As real estate investment firms across the country calculate which markets to swoop into to buy up housing stock, home buyers searching for a place to live are often left empty handed.
While the firms claim to fulfill a desire in the community for more rental housing, experts in Columbus say some of the firms employ predatory practices, charge too much rent and often box out individual buyers looking for a place in an already difficult market.
Rising interest rates and stock market instability may cool sales a little, but the Central Ohio real estate market has been red hot. Low inventory and a large number of buyers are prompting bidding wars in the most popular neighborhoods.
U.S. Census statistics show that Franklin County already has the lowest rate of owner-occupied housing in the state.
A state senator from the Cincinnati area recently introduced a bill that aims to slow the investment firms as they buy up thousands of single-family homes in certain markets across the state and country.
Sen. Louis Blessing is hoping to get traction for a bill that would give regular people and nonprofits a shot at properties going through foreclosure before investment firms get the chance to bid on them.
Sen. Blessing said the bill, unlikely to gain any traction until the next General Assembly is seated, is not a “panacea” that will fix the affordable housing crisis in the excited markets. But, he said the bill could potentially be a bipartisan one that makes it easier for families to buy.
“When you are a homeowner, you can build intergenerational wealth, you can pass that on to your children. And it’s really how a lot of folks move from being poor to middle class, and middle class to upper-middle class, and beyond,” Blessing said.
Blessing said in order to build a strong family, Ohioans need access to stable and affordable housing.
Sen. Blessing is hoping to hold a hearing before the General Assembly closes session for the year, but expects to reintroduce the bill after it reconvenes.
Out of Ohio’s 88 counties, no other has a higher ratio of renters than Franklin County. According to U.S. Census figures from 2019, 53% of homes are occupied by their owners, a rate that has been steadily decreasing. In 2005, nearly 60% of homes in the area were owner-occupied. The county falls well below the state average for homeownership — 66%. Hamilton and Cuyahoga counties have the second and third most percentage of renters out of the 88 counties, but both of them have owner-occupancy percentages closer to 60%.
The percentage of renters in county is only expected to grow as real estate investment firms, many of which arose in the aftermath of the 2008 housing crash, focus their portfolios on growing in large-to-midsized cities with active job centers and intense housing markets, like Columbus.
“We know that as of now, about 20%, (or) 17% of all homes sold in Columbus are now going to investors. And that’s an 85% increase from the year before,” said Carlie Boos, the executive director of the Affordable Alliance of Central Ohio. “And it’s $400 million worth of investments flooding in from these types of investors. So that scale really is unprecedented in central Ohio history.”
Boos said firms like these are targeting neighborhoods traditionally filled with homeowners with single-family homes worth between $200,000 and $300,000.
“That’s one of those hardest price points for working families to be able to break into and that’s where these investors are flexing the most muscle,” Boos said.
Paired with rising interest rates, limited housing stock and decades of underbuilding new homes in Central Ohio, Columbus Realtors’ April housing report found the area’s market needs more of these median-priced homes to meet the demand of everyday buyers.
So, regular home buyers looking to buy in the area are finding the competition stiff, especially in suburban communities with good school districts that don’t have a lot of rental stock and are low on entry-level homes too.
That puts home buyers in the middle of a “feeding frenzy,” Boos said, in direct competition with deep-pocketed investment firms.
“It’s not a fair fight. When these companies can offer to close on a home two hours after it pops up on the internet, when they can pay all cash, when they’re going to buy as-is, no inspection, sight unseen, when they’re able to do that — a human being is going to lose to a computer algorithm from Wall Street every single time,” she said.
Janene Parham and Radhika Moore are realtors guiding sellers and buyers through the feeding frenzy at Red 1 Realty.
“I don’t know how homebuyers can compete against cash offers, closing in 10 days with no remedy request. So, when you take out inspections and requests for remedies, I mean… it’s a lovely situation for the seller, but it’s horrible for a home buyer,” Parham said.
Radhika Moore (left) and Janene Parham (right), realtors at Red 1 Realty in Westerville. [Renee Fox / WOSU]
Parham said the firms swarm over the listings. The two said a recent buyer, in the market for a year for the right home, made an offer with contingencies that was $150,000 over the asking price. The woman still lost her bid to a firm.
In April, homes on the market in Franklin County were on the market for an average of 11 days, down from 13 last year, according to Columbus Realtors.
Homes in some communities are selling even faster. Blacklick homes in April were on the market for just 4 days, down from 14 last year.
Moore said the large firms aren’t only pricing out families looking for a home to live in, but also smaller, local property investors who are more in tune with local needs.
“There are some very good investors out there who truly want to purchase properties and fix them up. They [charge] affordable rates for rentals or purchasing. We welcome them, because we do need them. But we’re talking about those investment firms that are monopolizing the industry,” Moore said.
The firms are often funded with bank loans of hundreds of millions of dollars and profits are usually sent out of the community, to shareholders and debt repayment. The firms can afford to offer over the asking price, while other borrowers often cannot.
Moore and Parham are doing what they can to help the situation, by connecting buyers and sellers directly and warning sellers that the deals with the large firms aren’t as sweet as they seem – they often contain hidden contingencies and other complications.
And, many of these firms are known for failing to meet maintenance needs. Some sellers want to keep their old neighbors happy and preserve the character of the neighborhood.
Boos recommends buyers and sellers contact housing counselors as they navigate the market, to ensure their rights are respected. Homeowners can also be targeted by these firms- sometimes they lie to convince people to sell their homes.
Moore and Parham said that realtors can also help.