strong enough here.

You should establish your high moral status in more vivid and evocative terms at least three or four more times this thread. Ideally with a phrase that isn't stolen from one of your favorite bloggers.

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Originally Posted by Budget Player Cadet View Post
These people are soaking renters screwed by the 2008 financial crisis (and often are the same people responsible for the crash of 2008) by invading the market for something everyone needs to live and making it increasingly hostile and expensive for tenants, while making it harder to compete in the market both in terms of "other rentals" and "alternatives to renting".
I think there's a good chance that they're shittier than the average landlord. But do we actually KNOW that? Is it at least minimally possible that they are somewhat slightly less shitty than the average landlord they replaced?

I'd be interested in knowing that, actually.

Not just: "Here's a shitty situation, and guess what, CORPORATIONS are involved! (duh-duh-DUHH!)" What I'd like to know is "Here's a shitty situations, and these corporations are making it worse." According to the article, it certainly seems like they're jacking up rent faster than their non-institutional competitors. (Which they can do, remember, because supply is artificially restricted.) But according to the article, they don't own literally everything. Even in one of their densest purchasing areas, they only managed to pick up a fifth of rental units. I don't know that this is true, but it's at least on the margins of possibility that they're able to jack up rent higher than their non-institutional competitors because -- despite their many, many faults -- they are a slightly better choice than the median pick from their non-institutional competition.

That could easily be wrong. They could just be a bunch of shitbags. But even in that case, of course, the easiest way to alleviate that pressure would be to allow more supply. That remains true as ever.

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Originally Posted by Budget Player Cadet View Post
As usual, the capitalistic model turns out to be extremely bad at ensuring healthy competition.

...

...another great example of what I like to call "peak neoliberalism".
As before, these kind of empty snarl-words are extraordinarily silly when applied to an industry as heavily regulated as housing.

Empty labels don't give substance.

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Originally Posted by Budget Player Cadet View Post
Everything about this article is infuriating. And I really have to wonder - why do we let them get away with this? Why aren't heads literally rolling by now over actions this predatory?
There are lots of reasons for this.

One of the primary reasons is that too many people prefer to enjoy the delicious high of cheap moral outrage rather than educating themselves on the underlying cause of structural problems.

And hell, housing isn't even that deep a structural problem. There are lots and lots and lots of companies which would happily, enthusiastically, feverishly make more units, driving down the price... if they were allowed to do so. They actually could make a lot more money off another apartment block for that parcel of land, rather than just more McMansions in the inner suburbs. That apartment block would house a lot more families. Are they allowed to do that? Not as often as they'd like. Why? Because people have conflicting interests. Established owners don't want to see their property values plummet, and that particular voting bloc needs another strong bloc to oppose it. It's pretty simple. Not easy. But simple. But it would require focusing on the heart of the problem. But instead, some people would rather make a big song and dance about how much they care about the issues, about how grievously morally outraged they are about the evil outgroup, etc. But all that is just buzzwords. No substance.

That's why these problems don't get fixed.

Last edited by Hellestal; 02-14-2019 at 01:52 PM.
  #5  
Old 02-16-2019, 11:21 AM
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I seem to recall bringing up the idea of an ownership cap on residential investment property.

It's not just the actual supply creating issues here. Many homes sit empty.

While 1/5 may not seem like enough to control some markets, in the rental market it is.

Housing being a basic necessity we certainly wouldn't stand for a single company owning 1/5 of all the food.

Why is 1/5 enough here, because 1 that's just one company not including their corporate competitors. 2 . We can't look at it as a singular commodity, there's no such thing as a home which is strictly a rental property, each home purchased is also taken out of the market for ownership availability. Anywhere large numbers of homes are owned by rental companies, they are forcing you to rent by driving the cost of ownership up.

The most extreme places are ones that could attract vacationers. Many beach side municipalities have had to impose strict length of lease laws as well as limit the number of " vacation rentals" for that reason. Allowed to go unchecked , nobody would actually live there.

I know of communities where you either rent from a single corporation or you buy at a price too high for that corporation to consider purchasing it. Those are your choices.

For a small time landlord, keeping your tenants is worth a certain amount of investment.
The big companies make more profit through turnover, they have absolutely no interest in keeping you in that home so very little interest in maintaining it while you are there.

Why spend to fix your AC when they could just claim your deposit, use that and then move in a new renter. In the meantime they'll make just as much as rent is through application fees.

Not to mention , often times illegal chargebacks that just aren't worth people's time to try and fight

Last edited by Littleman; 02-16-2019 at 11:22 AM.
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Old 02-16-2019, 03:23 PM
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The shred of validity in article and OP would be if any owner (big public corp or local private one) attained an effective monopoly on ownership of rental properties in a given area. 1/5 in a particular part of a large metro area isn't really that. However in the past this was one real aspect of the abuses of 'company towns' in remote areas, that they were only ones to rent from, among other things.

Localities could counter this problem, to the extent it ever became real, with ownership concentration limits.

Otherwise this is exactly the kind of thing that markets *do* tend to address. One landlord is crap, people hear about it. Not perfectly solved, but as always the question isn't whether market outcomes are ideal, it's not an ideal world. It's whether there's a practical way at reasonable cost, in terms of implementation and negative side effects, to improve the situation with more collectivism.

Just tilting the legal playing field more and more toward tenants does not necessarily improve the overall housing situation more and more. NY is a working example. Housing court is *highly* skewed toward tenants. Believe it or not, that actually does encourage the bad actors among tenants, which has negative fall out for good tenants. It does not entirely suppress outright bad landlords, but if anything puts a premium on stubbornness and toughness as a qualification for landlords.

Last edited by Corry El; 02-16-2019 at 03:26 PM.
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Old 02-16-2019, 04:10 PM
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Localities could counter this problem, to the extent it ever became real, with ownership concentration limits.
That just helps ensure there's no competition in the rental market, established companies no longer have to worry about buying homes that come to market. Just merging with other established companies.
  #8  
Old 02-18-2019, 03:13 AM
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Oh, but it's capitalism at its finest. It's holy, right?
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Old 02-18-2019, 07:10 AM
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Originally Posted by Littleman View Post
I seem to recall bringing up the idea of an ownership cap on residential investment property.

It's not just the actual supply creating issues here. Many homes sit empty.

While 1/5 may not seem like enough to control some markets, in the rental market it is.

Housing being a basic necessity we certainly wouldn't stand for a single company owning 1/5 of all the food.
That's not what the article says - it says that "institutional investors own at least one in five single-family rentals in some parts of the metro area". Not that one single company owns that many, or even that institutional investors own 1/5 of all rental units in those areas, which would include apartments. I don't know about the Atlanta area, but in my area, there are few single family houses available for rent to begin with. ( I found nine listings, and at least two of them are not for the entire house). There are some situations where a person dies and their heirs rent the house for a while while deciding what to do with it, but for the most part "mom and pop" landlords buy one, maybe two buildings with 2-6 apartments in each and live in one of the apartments , not multiple single-family houses. It wouldn't surprise me at all if more than half of the rental houses were owned by institutional investors or banks that owned the house after foreclosing. But it wouldn't mean that those investors/banks owned half of all the housing - there are also over 200 apartments listed.
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Old 02-18-2019, 04:01 PM
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The WaPost recently covered another aspect of this - predatory investors buying up mobile home parks and jacking up the rent in the land.

Quote:
Yet Florence Commons, along with more than 200 other mobile-home parks around the United States, has produced hefty returns for Stockbridge Capital, a $13 billion private-equity firm, and its major investors.

Their company for mobile-home parks has produced tens of millions for investors in recent years and saw a return on investment of more than 30 percent between late 2016 and the end of 2017, according to documents.

Those ample returns arise in part from their willingness to boost the rents of residents of mobile homes. As one investor’s report on the company put it: The “senior management team has a demonstrated track record of increasing home rental rates.”
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Old 02-18-2019, 06:43 PM
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The WaPost recently covered another aspect of this - predatory investors buying up mobile home parks and jacking up the rent in the land.
I happen to own one myself. Only a 30 percent ROI? After increasing rents?

That says a lot about the companies to me and where the money is going.

Comparing my mortgage payments to the income gained ( keep in mind this means I'm also paying interest, which an institutional investor would not)

My ROI averaged over a year to account for the expenses is in the range of
About 600 percent.

Last edited by Littleman; 02-18-2019 at 06:44 PM.
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Old 02-18-2019, 06:48 PM
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Or infinite, when you consider the cost of purchase and expenses are not even being payed by me.

If I gave myself $100 an hour that i work on it I guess I'd be at like 400 percent.
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Old 02-18-2019, 07:56 PM
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Comparing my mortgage payments to the income gained ( keep in mind this means I'm also paying interest, which an institutional investor would not)

My ROI averaged over a year to account for the expenses is in the range of
About 600 percent.
What in the world are you talking about?

As to the first paragraph, of course institutional investors pay interest. That's why they make such great return on investment - they have very little of their own money invested compared to the value of the property. Banks easily will lend 80% of the value of a property, whether an apartment building or mobile home park, especially to a borrower who has a long history of good credit. This means you put up only 20% of the property's price, make a 10% return on assets, pay 4% for your mortgage interest, and you have a 6% return on 20% equity, which is very roughly the 30% quoted.

I have absolutely no idea what the second quoted paragraph is supposed to mean. Are you thinking ROI counts only revenue? Yes, there are lots of expenses in dealing with properties, but they are covered and then some by the rent that's paid.
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Old 02-18-2019, 09:07 PM
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What in the world are you talking about?

As to the first paragraph, of course institutional investors pay interest. That's why they make such great return on investment - they have very little of their own money invested compared to the value of the property. Banks easily will lend 80% of the value of a property, whether an apartment building or mobile home park, especially to a borrower who has a long history of good credit. This means you put up only 20% of the property's price, make a 10% return on assets, pay 4% for your mortgage interest, and you have a 6% return on 20% equity, which is very roughly the 30% quoted.

I have absolutely no idea what the second quoted paragraph is supposed to mean. Are you thinking ROI counts only revenue? Yes, there are lots of expenses in dealing with properties, but they are covered and then some by the rent that's paid.

Ok I'll count it your way. For the first year only, I put up 20k, and paid 4 percent interest on the rest. (3600)
Collected 60k, minus upkeep of 4000 so 54k minus interest ....50,400
So 250 percent increase in one year.
By the second year 500 percent


10 percent of the full value , minus interest would be pathetic at just $6400.


6 percent of the full value 6000.... even more abysmal
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Old 02-18-2019, 11:44 PM
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Ok I'll count it your way. For the first year only, I put up 20k, and paid 4 percent interest on the rest. (3600)
Collected 60k, minus upkeep of 4000 so 54k minus interest ....50,400
So 250 percent increase in one year.
By the second year 500 percent


10 percent of the full value , minus interest would be pathetic at just $6400.


6 percent of the full value 6000.... even more abysmal
You seem to be implying that you charged $5000 a month in rent for a property valued at only $110,000. That's outrageous, and in no way indicative of literally anything.
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Old 02-19-2019, 05:28 AM
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I've mulled it over and really don't have a good response to Hellestal so I'm just going to admit that I had a bad take here and should have put more thought into what I was writing. Sorry, guys.
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Old 02-19-2019, 07:41 AM
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I happen to own one myself. Only a 30 percent ROI? After increasing rents?

That says a lot about the companies to me and where the money is going.

Comparing my mortgage payments to the income gained ( keep in mind this means I'm also paying interest, which an institutional investor would not)

My ROI averaged over a year to account for the expenses is in the range of
About 600 percent.
Quote:
Originally Posted by Chisquirrel View Post
You seem to be implying that you charged $5000 a month in rent for a property valued at only $110,000. That's outrageous, and in no way indicative of literally anything.
Correct .
Mobile home Park w 10 units
Valued 115,000 purchased 100,000
500mo each
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