One of the nation’s biggest landlords is going on a buying spree for single-family rentals. Amherst Residential plans to expand its footprint with the purchase of 10,000 single family homes. That’s good for Amherst investors, but maybe not so great for our tight inventory. There’s also an article The Atlantic that says institutional landlords are “not” that popular among tenants.
Amherst Residential Buying Spree
Amherst began its buying spree in October with the purchase of 2,400 single-family rentals in 18 states. Those deals closed in February for more than $400 million and expand the Amherst holdings to 29 markets in 20 states. Among the company’s newest markets are Salt Lake City, Las Vegas, Seattle, and Denver. It also has large holdings in Miami, Atlanta, and Phoenix.
Amherst was fourth on a list of largest landlords in a Curbed article from last year. This new acquisition plan could move it up a notch. The article listed Invitation Homes, American Homes 4 Rent, and Progress Residential as the top three biggest institutional landlords. (1)
Amherst Residential Executive, Joe Negri, says of the market, “Across Amherst’s rapidly growing single-family rental platform, occupancy is high, rent growth is strong and margins are expanding as we continue to enhance our presence in markets where we see significant value and growth opportunities.”
But how good of a job are these big landlords doing when it comes to tenant satisfaction? As real estate investors, you know that happy tenants are long-term tenants. According to The Atlantic article, investors are very happy with institutional landlords, in general, but tenants are not. (2)
Cutting Costs, and Corners
The Atlantic reported that big landlords have been cutting costs, and sometimes cutting corners, to boost profits. One method they’ve been reportedly using is to transfer some of the costs and responsibilities for repairs and maintenance onto tenants. A former property manager for Colony American Homes told The Atlantic that, at one point, the company had six maintenance workers for 2,100 homes. She said there weren’t enough workers to take care of all the repairs in a timely manner. Her opinion of the business — “It shouldn’t be just about making money, but that’s what it turned into.”
She says, the maintenance problem was so bad, she was often told to ignore tenant phone calls. But that only lasted so long. She ended up reporting the company to OSHA, and was fired.
That company merged with Starwood Waypoint, which later merged with Invitation Homes, so it doesn’t exist anymore. And, Invitation Homes says those kinds of problems don’t exist anymore either. But, The Atlantic article says that various negative experiences have “occurred across the industry.” (3)
Eviction Notices for Late Rental Payments
One heavy-handed policy involves late rental payments. The Atlantic says that some tenants have gotten eviction notices for being just a few days late on their rent. That’s apparently part of a legal framework that also allows the landlords to collect a 10% late fee and hundreds of dollars in legal fees.
It was a practice that happened a lot in Atlanta. A study, by the Federal Reserve Bank of Atlanta, found that institutional investors in Atlanta were 18% more likely to hand out those evictions notices than smaller landlords. The study revealed that one company had filed eviction notices for one third of its tenants.
Tenants have also complained about landlords who don’t return security deposits and bill them for repairs that should be considered “normal wear and tear.” Their only recourse is to take their former landlords to court.
Foreclosed Homes Sold for Fire-Sale Prices
Back when Wall Street investors started buying single-family rentals, the market had crashed, people lost homes, and housing was needed. Institutional investors were able to buy foreclosed homes at fire-sale prices thanks to a government program. In return, investors promised a better tenant experience with 24/7 property management services.
According to the Atlantic, hedge funds and other big-time investors spent $36 billion on more than 200,000 homes from 2011 to 2017. According to Diane Tomb of the National Rental Home Council, the big landlords also “professionalized” the single-family rental market.
That helped stabilize markets battered by the foreclosure crisis, including Atlanta where institutional investors own about one in five single-family rentals today.
Former president of Invitation Homes, Frederick Tuomi, says, their mission was two-fold. He explains, “We wanted to rescue these neighborhoods and create a long-term, permanent income stream for our shareholders.”
Small-Time vs. Big-Time Landlords
Whether or not they succeeded in their mission may be up to their tenants to decide. With a shortage of housing in general, renters may not have much of a choice in certain markets. But mom and pop landlords still own the bulk of the single-family rental market. That’s not to say that all small-time landlords are better than the institutional landlords. But, according to The Atlantic, there are many more complaints about the big guys.
That’s food for thought if you’re a smaller landlord worried about competition from Wall Street. If you treat your tenants well, you will have more success at keeping them around over the long haul. And, you won’t end up in a tenant rant about bad landlords.
(1) Curbed Article