From the outside, it is a remarkably plain three-bedroom home in Tuscaloosa, Alabama. Nicknamed “The Peanut,” it is 15 years old, fronted with brick, and within shouting distance of the Tuscaloosa Nazarene Church. If that house of prayer isn’t of interest, there are at least another 19 within 4 miles.
The Peanut is notable because of its owners—all 251 of them. Together, they pooled their funds this year to buy, and then rent, the $215,000 property, putting in as little as $100 apiece.
The deal was facilitated by Arrived Homes, a startup that has raised more than $160 million in funding and debt financing, including two infusions from Jeff Bezos’ personal investment arm, Bezos Expeditions, and at least one from Uber CEO Dara Khosrowshahi and Salesforce billionaire Marc Benioff’s investment fund.
Its goal is to give retail investors access to the lucrative rental market, mimicking the institutional investors that have spent tens of billions of dollars snapping up properties across the country—and which have massively disrupted the home-buying 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 posted a new batch of homes on its platform, prospective investors crashed the website; the company said it received 100 times the site traffic it had projected. Weeks later, another half-dozen of its homes reportedly sold out in eight minutes. Other companies, such as Roofstock, Fundrise, Fintor, and Fractional, are operating with variations of the same model.
But what looks like a win for retail investors may pose a big issue for the average American who wants to buy a home, and for the renters who send in their lease checks to a faceless startup or profit-seeking investor—potentially making it harder to address problems with an actual human.
While the rental industry is opaque and hard to study, “there are reasons to think that investor owners might be more interested in short-term profits, more apt to charge [the] maximum rents possible, less likely to scrutinize purchases, and less engaged in 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 scaling up as the housing market is already mired in an affordability crisis. Low inventory (fueled at least in part by institutional buyers) and a flurry of activity during the pandemic have helped drive prices to record highs.
In Tuscaloosa, for instance, the price for a single-family house has skyrocketed 40 percent over the past five years, according to Zillow data cited by Arrived.
Increasingly, there are signs that home-buying has begun shifting from a vehicle for accruing generational wealth to a sexy asset class for Wall Street and the technology class.
“There is some worry that these kinds of purchases are going to crowd out the homeowners that are trying to purchase homes,” Ellen said, though she noted that single-family home rentals are not a new phenomenon. What really has changed, she said, is the financial scale of the buyers.
In a statement, Arrived’s CEO and cofounder Ryan Frazier defended the company’s business model. “Our primary goal is to open up the real estate market for those who might not otherwise have access to it,” he said, arguing that average investors now have the “wealth-building potential that was previously only available to the rich and powerful.” Several thousand investors on its platform now own property for the first time, he added. Bezos’ firm did not respond to requests for comment.
Wall Street started hoovering up single-family homes in the wake of the Great Recession. As ProPublica reported earlier this year, “more than 3.7 million households went through foreclosure.” Government policies then helped encourage private equity firms to buy up houses en masse, including by letting firms deal directly with Fannie Mae, the federally sponsored mortgage giant.
In retrospect, there is debate about whether policymakers should have acted sooner—before a housing glut existed—“so that people didn't lose their homes,” said Amanda Kass, associate director of the Government Finance Research Center at the University of Illinois Chicago.
Large companies, like Invitation Homes and American Homes 4 Rent, eventually consolidated and emerged as rental giants. According to a memo prepared last month by staff of the House Committee on Financial Services, as one example, in the third quarter of 2021, “institutional investors bought 42.8 percent of homes for sale in the Atlanta metro area and 38.8 percent of homes in the Phoenix-Glendale-Scottsdale area.”
The memo also noted that corporate buyers operate disproportionately in areas “with significantly larger Black populations than the national average,” and that institutional money holds major advantages when buying new property, including closing deals rapidly and entirely in cash.
Multiple housing experts emphasized to The Daily Beast that data about institutional landlords is messy and difficult to fully parse. And there is nuance within the numbers. Oren Ziv, assistant professor at Michigan State, noted that higher numbers of rental units could theoretically push rent prices down.
Whatever the effect of Wall Street’s money, the potential returns are tantalizing—as evidenced by the tech startups mirroring its playbook.
For now, Arrived Homes and its cohort have barely made a dent in the broader industry. But if they can execute their ambitions—and generate big returns for their venture capitalists—that will surely change.
In the process, Bezos—currently worth $132 billion—will get a little bit richer, too.
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