Otheree Bienville has seen lots of neighbors come and go in her nine years living in a Snellville subdivision.
She’s never seen any with names like these recent arrivals, though: There’s IH2 Property Georgia LP, down the street. FREO Georgia LLC owns two houses nearby. Colfin AL-GA 1 LLC has four homes on her stretch of Bridle Point Parkway. The American Home Real Estate Partnership LP owns three.
More than 20 houses in Bienville’s Gwinnett County neighborhood are owned by investment companies rather than individuals. All told, such firms have bought nearly 40,000 homes across metro Atlanta in the past 18 months.
“That’s a lot of houses,” Bienville marveled. “I don’t know what to think.”
Few people do.
As metro Atlanta slowly emerges from a devastating housing bust, investor owners are on a buying binge here. Taking advantage of an unprecedented supply of low-priced houses, they accounted for one in four purchases in the first quarter of this year, up from one in 10 a year earlier.
They bought 6,754 homes in metro Atlanta in April, May and June, a figure that dwarfs the second-highest total of 3,870 bought in the same period in Dallas, a region with a million more people.
The companies’ aim: Collect rents on the houses for a time, eventually selling them for more than they paid. In some cases, companies are going public, making money by selling shares in their business.
The long-term effect on the housing market — and on neighborhoods — is unknown.
For the moment, investor purchases are a boon to neighborhoods beset by foreclosures and fuel for a turnaround in home values.
The companies — most formed recently — buy, fix up and fill up empty houses that are often eyesores. They install new appliances and add fresh paint, and they have employed hundreds of people in metro Atlanta to scout or manage properties. Their appetite for homes has pushed up prices across the region, a trend that affects the broader economy by making all homeowners a bit more confident.
But there are concerns about concentrations of rental properties that unsettle neighborhoods and could send values plummeting again if the price trend reverses.
“I think it’s dangerous,” said Daren Blomquist, vice president at RealtyTrac, a California housing data firm. “It has some of the same characteristics that got us into the housing bubble in the first place.”
People who buy shares of investment homes haven’t seen the properties that are part of a portfolio and don’t know what they’re investing in, he said. Indeed, many of the institutional buyers themselves are purchasing houses sight unseen, in large portfolios or at foreclosure auctions.
Even though they may make improvements to a home, neither the buyers nor their rental tenants have as much skin in the game as an individual homeowner, Blomquist said.
“I’d rather have somebody here that owns the house,” Bienville said of her new corporate neighbors in Gwinnett. “They’re going to value their property more.”
New bubble forming?
Nationwide, investor buyers — those who bought 10 or more homes in a 12-month period — are a small, though growing, percentage of total home ownership in the country.
In some Georgia counties, however, institutional investors bought as many as half of all houses sold in July. Data from RealtyTrac shows that of the 25 counties nationally where investors are having the largest impact on sales, 13 are in Georgia. The top six are all in metro Atlanta.
Why Atlanta?
Justin Chang, chief executive of Colony American Homes, cited job opportunities, still-deflated housing prices and people moving into the area. Colony buys under the name Colfin AL-GA 1 LLC and others.
“We continue to buy very actively in Atlanta,” said Chang, whose firm has bought 15,000 houses nationwide — 3,000 of them in Georgia, more than in any other state. “It’s early days for this.”
Investor purchases have played a part in this year’s string of double-digit home price gains for metro Atlanta, which have begun to reverse the damage from the bust. Prices rose 20.8 percent in April from a year earlier, according to the S&P Case-Shiller Home Price Index — the biggest rise in the index’s history. Year-over-year growth was 18.5 percent in July, the most recent month for the index.
Some think prices are rising too much. Lee Budden, who has worked as a scout and purchaser for two firms, Atlanta-based American Home and Silver Bay Realty Trust, worries that low-end homes are appreciating too fast.
“That’s where the bubble starts,” he said.
If prices start to fall again, investor owners may lack the incentive to maintain properties, said Sarah Edelman, a policy analyst with the Center for American Progress. Corporate landlords may wait longer than homeowners to fix a broken doorbell or leaky window. And if the rental market dries up, they might stop repairs entirely and let homes go vacant.
“There could be a second wave of depreciation,” said John O’Callaghan, president and CEO of the Atlanta Neighborhood Development Partnership. “Those neighbors may have been better left waiting for the market to recover, if the investors never came.”
Investors have not yet started to sell off homes and it’s not clear when they will, or how that it affect the market when they do. Some smaller firms have sold their portfolios en masse to larger investor owners, and Edelman and others expect that consolidation to continue. The biggest owners said they plan to hold on to the homes for five years or more.
She thinks investor ownership is the “new future of the housing market.” But she also said they are skipping some of the hardest-hit areas that could most benefit from their investments.
“Investors are part of the housing recovery, but they are not a housing recovery in and of themselves,” Edelman said. “We want to see a solid, stable recovery, not another boom and bust.”
All-cash deals
Institutional investors often buy houses in high-demand school districts and pay cash for them. They don’t ask for inspections and don’t need approval for a mortgage.
For sellers, that’s great news — it means they’re able to unload houses quickly.
But as investors moved from buying houses largely at foreclosure auctions to using real estate brokers or multiple-listing services, they have crowded individual home buyers out of some markets. Sellers often prefer to deal with an all-cash offer to minimize the chances of the deal falling through.
One buyer took the highly unusual step of writing a letter imploring a Clayton County seller to take his offer over an all-cash deal with an investor. The would-be buyer was living in an apartment with his wife and two daughters, and it would be the family’s first house. In his letter, he asked the seller to envision the two girls playing in the back yard.
The seller went with an all-cash investor offer, which also meant a short two-week closing period.
Homeowners in neighborhoods where investors are active may be wary of renters, who don’t tend to stay in the same place as long. In Bienville’s Gwinnett subdivision, Bridle Point, some investor-owned homes have notices on the door for tall grass violations and other issues. But others are among the best-kept on their street.
Marilyn Kilby rents a home on Bridle Point Parkway listed as belonging to FREO Georgia LLC from Progress Residential, a firm with about 1,000 homes in the metro area. She is grateful to be in the house after losing one to foreclosure. She said she’s just as committed to keeping it up.
“You make a home for you and your family,” she said. “You have to treat it as if it was yours.”
Here for the long haul
Kilby would like to own again but first needs to repair her credit. When she does, she will again be able to build wealth through home equity, the most common way people do so. Experts say the ability to build wealth that way can enable people to start a business, send a child to college or plan a stable and independent retirement.
On the other hand, the availability of rentals in the wake of a severe economic downturn enables people who have lost their homes to stay in the same neighborhoods, churches and schools, said Marcus Ridgway, chief operating officer of Invitation Homes. A homebuying arm of financial giant Blackstone, Invitation owns nearly 6,000 houses here, including those listed under IH2 Property Georgia LP, and is still buying.
But he added: “We’re not trying to create a rental nation … We’re not an apartment complex.”
Whatever the companies’ intentions, Dan Immergluck, a professor in the School of City and Regional Planning at Georgia Tech, said sudden concentrations of rental properties can destabilize neighborhoods.
“It leads to a lot of turnover,” he said. “Fear drives more people out.”
Investment companies see it differently.
“We didn’t create the environment,” said Aaron Edelheit, chief executive of American Home, owner of 1,700 metro houses.
“It’s really a tragedy, what happened. But the quickest way to heal is to deploy capital. We’ll fix up homes and get through it. It’s a win for everybody.”
Where investors are buying houses
Institutional investors were buying more houses in metro Atlanta than in any other region in the second quarter of 2013. The buyers spend pay cash for houses, and spend thousands of dollars on renovations, raising property values in an area. But there are also concerns about how many houses they now own in the region.
Metro area / All sales, Q2 2013
Atlanta-Sandy Springs-Marietta, GA 6,754
Dallas-Fort Worth-Arlington, TX 3,870
Houston-Sugar Land-Baytown, TX 3,171
Phoenix-Mesa-Scottsdale, AZ 2,851
Chicago-Naperville-Joliet, IL-IN-WI 2,643
Tampa-St. Petersburg-Clearwater, FL 2,350
Miami-Fort Lauderdale-Pompano Beach, FL 2,234
Riverside-San Bernardino-Ontario, CA 1,996
Las Vegas-Paradise, NV 1,931
Detroit-Warren-Livonia, MI 1,878
Los Angeles-Long Beach-Santa Ana, CA 1,856
Charlotte-Gastonia-Concord, NC-SC 1,846
Orlando-Kissimmee, FL 1,495
Jacksonville, FL 1,375
Seattle-Tacoma-Bellevue, WA 1,105
Indianapolis-Carmel, IN 1,051
St. Louis, MO-IL 1,033
Sacramento—Arden-Arcade—Roseville, CA 1,006
Kansas City, MO-KS 909
San Antonio, TX 765
Source: RealtyTrac
