Banks Are Buying Your Neighborhood, Part II

It's true: financial institutions are, indeed, buying up homes and turning them into rentals. But should this be a cause for concern? In the second part of this two-part series, the guys look at the strategy these companies use when choosing homes (or entire neighborhoods), as well as how this came about, and what it means for the average homebuyer competing in the same areas.

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Episode Transcript

Speaker 1 (00:00):
From UFOs to psychic powers and government conspiracies. History is
riddled with unexplained events. You can turn back now or
learn the stuff they don't want you to know. A
production of I Heart Radio. Hello, welcome back to the show.

(00:26):
My name is Matt, my name is Noel. They called
me Ben. We are joined as always with our super
producer Paul Mission controlled decond. Most importantly, you are you.
You are here, and that makes this the stuff they
don't want you to know. Today, folks, we are returning
to the world of real estate and corruption and big

(00:47):
business and inequality, and some would argue conspiracy. In Part
one of this two part series, we dove into the
allegations that large financial institutions are buying up homes or
entire neighborhoods and pushing out would be new homeowners in
favor of creating long term rentals and therefore guaranteed income

(01:09):
streams for shareholders. If you have not heard part one
of this series, we do do urge you to check
that out first. It's going to answer a lot of
your questions about the evolution of this situation that again
has been called a conspiracy or at the very least
a problem, but For now, we're going to give you

(01:31):
a brief recap, just a high level look at what
we explored previously, before we move on to the next issues,
the nuts and bolts of the process, the present day,
and the dangers this may present for millions of people
in the future. Here are the facts. Uh so, big

(01:52):
surprise we we found that not everyone agrees about this issue.
There are a lot of competing viewpoints. There are a
lot of people saying, actually, don't worry. There are a
lot of people saying, we are absolutely up the wrong
creek with zero paddles. There's a single metric that you know,

(02:14):
there's a there's a lot of talk of inflation that
is occurring, because it is occurring at ridiculous levels right now.
But one statistic, one metric that we looked at in
episode one was the median home price, which in nineteen
sixty was around ninety eight thousand dollars the equivalent of
ninety eight thousand dollars today it was only eleven thousand,

(02:35):
not like twelve thousand dollars basically in nineteen sixty, but
today the median home price, depends on what you look at,
is around four hundred thousand, uh some sometimes three hundred
forty thousand, depending on the area of the United States
you're living in. But just thinking about the difference between
less than a hundred thousand and then three hundred thousand

(02:57):
or more. Now, like you, just as you, what's happened
to the average person, like individual or family that's attempting
to purchase or own a home right now? And this
is outside of inflation. I mean, certainly, you know, the
cost of a home in the sixties is going to
be significantly less than it is today. But this is
ballooned beyond just standard inflation rates. This is outpaced inflation.

(03:20):
That's a growth rate of a hundred and twenty one
percent from eleven thou nine hundred dollars to around uh
eleven thousand, nine hundred dollars to UH which the medium
was met kicking it around four hundred thousand, uh maybe
a little US, but let's let's say three to four
hundred thousand. There we go, and that is a life

(03:41):
changing amount of that's a life changing margin, right, that's
a hundred thousand dollars US. But another thing that's important
to point out, whenever we talked about a median over
this large of a sample size is that, Yes, there
are many of us listening along today who are thinking
three hundred thousand, that's crazy, that's a mansion where I live.

(04:02):
And that's true. But that's the danger of medians because
as you know, anybody who's lived in San Francisco versus
Tulsa knows that home prices vary widely. And the rule
typically is the more densely populated in area is, and
the more urbanized it is, the higher the price will be.
You'll pay more for less home. Yeah, so in Atlanta,

(04:26):
you're like, three is a super low price for a
house in Atlanta. It's honestly a fixer upper um in
certain parts of the city. And uh, you may not
want to ask too much about the asbestos or the lead,
so you'll it's true. It's true. After you know, we
all read a lot about this. I broke my brain

(04:46):
on some things here, and it's true that some folks
are perhaps being a little bit alarmist because as of now,
as we found an episode one, financial institutions aren't buying
up all the houses. Ever, if you look at the numbers,
these institutions, actually, even the big ones, the Big four,

(05:07):
like invitation homes, here in Atlanta, they actually control only
a small slice of the one and forty million what
are called housing units throughout the US. Again, a housing
unit is everything from an apartment complex to a mansion
to a you know, a single uh family home detached,

(05:28):
three bedrooms, two bathrooms. But yeah, in addition to that,
we found it's not so much the size of the
pie they're eating. It's not so much the absolute number
of housing units they're purchasing, but it's the type of
units they're purchasing. Kind of like how in a pan

(05:49):
of brownies, the crust side right, the edge of the
brownie pan, I think everybody can argue is a different
type of brownie experience. So they're not buying the entire
brownie pan, right, That's not their goal. Their goal is
to get what they see as the delicious crust parts

(06:10):
they're looking. They're targeting. They have a strategy, they absolutely do.
I mean, they're targeting certain types of demographics, certain types
of neighborhoods. Uh. And we've certainly seen evidence that shows
that this was not something that had been happening um
all all along is a relatively new strategy. Um. And

(06:31):
you know, ben I was going to bring up, you know, like,
what about the housing crash when everyone was underwater on
their mortgages and the prices of houses you know fell
and the value of houses fell. Um, how do we
claw way back from that where we are now? And
And as you found, ben Um, not only is it related,
it maybe was as a result of you know where

(06:52):
it was like, you know, measures being put in place
intending to stave off that happening again for closure crisises
of in the like. But these measures may have had
severely unintended consequences, or maybe not unintended. I don't know,
what do you think? Yeah, it's it's a good question.

(07:14):
And my dear strongly anti regulation friends in the crowd today,
you're gonna love this. Uh yeah. So. So first, the
step back, to put it plainly, the argument is that
were these financial institutions not buying very specifically targeted homes
and neighborhoods, first time would be home buyers would finally

(07:38):
be able to escape the rent trap. But with those
things removed from the market, they no longer have that
option for their first step home. As far as the
roots of this phenomenon, we trace them back to the
two thousand eight crash at least. And here's what you love,
fellow conspiracy realists who are against regulations in general. The
FED stepped in and some incentives, right they and they

(08:03):
had good intentions like you're saying. No. They wanted to
stave off the specter of massive homelessness, right and and
continuing foreclosure crisis by saying, hey, institutional investors, come in here,
get some of your sweet, sweet green bucks into this,

(08:24):
and help us create a situation where maybe people can't
afford a mortgage, right, maybe they can't afford to buy
a home, but set it up such that they can
rent until they have financially recovered to the point that
they can, indeed one day by a home. Now. Of course,
when I say that, I'm sure hundreds of thousands of

(08:46):
us just groaned and said, come on, Ben, everybody knows
that mortgages often end up being cheaper than rent, and
that is absolutely true in many parts of the country.
So shout out to everyone who who just thought of that.
I'm with you one. Also, once you open those floodgates,
I mean, it's hard to close him back up, you know,
when when when the benefit is clearly uh In the

(09:09):
camp of the the investors, and then the developers. They're
not just gonna willingly give that back to the people
unless the government makes them, which they're not. I want
to talk about strategy really quickly. Again. I don't think
we hit it last episode. If we did, I apologize
to everyone listening to this one immediately after the first one.
But I want to jump to an article in the

(09:30):
New York Post by Larry Getland titled how corporations are
buying up homes robbing families of the American Dream. He
references a book titled Underwater, How Our American Dream of
Home Ownership Became a Nightmare by Ryan December. And in
this article and through Ryan's words, uh, it talks about
a company called Progress Residential, and it's a company that

(09:53):
buys up homes what we're talking about right now and
specifically is targeting a segment of the population. And I'm
just gonna read you what it says in this article. Uh,
Progress Residential, which owned around twenty homes. I believe that's
in h sought to provide quote an aspirational living experience

(10:13):
for tenants who were typically about thirty eight years old
and married with a child or two. An annual income
of around eighty eight thousand dollars, less than stellar PICO
credit scores around six hundred and sixty five generally, and
a hobbling forty five thousand on average of debt on
some sort. Yes, exactly, if they wanted to live the

(10:36):
middle class lifestyle to which they were accustomed, they'd have
to rent. Like that's the concept. You you won't be
able to find a house that's affordable in that school
district you want to be in. You're going to have
to rent one of our properties. And the school district
is key because we're ultimately they're looking for places where
families would live rather than individuals. It's all well and

(10:59):
good if individual goes for it, but uh, the make
no mistake, the school district is a huge part of
the strategy here, and it's not just some folks sitting
around a boardroom looking at a map. Necessarily, that's part
of it, but there's a lot of very clever algorithmic

(11:20):
strategy being applied as well. Look, regardless of where you
may find yourself currently in terms of socioeconomics or in
terms of ideology, spiritual or political leanings, the truth is this,
not everyone agrees on how to approach the problem. But
it is increasingly difficult to pretend a problem does not exist.

(11:44):
We're gonna pause for word from our sponsors will tell
you exactly what we mean. Here's where it gets crazy.
Let's go back to one of the Atlantic articles mentioned
in part one of this series. To be clear, the

(12:07):
corporations and institutions evolved don't see themselves as fat cat villains.
From their perspective, they are the good guys here and
it's important for us to give space to that um
that understanding, so you get a sense of their perspective
their thoughts. As far as we can tell from public
statements and some internal documents, their thought seems to genuinely

(12:31):
be they could be better landlords, partially because they have
more capital to draw upon, and in theory that is
absolutely true. Uh. The Atlantic sites Diane tomb who's executive
director of a trade group called the National Rental Home Council,
was established inteen so not super old, but they've been

(12:52):
around for a while, a while after everything went to
pot in two thousand eight. I should note, Yeah, they're
essentially a lobbying group for these companies that own a
crap ton of rentalones. Yeah, it's like the Dairy Association.
Check out that episode Big Cheese. Uh the cheese spiracy.
So so, according to Diane tomb talk about Nomini determinism. Uh,

(13:18):
single family rental companies professionalize the rental sector that's traditionally
run by mom and pop landlords like many of us
know myself included. No. People who have been able to
kind of cycle through. They got in with one house,
they turned that into a rental instead of selling it,
they bought another, Rinse and repeat, and a lot of

(13:40):
people have met with success there. And I don't want
to diminish that success because it is hard work. But well,
what do they mean by professionalized? Will dissect that in
a little bit. Let's go onto the second thing that
the institutions admit is part of their secret sauce they
make a hefty profit while doing this. They're saying, yes,

(14:02):
we're giving better service. Yes, uncle Sam, we're helping people
avoid living rough and sleeping in the streets. But we're
not entirely doing it as an act of altruism. They
phrased this as a win win. It's a way to
rescue neighborhoods while also quote creating a long term, permanent
income stream for our shareholders. That quotation comes from Frederick

(14:26):
to Me, who once upon a time was the president
of Invitation Homes, one of the biggest players in this game,
and to me is right on that account. Just in
the example of Invitation Homes, they are now the largest
single family rental company in the United States. So if
you're renting from a company, now, uh, the odds are

(14:47):
most likely that they will be invitation homes if you're
renting a single family home, not like uh, you know,
living in a condo or renting an apartment. But housing
trends did work out for the investors because there are
fewer homes being built. Between two thousand seven two thousand seventeen,
the US added less than one million households in owner

(15:09):
occupied homes, but they added six point five million in
renter occupied homes. So if you are looking to own
a home, understand that there are many other people looking
to do the same, and it becomes its own job
right to find a house that you can own, and

(15:31):
a lot of it, like, let's talk about let's talk
about the process. This is where it gets kind of harry.
So a lot of families want to live in a
spacious house, you know, a house where your family can
grow because your kids aren't gonna want to live in
They're not going to be want to be roommates forever, right,
so they want to live in a good house with

(15:51):
a lot of space, in a good neighborhood with a
this is key again, a good school district. But due
to economic realities that beset so many people in this country,
many could no longer afford to do so. As owners,
you could buy a house on the outskirts of some place, right,
increasing your commute, uh, and then put in your kids

(16:14):
in a you know, a public school program you didn't
particularly love. Or you could say you could do the
math and say, well, maybe I get a house that's
not in the hottest, most tony part of town, but
I save enough money that I can afford to send
my kids to a private school that works for some
people but not all. I mean, my situation is interesting

(16:36):
and that my daughter's mom and I are not together,
but we're very close and co parent, and um, I
was able to buy this house because she rents a
place in early good school district, which I could never
in a million years afford it to buy a house
and even though it's only about ten minutes away from
the place where I live, and the school district lines
are really tricksy, and uh, it's almost it's nearly impossible too.

(16:57):
And that's honestly, one of the biggest factors in home
price in a lot of ways is the school district. Absolutely.
Just one of the things to remember, just through personal experience,
when you are attempting to even rent a home, if
you're not attempting to buy a home. One of the
things these companies do is give minimal windows between finding

(17:18):
a home you want to rent if it works for
your price, and actually getting to see the house that
you are going to rent. A lot of these companies
will get you to sign a document stating your intent
to lease the home, or basically to sign a lease
before you ever get to step foot in a home
and see the condition that it's in or anything about it.

(17:39):
I mean, it's all the power is in their hands,
you know, from the word go right, and that is
how the system works, that's how it's designed to be,
and it's not illegal. That's another important note here. No
one right now is breaking the law. And when you
feel like something screwy and you know that it's not
technically illegal. The time then is not necessarily to question

(18:04):
philosophical soft science stuff like ideology. The time is to
question the letter, nature and intent of the laws. So
simply put, here's the process, Here's how the sausage is made.
Let's say we are Illumination Global Unlimited. As everybody knows
that's the parent company of both black Stone and black Rock.

(18:26):
Uh So you well, here's what we do. We go
to market like Atlanta because that's easy for us to
riff on, and we find a distressed neighborhood. You can
find this in many ways, by looking at average income,
by looking at rate of foreclosure, by looking at crime rate.

(18:48):
There are any number of statistics you can just throw
our metrics rather that you can just throw into the
blender until you get the perfect, perfect smoothie of opportunity.
These neighborhoods will likely not be filled with very well
to do people, But what you're really looking at is
an established, good school district. Because you are putting yourself

(19:10):
in the mind of a starter family buying their first home,
something we can afford, and not only can we, not
only can we afford this aspiration as they put it,
but we can stay there for a while and we
can take our kids, hopefully all the way from first
grade two senior year of high school. And then, if

(19:30):
you're the investment firm, if you are Illumination Global Unlimited
Properties in this case, you move as quickly as possible
to obtain as many housing units in a concentrated area
that meet those requirements, that meet those constraints, and as
soon as you get them, you turn them into rentals.

(19:51):
Now you are ensuring as steady, predictable, consistent income stream
for yourself, and you are shareholders, and you are are
also kind of cutting off those other those families at
the past because they'll say, Okay, we love this home, right,
three bedrooms, two and a half baths. Yeah, they you

(20:12):
know that it's outdated, right, but that's fine because we
will have, you know, decades to fix this up. And
then they see that institution owns it and they're not
interested in selling it. They'll rent it to you for sure,
but they're not going to sell it because it's theirs. Now,
so you go, Okay, down the street, there's another for
sale sign, so let's go over there. That for sale

(20:36):
sign has been replaced by a sould sign and now
surprise that it's it's that same guy from Illumination Global
Unlimited answering the email and says, oh, hey, Jorgensen's or whatever,
it's great to talk with you again. Would you prefer
to rent this place? He's just got a deffel bagful

(20:57):
of cashier's checks that he's taken of the auction. And
this this is a real this is a real life occurrence.
And then soon you can find that every house in
that neighborhood that's in that district you want that meets
your own constraints is owned by an investment company and

(21:18):
they're not selling. But again they argue, you get advantages
if you're a corporate renter, you get in numerable advantages.
Let's dissect the phrase professionalization. So everybody, not everybody, but
a lot of people I think, have had an experience
where you're renting from someone who might be a family friend.

(21:39):
You're renting from someone who maybe they had another career
and they've retired now and they're getting passive income as
a landlord. Right. We can call this a mom and
pop operation. And this mom and pop operation is kind
of thing where where you say okay, the dishwah sure

(22:00):
is busted or the A C is out. I'm going
to contact the landlord, who's just another person who probably
lives somewhere nearby, and they're gonna come to the house.
They'll check it out. They want to save some money,
so before they actually call the plumber, before they actually
call the you know, the h V a C folks,
they're gonna see if they can fix it. And these

(22:22):
that I say this with immense respect because we've got
some of these landlords in the audience today. These folks
are the masters of always having a guy quote unpo
having a guy. Yeah. Not you and I were talking
about this, and I'll I'm sure you experience this. It's
just some dude, usually on a first name basis, who

(22:43):
might be calling themselves a handyman. They might not have
an official title. They've just got like a work truck
with a bunch of random tools, and they know what
they're doing. They're like, yeah, I do a little electricity
and do a little plumbering. Shout out to Gary, the
owner of the last time him I rented, who would
just show up with his truck like you said, and

(23:03):
you be like, let's fix it. Uh, you know, to
be fair, we did fight a battle against the basement
rats for about three years and we we still lost.
But we tried. We tried, guys, we really fought that battle.
We lost, you know. I I rented from the same
dude for two places, I guess for almost like six

(23:24):
years in total. And he only not only had a guy,
he had an army. Uh. He had like a ton
of different people that would come and so specialize in
different areas, whether it be h vac or plumbing or whatever.
And he'd come himself often as well. But it was
a real culture shock for me when I switched to
the company that I've been talking about, this Excalibur Homes company.
And to get something, even the smallest thing done, you

(23:46):
have to go on this like online portal, fill out
a form as upload pictures, and you know, good luck
if you'd hear back from anybody, you know, within a
couple of weeks, and if it was an emergency with
like water gushing everywhere, I don't even know how you
go about that. I had a hard time ever getting
a human being on the phone. And it's no shade

(24:06):
on the kind of people that you know work. They're
they're overloaded. These folks are essentially like case workers, their
property managers, where they're managing like dozens of properties I had.
When I moved out, I had to find my person knew.
It took me forever to even find and I left
there several messages and I finally got her. She's like,
I was like, did you give my message? And she
was like, wait, which knoll are you? And how weird

(24:27):
is that? For there there have been other knolls like that.
That really speaks to the volume of of of of
properties as person's managing. Yeah, so the issue there is
that you have you do have a human connection with
the mom and pop operations. I'm just using that phrase
for the sake of convenience. I I often I'm pretty
handy myself because I I prized self sufficiency. So I

(24:52):
usually would work out a deal where I would say, Okay,
I know how to fix this. I can help you out,
or I'll even pro actively do some improvements and kick
a little off the rent. And I was pretty successful
in that extent. But really what I was doing in
the long game, if you think about it, any time
I did a repair, any time I did an improvement,
I was increasing equity and value for that person, right,

(25:15):
and I was just getting kind of a coupon off
as a result. So professionalization the corporate argument is that
now you, as a resident of something owned by these institutions,
you can treat your interaction with this landlord in much
the same way you treat interactions with the utility company.
We're talking about things like the ability to pay rent,

(25:38):
renew your lease, to put in maintenance request via an
online portal. You hate phones, You don't really want to
talk to your landlord, Denise. You don't have to call her,
just log on. Uh. And then there's also the idea
of what you would call uniformity and centralization of service.
So this company right invitation hole MS or whatever. They

(26:01):
won't say, Oh, Brian Lee will come by, he fixed
my Cadillac earlier last week, and uh, let me just
tell you a C compressors are on his mind or
anything like that, right, Like he's our h v a
C guy. They'll say, we have a deal with this
local branch of a vendor right of a company, and

(26:21):
we will always send these people and we can trust
their work. We've also probably got them on some sort
of agreement behind the scenes some kind of retainer, and
then you can always expect the same level of service
and repairs. You can also theoretically get twenty four or
seven assistants for emergency things, whether that's maintenance, unforeseen breakdowns, uh,

(26:46):
you know, like an emergency repair like a home break
in or something. And this sounds pretty good in theory,
unless this has actually happened to you, like with your
example NOLL in a case of something like at astrophic
flooding right or in the case of maybe smaller, smaller
flooding like your um, you have a finished basement in

(27:08):
a place you're renting and it floods, and you have
to contact this O this landlord company. You hope they
send somebody out to start mitigating the water damage. But
then you also have to contend with your own insurance,
which famously takes a long time to uh to pay
up for this stuff on your policy right. In fact,

(27:30):
that the usual idea is you have to pay for
it out of pocket and then we'll reimburse you know
what we feel like, or will reimburse according to the
terms of our agreement a callback. Yeah, yeah, I mean
it does sound good right again in theory, but we
if you have ever rented, if you know anyone who's rented,

(27:52):
then everybody inevitably has some kind of war story, about
war story or a horror story about waiting on maintenance.
You can't do laundry today, can't take a shower, You
gotta sweat out the weekend with no a C until
someone can make it to you. Well, yeah, think about
how dangerous that is with the current heat waves going

(28:12):
through the UK and the US. I mean, like, if
it's if it's a hundred and fifteen in your small
town in Texas and you can't get ahold of the
company that runs your you know, maintenance, and you don't
have a C and you've got let's say a little
kid or something that could be super super dangerous. Absolutely,
and you nailed it, Matt. People have unfortunately been in

(28:33):
that situation before. And this happens with kids, this happens
with pets, with the elderly, you know, with people who
might not necessarily have the agency two improvise, adapt and
overcome those, uh, the situations. And what we found is,
and we'll get to us in a bit today, what
we found is the problem here is not that the

(28:55):
theory is bad. The theory sounds nice. Actually, the problem
is the theory doesn't always to match with the practice
or implementation of these volunteered ideas. We found multiple reports
up to and including lawsuits from corporate renters alleging these
companies were absolutely no better than non corporate uh landlords

(29:17):
and worse at times. From the perspective again, of these institutions,
at least the stuff they say publicly, there's this sense
that they were able to take this disaster, this disastrous situation,
the foreclosure crisis, and through it not just keep people
in homes, but also, by way of a Bob Ross

(29:37):
style happy little accident, they were creating a solid revenue
stream along the way. Again, so when when is it?
Is it a cobalt blue revenue stream with little ripples
and fish swimming past? You have to ask them. You
have to ask them. I didn't find it in their
in their statements or interviews, but but uh so when

(29:59):
when everything scope of setting not really though? What are
we talking about? We'll tell you afterward from our sponsor. Okay,
we're back. Here's the thing. This is the thing that
is haunting Okay, and this is absolutely true when you

(30:19):
think about it. The same class of institutional investor that
is claiming this is a win win is also this
is also the class that helped create the financial crisis
that led to the housing crash and now is profiting
from the federal intervention we outlined earlier. Think of it

(30:40):
like a fireman starting fires, driving back to the station,
waiting a minute, and then driving back to the fire
they started to save the day. I don't believe that's
necessarily hyperbolic, or it's like like change changing out of
their fireman outfit into their insurance adjuster outfit, you know
what I mean? Like, yeah, well, it's interesting because one

(31:03):
of the major problems that led to that crash and
though eight was the combining of a bunch of different
mortgages that were considered subprime, right, combining those bundling them
with a couple of like really good mortgages, right, and
then pretending like they're all the same, they're all um

(31:24):
whatever they call them A plus or double A and
all that stuff. But because of the way, isn't that
all what you isn't that what you call speculation? Essentially?
Wasn't it just rampant kind of like gaming of the
system to try to make the most bang for your buck. Well, yeah,
a lot of that appeared, at least look to my
understanding guys, a lot of that appeared to be corruption

(31:45):
within the institutions. Like I think it's Fannie Mae and
Freddie Mac that are like deciding is that right or wrong? Maybe?
I'm absolutely it started back in We're talking about the
subprime mortgage market, is what it was called. Started back
in And uh, Fannie Mae and Freddie Mack are despite

(32:06):
the super innocuous names. What do we always say about
super innocuous names. Fannie Mae and Freddie Mac. We're our
mortgage lenders, right, but their government sponsored and they started
making home loans accessible to people with pretty low credit
scores and also a heightened risk of defaulting on those loans,

(32:28):
which is saying I can't or will not pay you. Uh. Now,
a lot of you know this is something. This is
where we see an inequality in socioeconomic hierarchy, because, as
you know, defaulting and risk and borrowing and debt work
very very differently for people at the at the top

(32:50):
fringes of income and wealth. Right owing, we say that,
we said this before, but it's such a great, such
a great observation. You owe the bank ten thousand dollars,
that's your problem. You owe the bank ten million dollars,
that's the bank's problem. And that's kind of the rarefied air.
But you're you're nailing it that this, uh, this crisis

(33:14):
was caused by aggressively flexing with the rules of the game. Right.
You can you can only hit the pinball machine so
many times before it breaks and tilts, and it's kind
of dumb to act surprised when you were the one
hitting it. Yeah. Well, yeah, because the investment class that
you're speaking of here, Ben, they were bundling those things

(33:35):
together and then betting that those numbers we're gonna keep
rising and that they're gonna continue making money. Half of
those products there were just people's mortgages, the money that
they owed to banks, um and then when it came
crashing down, the whole system came with it as long,
you know, as well as a ton of people's homes

(33:58):
and abilities to live with a home and own a
home or at least pay a mortgade on it. And
for many of those families, to further exacerbate the danger,
that was their only big investment, other than perhaps a car.
So you know, student loans are still a ravenous financial
predator for a lot of people. Maybe a story for

(34:20):
a different day, but you know, I'm full disclosure. I
am friends with I know people who made a great
deal of money working in the mortgage industry leading up
to this time, and some of them I won't give names,
but some of them did have moral qualms about this,
and some of them didn't even realize I think the

(34:41):
enormity of the sea change that was occurring. So this
is what happens, and you this is not necessarily us
saying these institutions purposefully created this with a plan to
enact the some second half of a grand game in

(35:02):
two No, but they definitely took advantage of it. And
the same class, the same cohort was in a big
way responsible for the housing crisis that produced this opportunity.
So all right, improvised, adapt overcome. Who feels like this
current plan has been a success? Shareholders definitely seemed to

(35:25):
dig it. Again, we're talking one of the golden Geese
of investing guaranteed, safely predictable profits. You're kind of out
of the land of um speculation where you could be
making five percent profit, You could lose ten percent value
year over year, something like that. Now we're in the

(35:46):
land where so long as a couple of conditions are met,
so long as their their butts in the bedrooms paying
you x amount of dollars every month, you can reliably
predict out into the future. That's amazing. Uh. And if
it weren't people involved, everybody would be if it worked
for the fact that real people are getting hurt in this,

(36:08):
this would be um an a plus mortgage of a plan. Well,
you know else I think is excited about the way
this is going. Local politicians. Look, I don't have the
data to back this up, and I'm I can't tell
you how much these individual corporations are donating in you know,
campaign finances to to various campaigns across the country. But

(36:31):
I bet as these big institutions with a fairly large
lobbying firm or a lobbying what what do we call
that organization? The National Rental Home Council, the quote trade
group slash lobbying slash. You know, well, they've already got
one of those. They're making hand money, hand over fist
and rent. They must be donating quite a bit of

(36:52):
money to campaigns. I just haven't seen the actual numbers. Yeah, yeah,
it's the writing is on the back room walls for sure,
they I I imagine. Yes, there are politicians who are
doing quite well based on this, but there are also
politicians who are fighting against it. As we'll see. Uh

(37:14):
this again. You know, we don't want to improperly vilify
people here, but there are clear that well there I
said in probably we can we Yeah, I think we should. Uh.
There are people who don't agree that it's a win win,
and most of those folks are tenants, not just housing

(37:36):
rights activists. Remember the complaints we mentioned earlier from tenants, Well,
here's an example from the Atlanta metro area in nearby
Gwynette County alone. As we speak, there are already multiple
lawsuits against some of those big players, and they allege
these corporations focus primarily on short term shareholder profit and

(37:58):
that these corporations, as it was volt of, you know,
caring about the bottom line, prioritizing that over everything else.
They ignore concerns about quality of life, much needed repairs,
and they've reported at times hazardous living conditions. You know,
like think about something where you have a gas powered
doven and it's just not turning off. And then you

(38:23):
call an emergency line and they say you need to
go online and put in a form and you're like, hey,
this gas is flammable, Like okay, well there's a box
you can check for that and we'll have someone get
back to you. You know, now, now Brian Lee or
Garry is starting to look pretty good. In Gwinnette County,
I looked at a home that was owned by one

(38:43):
of these companies that if you go around the house
to the backyard and looked at the where the fireplace
goes up right along the house on the back wall,
you could see the sighting on the back there is
like melted, which means there's a there's a flaw in
the side where the heat you know, travels when you're
burning things inside the house in the fireplace that obviously

(39:07):
hasn't been repaired ever. So you know, you just imagine
if you ended up renting that home and you weren't
aware of that situation, you could potentially start a fire
in your own home just by using your fireplace the
way it's intended to be used. And we're not that is,
and we we are not being self absorbed necessarily by
talking about Atlanta. Uh, twenty of homes purchased in the

(39:31):
Atlanta area last year, just over those homes were bought
by investors in the rate was fift was twelve percent.
Excuse me. So what we're seeing now is also as
these rates increase, we learn more about the system, when

(39:52):
we learn more about the strategy. And here in Atlanta,
the one of the big demographics is the the majority
of neighborhoods being targeted they meet what you described met
and they're also majority black neighborhoods. Also, just just just
to point, I mean, we mentioned at the top of
this episode, UM that you know, these the large financial

(40:13):
institutions are only buying up a small percentage of the
overall housing supply. But I believe it is correct to
say that Atlanta it's it's it's above average. What's happen
absolutely Atlanta, one could argue, is a prototype um or
it's or it's a little bit the cycle is a
little bit further ahead than other cities. You can also

(40:37):
see this, by the way, in Charlotte. For anybody who
wants UH kind of apples to apples understanding here. So
there are people saying when when there are people saying,
not so fast. There are people saying it's the end
of the middle class, and there are people saying, guys,
calm down, stop worrying. Uh, don't, don't call the Wall

(40:58):
Street cats fat ats. That's not cool. So now we
have to ask what is true. It is true that
these corporations do not own a huge portion of American
homes dot dot dot. Yet you see, they have massive
and growing structural advantages that need to be talked about.
These are These are the waste to stack the decks

(41:20):
such that non corporate home buyers may be left in
the dust sooner than we would like to think. And
what do we mean by this? Okay, first, mortgages, Normal
people typically are gonna pay a mortgage realistically four to
six percent. You'll hear about some sweetheart deals like two stuff.

(41:42):
But companies like, right now it's nine one right, So
four to six is fine. And you know there are
a ton of variables that can change with that, the
length of your mortgage agreement, refinancing, so on. Companies though,
can borrow money for or way way way way way
way way way way less. Oh, of course, because they

(42:06):
get a discount and everything because they're doing it at
such scale. Um, and the and and again, having more
capital and more investments yields the opportunity to to parlay
those deals into other deals. Um, it's a smaller scale version.
But it's sort of like my friend I mentioned in
the last episode of How You Know. You do one
rental property, it allows you to have the borrowing power
to get another one and another one if you pay

(42:28):
your bills. A giant company is just a massive scaled
version of this. But then I was wondering, Um, you know,
we talked about how the subprime mortgage crisis was in
some ways as a result of like borrowing being very
easy and equitable. Uh, and folks maybe who shouldn't have
been able to get loans being able to get loans,
and then that causing the crisis of people being underwater

(42:50):
and having their houses fore closed. But now it's am
I correct and saying that it's it's much much more
difficult and the CRITI here, you are much more stringent
for getting alone period, not to mention that the interest
rates are much higher. Yeah, I mean, there is an
argument that I think is valid that people who ordinarily

(43:13):
should have been turned down not just what they've been,
but they should have been where you know, just got
an Adam boy and told to keep going. And in
many cases, unfortunately, people might not have fully understood what
they were agreeing to write, like a mortgage that changes
and balloons on you with all sorts of small print

(43:35):
finds and I should call them fees that are applied.
This this is all part and parcel of the same thing.
If we look at the structural advantages here, we said, yes,
these companies can because capital begets capital right, money makes money,

(43:56):
that's the secret. Uh, these companies can get a huge
loans at interest rates of stuff like one point four percent.
And what this means in practice is that you can
take you can be an institutional investor and you can
afford to tack on thousands of dollars over the asking

(44:17):
price of every home, and because of that much lower
interest rate, you still end up getting the house at
the same actual cost as the homeowner. You're just you're
moving the money differently, you're moving your costs differently. And
then when we talk about paying for the house cold
hard cash, if you had told us twelve years ago

(44:38):
even that, uh, it would be normalized for folks to
show up with a briefcase full of cash, right or
a one and done sign a check for eight hundred
thousand dollars. If you told us that would happen, I
think our first natural question would be, Wow, who calls
the police first? Is it the Does the bank call

(44:59):
the least does the realtor? Who is busting this drug dealer?
But the outside of the bank is cutting the cashiers? Right?
And this this is now normalized. And there's a great
Slate article that dives into this. They look specifically at
some Atlanta based stuff and they say that a lot

(45:22):
of these companies use a mixture of debt and cash
from renters because they already have other tenants, you know,
to buy houses. But typically those offers are always going
to be in cash. And that is a huge leg
up because of what you're telling the seller or their
representative is, Hey, we're saving so many steps, right, We're

(45:44):
eliminating having to have some sort of relationship or you
having to have a long term relationship with a bank, etcetera.
We can just you know, always have this Saturday together.
Not only that it's a sure thing, whereas even if
you're pre approved or a mortgage um. You know, as
anyone who's bought a house can tell you, like, you're

(46:05):
dealing with crap up until the day before the closing,
oftentimes in terms of getting your financial ducks in a row,
Like I had a crisis with mine where it almost
seemed like I was going to lose it or lose
the particular one that I got because of some inconsistency
with my rent history because the house that I was renting,
my closing was one month before the anniversary of two

(46:28):
years being in that property, and they all of a sudden,
like we need exactly two years of rental proof. And
while I love my previous landlord that I mentioned, he
was not someone that really dealt with digital files or email.
Everything was on paper, and uh, he doesn't live in
the country anymore, so I couldn't get him on the phone.
So when you are paying cash, there's no worry that

(46:48):
anything's gonna that the rug could be pulled out from
under your your potential purchaser and and cost you the sale.
You know, you have earnest money, You have earnest money
that you'll get, you know, for your trouble. But that's
not the same is selling your house. And also it's
it's a bit of a trustful right any mortgage, because
the the idea then is saying nothing will go super

(47:10):
wrong for thirty years, so you know we'll be well
and going at the end of this. And this works
for a lot of people, but you you can see
logically how this would be much more appealing to be
able to say, okay, I'll take the the four hundred
thousand dollars now just transferred through. But another structural advantage

(47:33):
here is that the ratio of home value versus rent
has changed. There's a recent SEC disclosure that shows a
company like Invitation Homes their portfolio now is worth like
sixteen billion dollars US after renovations. Every year the company

(47:54):
gets about one point nine billion dollars in rent, which
is insane. And what that means if you play with
them as a little is that it only takes about
eight years of rental payments to pay back a typical
house that Invitation Homes has bought. That's that's what it
takes for them to recoup cost, and that's not a
very long time at all. So these companies aren't blindly

(48:17):
buying single family homes just anywhere they're not rolling the
dice near as much as people might think. They're targeting
these specific houses and neighborhoods. And we should add the
people that would have been living there as homeowners are
also the part of the US population that has the
greatest potential to be wealth builders for the middle class. Uh.

(48:40):
These that's why these companies ignore bigger, more expensive homes,
especially ones that are moving ready. You know why because
people who are already previous homeowners wealthy and no offense here,
but this is how people have been referring to it.
Wealthy boomers. Uh, and maybe folks in the hex sector

(49:00):
right young, very well paid. They can afford to throw
a little more cheddar at the mouse trap, and so
they will. They will snap up those convenience a little
more posh properties. And they're also not looking at places
that are dealing with, you know, losing their population or
just people who are moving away right in great droves.

(49:23):
They're looking for places that are hot right now for
like you said, been that the profitable sector to come
through and just be batteries for them forts in the matrix. Yeah,
it's you know, it's like, uh, that's a great point, Matt,
because places like Pittsburgh and Providence. You won't see the

(49:46):
same phenomenon occurring. And it makes sense that they wouldn't
engage in that field or in that theater, because if
you are a renter and you want to buy a
home in Pittsburgh or Providence, then if it becomes too inconvenient,
you might do what a lot of your other friends
are doing and just move. So there's people are already

(50:09):
thinking in terms of alternatives in those areas I would
pose it. So the other structural advantage here is that
they're programmatic in their approach. Right, this isn't They're not
buying homes like a stressed out uh couple of parents
starting a family saying, hey, I've I've got to take
time off this one afternoon and do as much as

(50:30):
I can. It's their full time job. They can bring
analysis to bear. They scientifically systematically scour markets. They make
cash offers on the most attractively priced properties. Um Slate
Slate summarizes it by saying, while normal people buy houses
when they actually need to move somewhere, savvy investors buy

(50:54):
houses several years before a bunch of people need to
move to an area. Like what we're talking about with
part one. You know, the reason the Crown of the
United Kingdom possesses so much real estate, and the reason
the Vatican possesses so much real estate is that they
can afford to lose money on it for a long time. Right,
They don't need to move there now, so it makes

(51:17):
sense they can play the long game. Yeah, that's why
you see all these derelict properties in certain parts of
any major city because several of them are I would
say much of them are owned by investment corporations that
are just sitting on those things and it's only year
three of year seven that they're anticipating it will take
for a certain area to exactly exactly, and that's calculated

(51:41):
into the spreadsheet, into the budget projections. Atlanta is home
to a unique complication here and I want to shout
it out and see what you guys, I think. Have
you heard of Stignet. It's a software, okay, steg Net.

(52:02):
It's the creation of a guy named A. J. Stiegman. A. J.
Steigman is as of two the top residential real estate
broker in all of the Atlanta metro area. He has
sold more houses in Atlanta than any other broker. Despite
the fact that he's pretty much a one man army

(52:23):
and he currently lives in Florida. Very very intelligent guy,
former chess prodigy stig Net. Yeah, dude, Ben, I really
thought you're gonna say Mark Spain. I don't know if
you guys see his things everywhere. That dude is the billboard.
So it's amazing I can sell houses when I have

(52:43):
so many billboards to take care of. Yeah, but I
love the billboard advertising. We should get a billboard. I
pitched it one time, what if I combined my billboard
business was my real estate thought? Seriously, I was like,
I wonder if I could buy a billboard and live
in it because there's space there that's like his big
gives a European or San Francisco apartments, but a lawn
chair up there, a little cot and build it up

(53:06):
great views, you know. But uh, and then like, how
how much is rental space and a billboard? Have I
stumbled into a loophole where it will pay for itself?
And then I just have to awkwardly explain to people
when they come over, like, Okay, you gotta park by
the Whole Foods and then we're gonna walk over to
the interstate, I would imagine, and then you just climb

(53:27):
up this ladder. Uh, don't just don't look down. It's fine. Um,
you know. For for those with fears of heights, we
we offer a harness situation. I I hate to burst
your bubble, but I imagine it would fall under the
same rules as like living in a commercial. Yeah, man,
they keeps sticking me. It's two things. It's getting the
sofa up there and the zoning. Really but but uh,

(53:50):
by my aspirations aside, tell us if you do live
in a billboard, I want to know more about your life. Um,
aspirations aside. Steak Net is this proprietary software that this
that this guy A J invented and what it does
is scan enormous data sets to identify undervalued single family

(54:11):
homes before human competition. And the question is does that
phrase human competition also mean the humans working for institutional investors. Uh.
It's funny because by his own admission, steak net is
a nod to sky Net from the terminator. And you
can read about him in Business Insider. Wall Street Journal

(54:34):
did a look at him. Uh. The thing is he's
not really, he's not. This is the this is the
next twist. This is why he's unique, right, because he's
got this superpower, a brilliant mind applied to real estate,
and he has he doesn't just do this for funzies.
It's his job, and he has clients. His clients are

(54:59):
not single family homebuyers. His clients are those investors that
we're talking about, the ones that rent these things out
for long term profit. He helps them. He bloodhounds for them,
and he hasn't named his clients, but he describes them
as quote, hedge funds, high net worth family offices, billion
dollar plus private equity firms, institutional investors, and you know,

(55:26):
he got I think he had dragged a little bit
when these stories came out, but I want to be
fair to him. He is he is making a living
off the create off his own work, off the product
of his own mind. And this is like we have
to be careful not to not to say the guy's
a villain. He's very open about what he has done,

(55:51):
and he says it's pattern recognition and he applied you know,
his learnings from chess and analysis of games to real
estate to make it a scalable investment. And so I
think that's a story that needs to be told. Not
every not every city or metro area is going to

(56:12):
have that same kind of extraordinary individual putting their eye
on them. But all of these areas described are going
to be uh under the scrutiny of similar programs. This
might mean you've got an analyst who is keeping their
finger on the pulse of where new offices and factories

(56:35):
are being built. Right like when we were in Austin
earlier this summer, the city was a buzz with the
with the new Tesla factory, right with the news of
that being on the horizon. And we've seen similar things
in other cities where a large a large company is
coming in that changes instantly as soon as that becomes public.

(56:59):
That changes the conversation about real estate, and these folks
are likely to hear about it well before the public.
In many cases, you look at public school enrollment data,
right that gives you a leg up, and then you
look at year over year stuff, and then you can say, okay,
we buy here to your point, Matt, not because it
will be profitable at the end of this year, but

(57:20):
because in five years we're going to have a machine
that just makes mailbox money for us. And look this
is not a national problem just yet. We acknowledge that
it's best to be careful claims here. Many many people
living in the United States have not personally witnessed this,

(57:40):
but it's just because they're living in neighborhoods that aren't
currently in the scope of these operations. And unless someone
puts some rules in the game, this will very very
likely become a national problem. You can say it's another
symptom of the growing echo mcdivide. You can hang all

(58:02):
sorts of conclusions on that hook of objectivity, but it's true. This,
this is growing. This is not going to go away
unless something changes. Um. We mentioned in part one that
local politicians in our fair metropolis are calling for some

(58:22):
sorts of regulation, like the Atlanta mayor just in June
of this year, uh Andrea Dickens, the new guy, has
said that he wants to figure out a way to
place restrictions or constraints on property investors because the mayor,
the mayor's office at least, is arguing that those investors

(58:43):
are driving the surge in home prices. I think there
are a lot of things the belt line, you know,
shout out to Ryan Graville. Yeah, and it wasn't the
belt Line. For people that know, the belt Line is
like a refurbished area of commercial railroad that has the
kind of been converted into commercial property, real estates, um
and all of that. And initially, if I'm not mistaken, Ben,

(59:06):
wasn't the idea that it was going to be for
more affordable housing and then that just kind of went
out the window. Yeah, I believe like it's it's really
you know all like overpriced condos and boogie kind of
malls and restaurants and things like that, that it's really
not focusing on you know, affordable housing like at all.
I mean, the film industry moved here right like kind

(59:26):
of in tandem. There's all there's all kinds of things
that happened, Ben, as you're saying, it's a massive combination
of things that are working together to make this situation exist.
And it it does feel at times like there is
some kind of massive conspiracy to prevent younger people from
ever being able to afford owning a home. It feels

(59:47):
like that because there are so many factors and so
many uh mechanisms at play. So but the thing is,
as we said before, it's tough too. It's tough to
see it as an actual, big, unified conspiracy and more
as just a bunch of different people figured out how
to make money. As yeah, as the field changed with

(01:00:11):
each previous iteration. Look, it's not just uh, it's not
just noble innovations that stand on the shoulders of giants, folks.
It's everything and and I think that's something humans miss often.
But a real quick look at the belt line. Um,
for anyone who is interested in learning more about urban planning,

(01:00:33):
this story always fascinates me. As were of fact, back
in the day we were trying to do a podcast
with Ryan Gravel where I was uh. When Ryan Gravel's
studying at Georgia Tech, he sees tremendous opportunity in the
long neglected railway system right the old rails, and he says, look,
we can make this part of two things I care

(01:00:57):
about intensely. We can make the city more walkable, less
dependent upon fossil fuels and cars. Right, I want a
place where people can use mixed transportation. Right, Let's get
a let's get a train car system on there. You know,
Let's let's bring that back. Let's make things walkable. Let's
have a place where people can bike, you know, and

(01:01:18):
let's make sure that A in his original proposal, a
huge part of this is affordable housing to combat UH,
the tsunami of gentrification, and this idea, this project takes off.
But to your point, like so many other like so
many other developer deals to include you know, affordable housing

(01:01:43):
or something in their live laugh, love or live work
play whatever, UH mixed facilities, the affordable housing part quickly
gets forgotten. It's just not as profitable and there are
tons of ways to caveat and loopole it. So the
construction and development of the belt line continues apace. I

(01:02:05):
would urge anybody's interested in learning more about this to
find Ryan Grabble follow him online for his work, which
I find quite inspiring. I I do classify him out
of all the people in UH in this episode that
we've discussed, I do classify them as one of the
good guys. And there we go. That's that's the question.
How long before this situation changes? Is it going to

(01:02:29):
peter out? Will this plan no longer be viable for
profit seekers? Or will it just franchise and expand, you know,
and now it'll be like the definition of reality TV
is everything every genre. Now you know, going to be
a part of this is every home buying experience going
to be part of institutional investors. And I think at

(01:02:53):
some point, very soon, all of these companies will be
absorbed by American Homes for Rent because it's just the
best name and they're buying up so many houses. That's
just what it will be. Anywhere you go within the
United States, you will have to contact them and rent
the home that you decided you want because it's been
chosen for you from with an algorithm. Okay, it's sort

(01:03:15):
of like the giant commercial prison Corporation UM Corrections Corporation
of America. They may have rebranded, but you know, it's
it's kind of it has the potential to become something
about Yeah, and I mean a lot. I'll answer the question.
A lot of people are asking, where's Amazon in this?
Why isn't Amazon buying up neighborhoods yet? Well, well, that

(01:03:39):
might be on the way Amazon fans, but they're a
little distracted because the news just broke yesterday as we
record this that Amazon is buying a medical company. They
are buying one Medical It's three point nine billion dollars
and it is their first big step into into the

(01:04:02):
privatized health system of the United States. So yeah, One
Medical was already kind of the Amazon of healthcare anyway.
It's sort of like a you know, a way of
finding a clinic online and getting connected to care. So
it's it's definitely kind of got that had that vibe already.

(01:04:23):
I'm sure they were positioning themselves for that sale for
many years. Yeah, it's they got it for cheaper than
they got Whole Foods, which was thirteen point seven billion
in seventeen, and they got it for less cash than
they did uh MGM, which they bought for eight point
five billion dollars just earlier this year. And interesting thing
about Amazon and One Medical, they are making some institutional

(01:04:46):
investor moves in this because they bought One Medical for
eighteen dollars a share. All cash, baby, all cash cash,
just king cash rules everything around, I mean and us
and so this is uh so, this is where we
leave it. We want to know your take, folks, want

(01:05:07):
to hear your war stories, your horror stories, your success stories.
If you feel comfortable giving any insight or advice to
your fellow listeners. We'd love to read that too. We
can't wait to hear from you. We try to be
easy to find online. All you have to do is
go to your Prime account. Uh, log in via Holmes
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(01:05:33):
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(01:05:54):
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(01:06:15):
why not instead send us a good old fashioned email.
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