From the outside, it’s a remarkably unassuming three bedroom home in Tuscaloosa, Alabama. Nicknamed “The Peanut,” it’s 15 years old with a brick facade and within shouting distance of the Tuscaloosa Nazarene Church. If this house of prayer is not of interest there are at least 19 others within 4 miles.
The Peanut is characterized by its owners — all 251. Together, this year they pooled their funds to buy and then rent the $215,000 property, investing just $100 apiece.
The deal was made possible by Arrived Homes, a startup that has raised more than $160 million in funding and debt, including two grants from Jeff Bezos’ personal investment arm, Bezos Expeditions, and at least one from Uber CEO Dara Khosrowshahi and the Salesforce billionaire Marc Benioff’s mutual fund.
Its goal is to give retail investors access to the lucrative rental market by mimicking the institutional investors who have spent tens of billions of dollars buying real estate across the country — disrupting the homebuying landscape in the process.
Arrived Homes is still small, but judging by its war chest, it has plans to become a major player. In May, after the company released a new range of houses on its platform, potential investors crashed the site; the enterprise said it received 100x the website traffic it forecast. Weeks later, another half-dozen houses are said to have sold out in eight minutes. Other companies like Roofstock, Fundrise, Fintor and Fractional work with variations on the same model.
But what looks like a win for small investors can pose a big problem for the average American looking to buy a home and for renters sending their rent checks to a faceless startup or for-profit investor — potentially making it harder to deal with speak to a real person.
While the rental industry is opaque and difficult to study, “there is reason to believe that owners are more interested in short-term gains and more willing to charge investors [the] Top rents possible, they’re less likely to question purchases, and they’re less involved in the day-to-day management of buildings,” said Professor Ingrid Gould Ellen, faculty director at the NYU Furman Center for Real Estate and Urban Policy.
And Arrived is expanding as the housing market already faces an affordability crisis. Low inventories (fueled at least in part by institutional buyers) and a flurry of activity during the pandemic have helped push prices to record highs.
In Tuscaloosa, for example, the price of a single-family home has skyrocketed 40 percent in the last five years, according to Zillow data cited by Arrived.
There is increasing evidence that home buying has evolved from a vehicle for accumulating generational wealth to an attractive asset class for Wall Street and the tech class.
“There is some concern that these types of purchases will crowd out homeowners who are trying to buy homes,” Ellen said, though she noted that single-family home rentals are not a new phenomenon. What has really changed, she said, is the financial size of buyers.
In a statement, Ryan Frazier, Arrived’s CEO and co-founder, defended the company’s business model. “Our primary goal is to open up the real estate market to those who might not otherwise have access to it,” he said, arguing that average investors now have “the potential to build wealth that was previously only available to the rich and powerful.” ” Several thousand investors on his platform are now owning property for the first time, he added. Bezos’ company did not respond to requests for comment.
Wall Street began vacuuming single-family homes during the Great Recession. As ProPublica reported earlier this year, “more than 3.7 million homes were foreclosed on.” Government policies then helped encourage private equity firms to buy homes en masse, including by companies dealing directly with Fannie Mae, the state-sponsored mortgage giant.
With hindsight, there is debate as to whether politicians should have acted earlier — before there was a housing glut — “so people wouldn’t lose their homes,” said Amanda Kass, associate director of the Government Finance Research Center at the University of Illinois Chicago.
Big companies like Invitation Homes and American Homes 4 Rent eventually consolidated and grew into rental giants. For example, in the third quarter of 2021, “institutional investors bought 42.8 percent of the homes for sale in the greater Atlanta area and 38.8 percent of the homes in the Phoenix area,” according to a memo prepared last month by staffers on the House Committee on Financial Services -Glendale-Scottsdale.”
The memo also noted that business buyers are disproportionately active in areas “with significantly larger black populations than the national average” and that institutional money offers great benefits when buying new real estate, including closing deals quickly and fully in cash.
Several real estate experts told The Daily Beast that institutional landlord data is messy and difficult to fully analyze. And there are nuances in the numbers. Oren Ziv, an assistant professor at Michigan State, noted that a higher number of rental units could theoretically push rental rates down.
Regardless of the impact of Wall Street money, the potential returns are enticing — as evidenced by the tech startups mirroring its playbook.
For now, Arrived Homes and its cohort have made little impact on the broader industry. But if they can achieve their ambitions — and generate big returns for their venture capitalists — that will surely change.
Bezos – currently worth $ 132 billion – is also getting a little richer.
https://www.thedailybeast.com/bezos-latest-project-arrived-homes-could-be-a-pain-in-the-ass-for-renters?source=articles&via=rss Bezos’ latest project, Arrived Homes, could be a thorn in the side of renters