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Invitation Homes, a subsidiary of the Blackstone Group asset management firm and now among the largest owner of single-family rental homes in the U.S., will add another $1 billion in rental houses to its inventory this year, the company has said.
Home prices are at record levels, pricing many prospective buyers out of the market. However, young families and work-at-home refugees from urban jungles still hunger to live in single-family houses with yards, surveys show.
Invitation’s strategy is to offer cash for homes in need of work. The company will then repair the properties and rent them at premium prices to families unable to buy a similar home themselves.
Offering cash and a quick closing typically enables a buyer to negotiate a lower price, especially if the seller needs fast cash after enduring a year or more of the economic shutdown.
Invitation is not alone in snapping up rental homes.
Cerebus Capital Management raised $500 million for its FirstKey Homes subsidiary, which gobbled up dozens of homes around Cincinnati, OH, in recent months.
In April, American Homes 4 Rent announced it will build 279 rental houses on 94 acres it bought in St. Cloud, FL.
Asset management companies have hoarded more and more cash during the shutdown, gathering capital from high-income earners still employed but with fewer ways to spend their swelling piles of money.
Those cash reserves have given the companies considerable heft in a crowded market, leading to charges that they are elbowing aside families who try to compete for the same homes.
In one case, FirstKey bought a three-bedroom house for $287,000. A family had bid $295,000 for the same home but the offer was contingent on the family securing a mortgage. FirstKey offered cash.
In another, Invitation bought a home in a Phoenix suburb for $275,000 in cash, snatching it from a family that offered $280,000 but needed a mortgage.
The companies also pepper real estate agents in targeted areas with messages asking if any homes are about to come on the market. In many cases, the companies buy the houses before they can be listed.
The companies dismiss the charges.
Invitation Homes is “just a small sliver of the single-family rental market, about one-half of 1 percent of the nation’s 16 million single-family rental homes,” a company spokesperson wrote in an April statement quoted by Business Insider.
“In 2020, we purchased less than two-tenths of 1 percent of all of the homes sold on the multiple listing services in the 16 markets in which we operate,” she noted.
However, in a presentation posted on its website in March, Invitation said it will buy more houses this year than in any previous one and will sell only about $300 million worth of its houses, less than in previous years.
The company will hold the houses so it can cash in on rising rental rates in the busiest real estate markets. (See our new article in this issue, “RENTS FOR SINGLE-FAMILY HOMES REACH 15-YEAR HIGH.”)
TREND FORECAST: This is a long-running trend that picked up speed during the Great Recession when hedge funds and private equity groups gobbled up foreclosed homes across the country. When interest rates rise, equity markets crash, and the “Greatest Depression” hits, foreclosure rates will again spike and the Bigs will buy more homes and increase their share of the renter’s market.
Also, with incomes shrinking, marriage rates dropping, and family size shrinking… the trend to rent a house, rather than buy one, will increase.