Top 10 Real Estate Investors of 2021 in Metro Orlando were tied to companies in the single-family rental home industry, leading at least one pundit to worry about the pressure these deals are putting on the real estate market.
An Orlando Sentinel review of data from real estate appraisers in Orange, Osceola and Seminole counties showed the growing trend of existing homes — as opposed to new construction — being purchased by single-family rental companies. It came during a year of bidding wars that sent median prices skyrocketing and stymied individuals and families looking to buy new homes.
“Why now?” asked Elora Raymond, a professor of urban planning at Georgia Tech, who recently testified before Congress on the issue. “Why for 100 years have we had large financial corporations with no interest in single family rentals until now?”
Companies tied to Progress Residential, a subsidiary of Arizona-based private equity firm Pretium Partners, bought the most properties in the three counties with 740.
The top 10 included companies from California to New York linked to Main Street Renewal, Invitation Homes, FirstKey Homes, My Community Homes, Beacon Ridge Capital and Tricon Residential. Of the other three, Offerpad and Opendoor are online institutional buyers, and Home Partners of America offers a rent-to-own program.
Purchases of single-family rental units were also concentrated in predominantly black neighborhoods. Of the 38 ZIP codes in Orange County where single-family rental companies purchased, the four ZIP codes with a black population greater than 40% accounted for a quarter of all purchases.
The top 10 investors bought 3,496 homes. Known single-family rental companies accounted for 3,330 sales – 12% – of the total 28,295 homes sold to investors.
Raymond was a guest speaker at a Congressional subcommittee hearing in June titled “Where Have All the Houses Gone?” A committee survey showed that the top five U.S. single-family rental companies have increased their holdings by an average of 27% since 2018, with FirstKey and Progress growing more than 60% during that time.
Raymond said she is concerned about how these purchases affect the market as a whole. Investors are paying higher prices for homes, usually in cash, which beat offers from many mortgage buyers.
In Metro Orlando, the median price paid by investors was $310,000 in 2021, the same as the median for all buyers.
The price range was largely tied to where the homes were purchased. An Amherst Group proxy company, owner of Main Street Renewal, snagged a house in Apopka for $215,000, while a Progress-linked company bought one south of Windermere for $616,000.
The companies bought many of their homes wholesale from other institutional buyers such as Zillow. Another finding of the congressional committee was that homes purchased by institutional investors tend to be sold to other large corporations, keeping them out of the market for the average buyer and reducing inventory, which in turn increases the costs.
Raymond says selling to other investors makes sense when you’re selling thousands of properties at once. “You’re not going to hire 600 lawyers and 600 brokers to find 600 buyers for 600 homes,” she said.
Representatives of major investors did not respond to requests for comment.
David Howard, executive director of the National Rental Home Council, which represents rental home owners big and small, says these companies are meeting the growing demand for rental properties.
The majority of them emerged from the Great Recession of 2007-2008, when banks and investment firms found themselves with millions of foreclosed homes in a market with few buyers. Some companies have started renting out the properties while waiting for buyers to return.
“What they found was that there was more money in the long-term rental,” Howard said.
Interest in Central Florida should come as no surprise, Howard said, given its growing population and major employers such as Disney World and other tourism businesses.
“Markets like Orlando really led the country in terms of where this demand for single-family rental housing was highest,” he said.
Howard said rental homes give people the opportunity to “test neighborhoods,” looking for the best schools and the best routes. They also give those who cannot afford a home more space than the typical apartment.
“Just because someone can’t afford a 20% down payment to buy a home doesn’t mean they should be excluded from the single family home lifestyle,” Howard said.
Howard also points out that the institutional single-family rental market represents only 2-3% of housing inventory nationwide and that the vast majority of rentals are privately owned.
And Howard notes that home ownership in Orlando has increased over the past five years, the same period in which major institutional investors have been active.
Home ownership in Orlando has increased since 2016, from 55.6% to 57.6% in 2020, although this is after falling sharply during the Great Recession. Home ownership in Orlando has not returned to its 2010 high of 62%.
Raymond said she suspects companies are not just using these properties for rental income, but also to increase the value of their portfolios. So pushing up prices by taking homes off the market would not be an unintended by-product of the process, but the goal, she said.
“These guys didn’t start out as landlords,” Raymond said. “They started out as financial companies. Think about how financial firms make money.
But Howard says his conversations with the owners of these businesses lead him to believe they see their money in rent.
“They’re in the home rental business,” he said. “They’re not there to buy houses, sit on them and wait for them to appreciate.”
Howard says many of the big rental companies are moving away from buying existing inventory and towards building their own homes for rent, like the Crestridge community in Leesburg, built by American Homes 4 Rent.
“It is much more difficult to buy a home [than build], whether you are an individual or a business,” Howard said. “There is as much of a supply crisis for rental housing as there is for owner-occupied housing.
Raymond, however, remains concerned about what this could mean for the future of homeownership.
“If the market isn’t letting homeowners win, what are the tools in America to help?” Raymond asked.