What’s up with Blackrock (an investment bank) and others buying up homes 20 - 50% above bidding price?

What’s up with Blackrock (an investment bank) and others buying up homes 20 - 50% above bidding price?


Friendly reminder that all **top level** comments must: 1. be unbiased, 2. attempt to answer the question, and 3. start with "answer:" (or "question:" if you have an on-topic follow up question to ask) Please review Rule 4 and this post before making a top level comment: http://redd.it/b1hct4/ *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/OutOfTheLoop) if you have any questions or concerns.*


Question: Weren't banks banned from owning real estate after the Great Depression? Done when were they allowed to start buying it again?


BlackRock is just an investment company (a giant pile of cash), so I’m not sure the bank investment house ownership ban applies. Good question though


Correct, the rules we are familiar with regarding banks apply to depository banks only


As usual the law is inadequate to cover the challenges faces in the modern times. And because of it, we are probably gonna have a Housing Crash 2.0.


We’d be lucky to get a second housing crash, that would reset the market. The scarier thought is us *not* having another crash. Think about it. These investment firms are buying houses to rent them out. They will *never* sell these houses because as others have stated, rental income is passive. It’s like dividends for stockholders, you just get paid regularly for owning something. As more and more houses are purchased by investors, fewer houses are on the market. This makes homes more expensive and reduces home ownership. The end game here is not a crash, it’s the creation of land barons.


In 50 years we won't live in neighborhoods but company grounds


Shadowrun megacorps


I'm gonna live in Mr. Lee's Greater Hong Kong. I love dogs!


When it gets down to it — talking trade balances here — once we've brain-drained all our technology into other countries, once things have evened out, they're making cars in Bolivia and microwave ovens in Tadzhikistan and selling them here — once our edge in natural resources has been made irrelevant by giant Hong Kong ships and dirigibles that can ship North Dakota all the way to New Zealand for a nickel — once the Invisible Hand has taken away all those historical inequities and smeared them out into a broad global layer of what a Pakistani brickmaker would consider to be prosperity — y'know what? There's only four things we do better than anyone else: music movies microcode (software) high-speed pizza delivery


Is that a Snow Crash reference I am seeing?




>high-speed pizza delivery Even this has been screwed over by Grub Hub


Just don't try any of the new drugs


Snowcrash too.


You deserve far more upvotes for this comment than I am capable of giving, street samurai.


As of this year there's a company town being developed in Nevada along the I-80 corridor between Reno and Fernley. Time is a donut, indeed.


That's literally been going on for decades in many places. Developers buy up giant plots of land and establish neighborhoods with their own arbitrary rules, then sell off plots of land/houses that still require you to pay a monthly fee to live in the neighborhood. But instead of slapping the name "Johnson Development Inc." on the neighborhood, they call it something nice like "Breezy Acres".


> "Breezy Acres Home Owners Association" ftfy


With a $300/month association fee for a pool and lawn care. Wait, it’s $400/month now. Jk we need $500/month now. Don’t like it? Sell your home and move then.


Home Owners Associations are the stupidest shit. I have never encountered one that actually did anything useful, it's always just a front for a few people to make bank while the rest of the yuppies powertrip over neighborhood rules.


Let's call it "Oak Haven"!


Unrelated, but I know so many people that buy houses and then just cut down all the trees on the property. Most are suburban or like moderately rural houses, but they just hate trees and I can't figure it out. I have one friend who has bought two houses in the last 10 years and each time he had hacked down every tree on the property, except for one tree in the backyard that's usually too big to feasibly remove. It boggles my mind, because these aren't like old, dead trees that are threatening to kill their children by falling over into the house. These neighborhoods are less than 20 years old and the trees even younger and are super healthy and robust. Really grinds my gears. I now have a next door neighbor who wants to cut down a bunch of trees that line the back of his property. Like, why?


Homeowner who almost decided to cut down a big pine tree on my property here: In my case the tree is dumping a ton of needles and branches all over everything and will likely wear out my roof faster as a result. Also it has become a major roosting point for pidgins who proceed to poop all over everything. I ultimately decided to live with those cons because it just felt wrong to down such a large beautiful tree, plus the shade on my yard is quite a nice thing too. But I can definitely see where someone else might make a different choice.


I obviously don't speak for all the tree cutters, but my parents clear cut their backyard because it was cheaper than fixing their roof every time a branch speared their house in a windstorm.


When I was house hunting I looked at a house that has been on the market for unusually long. It was a nice house, competitively priced, decent location, pleasant neighborhood. One of the few small houses for sale in this ridiculous market. $650/month HOA fee. Why the fuck would anyone sign up for that kind of monthly overhead in perpetuity when they'd still be on the hook to replace their own roof and shit? Whoever ran that HOA was just printing money. And the poor sap who owned the house couldn't even offload it despite how insane housing is in my town.


What were the community amenities? Were there a lot? Pool, parks etc? Does the HOA manage the front lawn/yard? HOAs are legally required to use dues for upkeep of community facilities and a fund to cover long term maintenance and replacement costs. They have to provide financial statements to assert this. Wherever that $650 was going should be obvious to the homeowners. As a potential home buyer you should be able to obtain the F/S to determine this.


"upkeep of community facilities" can often include administrative fees which is just paying themselves a salary


siri play Sixteen Tons by Tennessee Ernie Ford


A wise mechanic once told me during my apprenticeship 20 years ago that there’s no such thing as countries, they’re companies. I thought he was full of shit back then, seen enough in the 20 years since to confirm his claim. We’ve been living on company grounds since monarchy.


A second housing crash will not help any individuals, and it certainly won't fix the broken system. The 2008 crash is part of the problem. Companies like BlackRock were able to buy up incredibly cheap housing because they had resources after the crash and they knew housing would go up again. How are you supposed to buy a house if your savings is decimated and you lose your job in the crash? And if you look at housing prices from 2000 to now, you can see that 2008 didn't reset anything. It was just a dip in the curve and we would have ended up here a few years sooner if it never happened.


Unless the crash is caused by regulatory changes that limit corporate ownership of residential properties somehow


Not just houses, any real estate that's rented or leased. You like Storage Wars? You're usually watching a REIT company selling off the belongings of people at their lowest in life. A company that's charging the most per square foot of real estate, despite it just being a slab enclosed by thin sheet metal walls. I pay $365 per month to a REIT that started charging me 170 5 years ago. Raised me 4 or 5 times just during this pandemic. The worst in real estate is yet to come, this concept has only recently exploded in popularity. https://en.m.wikipedia.org/wiki/Extra_Space_Storage The strategy is get control of the market in selected areas, then start cranking up the prices. They can't pay, by the third day they're legally locked out of their belongings, the REIT has full control of access. They continue not paying, within a short time, the property within them is now the REITs to cash in on via auction. Your favorite politicians who supposedly care possibly support and encourage them with their own retirement monies. 100% they're saying 0 about REITs behaviors during this pandemic.


I had this really stupid idea of a better long-term storage plan of just buying a plot of land, putting a shipping container there (potentially underground), and filling it with your stuff. That way you actually *own* the land. No idea if this would work though.


In many jurisdictions, placing storage units, or even an RV on your own property, is not allowed. In mine, you're allowed to put a 10 × 12 on your own property provided it's 5 feet away from anyone elses property, and isn't on a slab.


Interesting, I've never done any real estate stuff so I'm having a hard time finding what particular documentation would show this. And when trying to parse through jurisdiction documents, is there certain terminology you look for when trying to determine if you can place storage units there?


I don't think it's going to be as simple as that - 'jurisdiction documents' is kind of broad term here. The 'jurisdiction' may not say anything, but the particular zoning of an area may impact this, or deed restrictions in place from the land seller, which is pretty common if the land is being sub-divided from farm land, for example.


A guy in my town did that. Bought a land, put a container on it. Bought a second rented it. After a few years there are twenty put modulable separation walls and rent 20€/sqm.


I was thinking just for personal use but yeah maybe an accidental storage business would be interesting. Wonder what kind of permits you would even need for such a thing, and what kind of construction such an operation would need. I was literally thinking of just plopping [one of these](https://www.philspace.co.uk/wp-content/uploads/August-types-of-shipping-containers-1500x1125-1.jpg) down on the dirt but I'm pretty sure that wouldn't work for commercial use.


I've been saying this for a couple of months now. The real fear is *NO* housing crash. Citizens become wage slaves with no long-term prospects for generational wealth creation, as real estate is the one vehicle that allows average citizens to pass along a significant asset to their children/grandchildren. Dystopia is looming on the horizon if this doesn't get corrected Soon™.


When the crash comes it will not be normal people buying houses. it will be investors who have billions backing them and love a depreciated asset


We are entering an era of neo-feudalism powered by capitalism.


Once they get a ton of rentals, I 100% guarantee they’ll come up with a RBS (rental backed security) and go for The Big Short 3.0 (we’re in the middle of 2.0 right now with commercial properties instead of mortgages, like 1.0 was. )


> they’ll come up with a RBS (rental backed security) Wouldn't that be a [REIT?](https://www.investopedia.com/terms/r/reit.asp)


Libertarianism is just feudalism with fewer steps.


But I read Atlas Shrugged which is like, really long, so I must be the smart one.


I read it once, too, but I'm pretty sure it just made me dumber.


A crash? More like inability for the average person to own.


In the UK it could be housing crash 3.0 or more. We had a point in the 80s where, following thatchers (?) increased limits on borrowing for mortgages, interest rates on those mortgages rose from 8 to 10 to 12 to a high point of 17%, my dad says there were weekly reports on the news about how many houses had been reclaimed by the banks that week. My parents were both working and childless at the time and they came close to losing their house too.


this is really at least crash 4. great depression, 80's recession, '08 recession, and then this upcoming one.


Crash 4 Team Racing at this point


Their won't be a housing Crash 2.0.. cause if there is a substantial housing slide, the Fed will do what it did last time bail out the big boys, banks, investment houses and wealthy investors... cause they'll cry their too big too fail and it would cost too many jobs ... just wait and watch...


And let all those people in their homes get foreclosed on anyways. Every time it's a bail out for the rich, and a big middle finger to the lives ruined for their profit.


In hindsight, I'm wondering if it wouldn't have been better to let the banks collapse. I would much rather have had a short period of hard times rather than an entire lost decade (or more). Hell, here in 2021, I'm still paying off the last of the debt I racked up during the Great Recession. No one bailed out the little people who had their retirement wiped out and had to start over from $0.


That or atleast grab and sue every single one of the folks who caused them. Jail them for the maximum amount of time with the largest possible fines.


And of course not help out actual people and let them lose their homes or let this situation continue to unfold, assuring no normal people will ever be able to buy homes.


"Too big to fail". AKA the rich are to rich to not be rich.


Socialize the losses and privatize the gains.


The way you said it sounds like the relevant legislation is flawed by accident, and not on purpose. It's not inadequate for the challenges in modern times because it was written sometime in the past without much forethought, it was written specifically to allow shit like this.


No it was written under the assumption we would update it often to change with times. I’m not sure they thought it would be looked at akin to the Bible (including the bad interpretations) 250 years later


I was talking to a co-worker who's moving homes right now about this... They're excited to cut their rates in half, but it's still variable rate, and what's going to happen when the bubble pops and the property they're buying is worth less than they owe? The rates are going to skyrocket, and your equity will evaporate overnight. $5 we'll be back in 2008 in the next 3 years.


Why would they take out a loan with a variable rate now? Traditional mortgages are the way in today's market. I don't see interest rates going lower. Do you think blackrock would throw this much into the housing market just to see it crash? This is not the same as 2008 and the big money says its lasting.


They're not throwing money into a housing market. They're throwing money into rental properties. Rent isn't going down until there's enough affordable housing for sale at prices that are affordable to renters (which gets less and less affordable as rent goes up) these properties they're buying up are going to be permanent income streams. They're buying homes to rent not to resell. Buy a $300,000 house for $400,000. They're paying peanuts in interest (I believe it was 0.2%) so the mortgage going to interest is basically negligible, quick calculator shows $890/mo for 30 years. Then rent that out for $2500/mo. That's $1600 in profits a month beyond the mortgage payments. If the bubble pops, ten years from now they'll still be in the green, that'd be $200,000 in profit AFTER mortgage payments. Even if they couldn't turn around and sell it for half what they paid, that's not the goal the goal is farm money out of that property forever... Which drives up property costs by limiting purchase availability, reducing competition.


Or, they suspect/know/rigged it so the sale price isn't going to come back down (because let's be real, it never does long term) so they'll hold onto these until the first big repairs come due and it starts to be less profitable, then sell them off for more than they paid now, and some "lucky" sap will get a house that's been driven like it was rented that needs a new roof and all new appliances, for a "great deal". It really is the best of both worlds if you're a company with billions to spend right now.


Who would think that a system called capitalism only benefits those with the most starting capital.


Got I fucking hope so.


Nah, they learned their lesson. From now on the plebs are no longer allowed to own their homes. You rent units or even just rooms. Slum lord corpos are the future.


Yup, cant have a housing crash if no plebs have mortgages. *Taps forhead*


Fintech needs a HELL of a lot more regulation than it has.


The entire point of fintech is to give debt another name so they can dodge regulation.


We're not a bank, we're a tech company with a billion dollars in not-loans on the books!


Well said


And whom do you suppose writes that regulation? Well connected government officials , who have high paying cushy jobs in industry... They either came from industry or are going to it after they leave government


But don't worry, the banks are in on it. Blackrock buys these houses way over market from the bank in return for a .25 interest rate, iirc


Insofar as interest rates are meant to reflect the risk to the lender, it would make sense that a company that is basically just cash incarnate would get a low interest rate. However, they're buying these houses for cash, so there is no interest rate.


“There is no interest rate” — not exactly. The team that bought these properties obtain said cash from their internal treasury desk (think of it as an internal bank). These treasury desks manage the firms liquidity and charge individual teams an interest rate. If BlackRock as a whole has excess cash ( inflows of cash >> outflows ) it would make sense that the interest they charge would be low in order to incentivise teams to make investments and try to generate profits etc.... If they think that there would be a shortfall, then this interest would be higher in order to disincentivize teams from borrowing too much. In the case that there is really a shortfall, the treasury desk would then borrow from banks and hence, are charged Libor + spread or something along those lines. In terms of credit risk etc... BlackRock is the largest asset manager in the world and these purchases are less than 1% of their balance sheet. Hence, lending can be collateralised with US Treasuries they own ( or anything considered good collateral) so default risk in this case is negligible.


Investment banks are supposed to be different from commerical banks, but the lines seemed to get blurred between them often.


Not done Glass-Stegal was repealed in 99. Edit: not *since* glass-Stegal


The real reason for the 2008 crash


Blackrock is an asset manager, not a investment bank.


blackrock isnt a bank


Answer: In 2007/2008, they gambled on mortgages. But that was risky, because if people can't pay their mortgage, the bank is screwed because they can't repossess and sell EVERYONE'S home all at once. BUT. If they buy houses in cash, wall st /blackrock own it themselves, and rent it out. Rent is passive income, and on a massive scale, pays for itself. It's way safer to own and rent out because they'll always have tennants. Rent is a poverty trap for many people. And someone can't pay rent? Evict and refill with the next person who needs a roof. Also, when buying in cash, they actually pay way less than normal homebuyers would over the lifetime of a loan, hence why it turns a profit quicker. EDIT: for all of you arguing about it being more or less expensive when a person or bank buys in cash, vs a loan, the difference is INTEREST ON THE LOAN. Look at any amortization schedule, for any fixed rate loan under 5% for a 30 year loan, you will pay (roughly) around the value of the home, purely in interest, back to the lender. If you pay in cash, you pay no interest on a loan.


To add to this: Property will retain value during hyperinflation, so it's a a decent hedge against economic fuckery.


> unless it’s in Detroit -someone in an summer accounting course I took years ago


Rarely have truer words been spoken.


So are blackrock/wall st starting home rental companies direct to individuals? Do they already have that? That seems like it would be a huge endeavor and would also cost them a ton to oversee. And would that mean that they think housing is a better asset to buy than stocks/options/whatever it is they normally trade?


There are companies that specialize in managing single family rentals. For a 10% cut plus expenses they handle everything, you just get a check every month.


I suppose, but I imagine it's still getting way more directly involved in/affected by the operation compared to anything else they would usually invest in. Trading stocks/options/commodities other assets on a marketplace is different from owning thousands of homes across the country. Just seems like a weird shift for them to make such a big bet on. I mean a quarter of purchases in Houston...


The big investment banks have always included rental property in their portfolios, however it was mostly commercial property (think: office buildings, shopping centers) because they could sign long term leases, and there’s always going to be a need for places of business and commerce, right? Yeah, until there wasn’t. The pandemic changed all that and suddenly residential properties is where it’s at. They haven’t changed investment strategies, just shifted focus.


This isn't new. This has been going on for about a decade. I work in alternatives and there was an article that blackrock was the largest purchaser of single family homes about 5 or 6 years ago. They started after the housing crash.




How ironic though. Months ago, I saw people discussing the lack of the younger generation wanting to buy homes. For a number of reasons (i.e. not having feasible income being always the #1 factor), it really shifted the pricing of home already along with COVID hitting those prices too. It was painfully obvious the effects both were having. I remember discussing it with my SO, and saying either someone will do something to accommodate what the younger generation wants and/or there's going to be a shift in job types. The job thing came along because along with that article, there was a very small one about a high demand for trade jobs. Worse than before. And pay increase paying to meet demand for what little people exist in each trade. When that happens, people go into trades more, and move into areas where demand is obviously high or move where there are no people in those trades. There's also been an increase of people building their homes supposedly iirc in those comments of the articles. So, it's interesting to see that this is happening when gen Z is now pretty well into their 20s, and after being isolated for a year, probably itching to leave.




Idk where people are roping in millennials when reading my comment, but you're not the first and I just want to make to clear that I am not talking necessarily about them at all. This was just Gen Z because typically, as what we used to know, Gen Z is now at buying age for home owners (or at least what companies would like aka early 20s). I am the oldest of the Gen Z. I'm 24. Been with my SO 6.5 years and we just jave a tiny apartment. Regardless, everyone is really struggling in ways that are similar to your situation, including me. So the people are catering to the fact they fucked up the prices for homes. There's no flow because people aren't buying, but what are they doing? Renting. They are just switching up the game, which was only noticable because pandemic. Also, the American Dream I wouldn't hold onto mostly because that stopped existing probably close to, if not already, a century ago when you look at our history. It's just a fancy thing companies like to wave in poor people's faces to keep them "thriving" in absolute shit conditions. It doesn't exist. It hasn't for a long time. Not in the way we have been taught for it to be as at least. It's better if we modernize it probably. I'm sorry of your life struggles as well as your families. I don't remember a lot from back then (I just have shitty memory) so I couldn't even tell you how it hit where I'm at. So all I have to offer on that note are my sympathies for the experience at all. I hope it does get better one day though.


It's crazy how much changed only about a decade. I'm at the low end of Gen X (I'm 42) but was 27 when I started my 401(k). Turns out my investment then was happening during the recession, so I was buying I'm cheap as hell. As we came out of that I saw my 401(k) balance start to grow significantly as stocks went back to "normal". In my thirties I advanced enough in my career to have a decent salary ($70k) in a MCOL part of the US, and by 37 I bought a nice 4 bedroom house (built in 1975, nothing extravagant), have a few kids, and my wife is a stay at home mom. We aren't wealthy by any stretch, but I'm a homeowner, live a comfortable lifestyle, raise great kids, have paid off vehicles (albeit one is a 2007 SUV and one is 2014 minivan), and are on track with our retirement goals. It's wild and heartbreaking that that so many people only 12 years younger than me feel so burdened and unable to live the life I have - one that to someone 15 years older than me might think is below them.


Articles seem to make the effect look like the cause, when it fits the narrative. ‘Millennials buying less housing as an effect of housing prices going up? Millennials must think homeownership is bad, this must be their choice. Couldn’t be the fault of u/real_estate_megacorp who hired me to write this.’ But when you log off and talk to real people you realize that ignant boomers are writing these op-eds.


Most of my friends built their own home. I'll do the same whenever lumber becomes less valuable than a fucking diamond necklace from Tiffany's. I have no idea why that's the case though. I wonder if it has something to do with how hard individuality was pushed on our generation. Edit: also, there is a lack of secret doors in prebuilt houses. If you build a house and don't have a hidden room then you did it wrong.


Are you and your friends actually building your own homes? Or just picking a few options out of a cookie cutter neighborhood “building your own home”?


Full design! I haven't started mine yet but I'll do the same as my friends and draw the blueprints myself. Then I'll use my friends as slave labor like they did me.


If the house is expensive enough, just owning it is profitable. Houses in Seattle went up 15-20% year over year. If your house was worth $1mil last year it's worth $1,150,000 this year. $150k profit. You can't rent out a house for $11k per month. It's probably not even worth their time. Also the more houses they own, the more valuable the houses they own are, because they are creating scarcity leaving them vacant. Vacant housing should 100% be illegal.


queen anne is a short walk from most of amazon and its so vacant. theres a property the size of an entire block just a short distance from downtown. such an absolute waste.


Ya there's no reason to build anything there. Just wait until Amazon decides to pay top dollar for it. I have a friend who bought a condo in South Lake Union for $70k in 2007, it's probably worth at least a few million now. It's literally across the street from Amazon. That area was a mud pit 14 years ago. Literally.


>You can't rent out a house for $11k per month. Lol. Tell that to the $12,000 rental I saw listed in Denver. I regularly see $5000+ ones pop up


Even if vacant housing is illegal, it’s easy to circumvent as a lot of people already hire house seating services. Know a few people who get paid to stay in big houses as the owner constantly travel.


There's a massive housing boom in the SW cities rn and these ponzi real estate land grabs are becoming more popular since a lot of baking deregulations that happened under Trump's admin were designed to benefit the lenders heavily. Here's an example from AZ... The land isn't owned by the tiny overpriced home buyer but somehow the buyers are to come out 25% ahead if they resell later? $600,000 for these little boxes in the desert. https://www.abc15.com/news/business/micro-estates-under-construction-to-bring-home-affordability-to-tempe


The housing boom in the SW is crazy. I'm in Tempe, AZ and was trying to buy a house 6 months ago. Prices have increased significantly since January with no end in sight - I'm being priced out of my own home making more than the national average...


When I was out there 15 years ago the cost of living was unobtainable on little more than minimum wage. Even with 3 other roomates paying a share of the rent and utilities we barely broke even let alone think about saving up to buy property. I guess when the 2017 audit of the Pentagon found that the DoD and other agencies were using their budgets to invest in HUD and other properties development groups without explanation or receipts to find out is about to be revealed soon. Smh, the business model of the Salton Sea is about to be rebooted on a grand canyon scale. Paid for by the U.S. tax payers and after it will bankrupt, Ponzi complete, federal banks and bailouts.


> I guess when the 2017 audit of the Pentagon found that the DoD and other agencies were using their budgets to invest in HUD and other properties development groups without explanation or receipts to find out is about to be revealed soon. Got more info on this?


Rolling Stone did a lengthy article on the audit and how bad it was in 2018 iirc. I'll see if I can dig it up. Eta link, https://www.rollingstone.com/politics/politics-features/pentagon-budget-mystery-807276/ A bit dated but still enough to get started following the $ trail.


They’ve done it several times, people are just now noticing because of the shortage of homes. There are several single family REITs operating in the space mostly started by Wall Street guys who saw the shortage in homes being built after the financial crises and realized it was a good bet. Google invitation homes for one of the earlier operators. I do not think you understand BlackRock’s role in the economy, they invest in everything but it’s not their money. They’re not necessarily expressing their own view when creating asset classes, their role is to make that asset class available and take a slice of what is invested in it as a fee. Their clients might not think it’s “better” than stocks but they might believe housing is less volatile and will have a steady income stream relatively uncorrelated to their other assets so they can lower the risk of not making pension payments or what have you. An asset manager of BlackRocks size has no problem acquiring or spinning up any business necessary to support an investment thesis once they know they’ll have the capital to go out and do it.


I’m sure it would shock most people to know Blackrock has 8.6 trillion dollars in assets under management. They are a behemoth.


People who haven't worked with them, even if it was tangentially, just don't understand the scale at which they operate. We weren't asked to buy a few houses in a month, we were asked to buy hundreds for them, monthly. The real kicker of this is seeing this article in 2021, I was doing this in 2011 and they'd been active locally since at least 2008. There's also a misconception in this thread about why they're doing this, and it's simply because they got regulated out of doing this with mortgages so now they do it with the asset itself. As an example, Tricon bought \~700 homes in Nashville from Invitation Homes (largely funded by Blackstone, among others). This is just selling mixed class tranches but of the assets themselves instead of the loans.


Property management companies....possibly also owned by them. And yes, housing and perpetual rental income is a good asset to have. They diversify, this is just one. Not that I agree or think it's a good thing.


>And would that mean that they think housing is a better asset to buy than stocks/options/whatever it is they normally trade? I'm definitely no expert, but they're buying up real property right now because of 1. huge tax advantages 2. uncertainty around federal taxes affecting stock returns. Trump's tax cuts (TCJA) gave big breaks in how "pass through" taxes works. So Blackrock can just set up an LLC for all of the properties they gobble up, get a 20% pass through tax break, AND get a special 100% deduction for any improvements they make to the property. So property (especially in Austin or where I live slightly to the south, San Antonio) is an extremely safe investment with solid, predictable returns, and corporations are getting massive tax benefits. Meanwhile, average home buyers are getting absolutely screwed. Edit: I should have added that the 100% up-front deduction starts decreasing after 2022, which is why we are seeing a flurry of activity now. Corporations want to take full advantage of these tax deductions while they can.


In consideration of taxes, property tax accounts for a large portion of municipal services and payroll. Any outsize leverage by large block holders will have political consequence as well.


With the current trend im surprised why everyone else isn't all in.


I wonder if there’s some influence on the fact that if there was a massive movement towards this and not a gradual shift, then it’d effectively require societal intervention. The inability for non-rich people to afford basic housing is already a prime factor in keeping people poor. It’s such a joke that owning a home is cheaper than renting.


>societal intervention Good luck with that.


I'm still trying to pick a trend of the week here.


I mean buying homes buy in large is much harder for individuals since you have to find a trustworthy realtor and figure out how to manage a property. Being able to outsource management at scale takes a lot of the risk out as long as the overall market is good.


“By and large”


These already exist. They’re called REITs. Don’t worry about their bottom lines. The cost of overseeing the properties is passed directly onto the renters who, because the REITs can outbid every other individual for a property, have no choice but to live there. That’s why in Ireland, for example, you have sky high rents and sky high house prices. The REITs here actually leave properties empty rather than lower the rental price! (In Ireland, in certain areas, there are limited rent controls so lowering the price means they would be forced to work from there for a longer period of time.) They also buy up huge chunks of the limited supply of homes driving the price for housing up too.


Overseeing rental properties is not a huge thing. It's essentially like any other business structure, where you have a management system in place. Property management has been a thing for small investors for a long time.


No, they'll price people right out of the housing market. People have to have places to live. With these firms snapping properties up now, it's going to get very very ugly when people start to not be able to get into a lease (3x rent = monthly income + good credit) or own a home (ironically less expensive than renting but there's no affordable homes) It's greed


If they buy enough homes in a city they could influence the price of rent for the entire city. Seems like a terrible situation for everyone. Not enough homes to go around, and they're pricier and renting is more expensive


And what do people in those areas do? They pay the inflated prices to avoid being homeless. Or they become homeless and lose everything... all because a bunch of greedy ass corporations think they need more zeroes on their bank balances


Iirc their was a bit on this on Last Week Tonight. The scale in which this is going on is pretty terrifying. These huge investment firms are basically trying to make it impossible for anyone to be able to afford to own their own homes in the long run and make the entire country slaves to renting from a handful of financial institutions. The area I live in in the North West has a few new housing developments like this. Houses for sale at ridiculously high prices or options to rent it for more reasonable prices.


If you want to see the future outcomes of these properties just look at Invitation Homes and American Homes 4 Rent. These two companies go into areas like Tampa Bay, buy up the available houses, raise rent for the area, and then give absolute shit service on top of insane fines/charges. They absolutely wreck the home rental market and this has been going on for years and spreading to other areas. Only by luck were we able to find a rental in our area that fit our needs and didn’t belong to those two companies. Edit: Oh, can’t forget to mention Progress Residential as well. Bunch of fuck wads, the entire lot of em.


It's been happening in trailer parks for a while now (I think that's the LWT bit you're referring to). They're taking it full scale now.


Let's not also forget that there's an eviction moratorium in place that's going to end soon, there's going to be ***a lot*** of people looking for new places to live very soon.


And one upon a time the USA had plenty of near-urban space to build single family homes, and the government encouraged it as much as it could. That land ownership was then used as wealth spring board for families to be able to get loans for things like starting businesses, or attending collage. But those government programs have become corrupt, political, and largely collapsed. The laws meant to protect single family homes are also inadequate and even being ignored. Then with the population continuing to grow and cities going from large to colossal in scale, the price of urban, suburban, and even near-urban rural real estate is skyrocketing WAY past the ability of the typical nuclear family to own. Which is going to set up a renter economy of pesudo-fedualism as only corporations and the elite will be wealthy enough to own land, even the typical 1/8th acre used for a family home. Which actually, I am to understand, how most of the commons in most o the world live: renting in urban apartments.


These investment firms are buying these homes precisely because of scarcity. We need less exclusionary zoning and suburbs and more apartments and condos. Our cities need to be dense. We need to allow developers to build and lower the cost of housing. Look at housing policy in Japan, South Korea, and Singapore.


A certain Dead Kennedys song comes to mind


That's super backwards. Mortgage interest rates are at an all time low. Even if you have the cash to buy a home outright with cash right now, it's better to get a 30 year fixed interest rate loan for the home and invest the cash instead. Home prices have risen substantially because interest rates are so low. If you do the math, it's cheaper to get a mortgage today than it has been for 50+ years. However the cash price in inflation adjusted dollars is simultaneously way higher. That's how much difference 2.8% vs 9.8% interest has on mortgage monthly payments. If they were taking out loans to buy these homes, this would make sense. They would be leveraging the low interest rates into long term wealth.


It's deeper than that. You need to look at how Bloomberg money has shaped real estate markets in blue states or immediately following states the go blue. It's wide scale manipulation of the real estate markets that creates homeless crisis, justifies hundreds of millions in low income housing contracts. It's core to the fundamental corruption we've been seeing for decades.


Where can I read more about this please?


This is [one of] the article[s] that started the latest buzz. https://www.wsj.com/articles/if-you-sell-a-house-these-days-the-buyer-might-be-a-pension-fund-11617544801 This is one from a couple years ago that explain the origin. https://www.theatlantic.com/technology/archive/2019/02/single-family-landlords-wall-street/582394/


Sounds like slavery with extra steps


Question: is there anything we as people who would actually live in the homes do to stop this? I’m terrified at the idea of not being able to own my own home at some point in my life. Is this just a new bullet point in the long list of ways we seem to be getting fucked over and over? Thank you.


Not sure if this is common in the U.S., but try joining a housing co-op: https://en.wikipedia.org/wiki/Housing_cooperative


They are rare to find outside of a major city in the US.


This is interesting, will definitely have to do some research in my area. Curious about what happens once leaving the co-op, but I’m sure a lot of them have their own set of guidelines.


Lol might as well have just said “no, there’s nothing you can do to prevent this train”. Suggesting turning to a housing co-op is like suggesting you just start growing your own food and start your own village. The only way out of this is through an extensive policy overhaul, but lobbyists will forever keep that from happening


Answer: I echo everyone else’s sentiment and Ill add a minor note regarding the prices they’re buying at. They’re creating a systemic problem. At the prices they are buying at they’re increasing valuations, which almost certainly is compelling other, common folk to sell their property to get in on the profit, but I’d venture a guess that many in turn are selling to a corp because of what they’re offering. And at the prices they are buying at, they’re pricing out normal folks. It’s like trying to become a community’s landlord. You get to establish and collect EVERYONE’S rent. Mark that shit as high as you want, justified by the overvalued “property value”. Mother of all bubbles destined to come about. Edit: added commentary below I'll add a piece regarding the 'bubble.' Corp ownership is one part of the big ass problem of this being one of the craziest seller's market, virtually everywhere in the country, lowest interest rates ever, and low inventories everywhere. Obviously everyday folks are buying more houses than any other entity, but when property values come back down to earth, even if it is gradually, that property that you overpaid for now has negative equity. Property values can be speculative like stonks, and like stonks they'll dive faster than they rise. So when that bottom falls out...yikes. Also somebody mentioned about where the money for full cash offers is coming from, itll be from folks who just sold their homes and are buying a new one. Also, re: the rental market. It tails the housing market. Those who can't buy, rent. So when the housing market is rocketing the rental market is right behind it and rents will keep increasing. When people are priced out of renting and lets say they go the RV route (for example) RVs will start selling for more and more. Poverty is an institution with its own market.


If the only thing causing the price increases is the willingness of huge companies to pay more, and the actual value of the properties is not being increased through development, then you have a bubble.


I think we have a 40 year bubble. From 1890-1980 the price of housing was flat. I think if it goes up in price beyond inflation a little it's a bubble. The problem is zoning regulations but those are being decreased across the country and we are in fact seeing an increase in building.


Zoning regulations are 90% of the problem and the same people complaining about not having enough affordable housing are the ones who stop development projects.


And when we say zoning it also includes things like minimum parking requirements, setbacks, what % of the land you can build on, can you build ADUs etc. It's not all increasing the minimum amount from single family to duplex or quadplex. I mean I think Minneapolis didn't see basically any duplexes created and then they relaxed parking laws and then the price for newly built units dropped from $1200 to $1000. Also NIMBYs need to get it through their head that detached single family housing is the luxury option.


Exactly. There are so many different small policies that when added together basically make it impossible to build anything other than car dependent single family homes that require stores to have wasteful parking lots taking up land that could be better developed.


Very much all of this.


I don't understand who these people selling their homes are, because you can't turn around and buy again when the corp you sold to is now competing with you to buy the next house...


Let’s say you live in california, average home price is $600k, and you sell for $700k. Then you move to Idaho, where average home price was $300k, but you can afford to pay $400k. Same problem, different price points.




Hey neighbor! As you can imagine, it’s also happening here in VT.


...and Maine. A 2BD 1 BA 1100 sq ft home with no land just sold for $349k but was listed at $325k. This place would have been easily under $125k a few years ago.


You also have a lot of empty nesters downsizing into retirement neighborhoods or condos


Not necessarily. If you buy everything and rent it all out at a profit, then you control the bubble. As long as you have tenants paying rent.


That's a big if, though. One of the huge lessons of 2020 is that a lot more people than anyone realized can live wherever they want and successfully work remotely. If big city rent goes sky high, a big chunk of potential renters can just move to the boonies.


The boonies are getting bought out, too


Fuck yeah they are. Housing prices 1 hour out of town are almost the same as the city center. Sure, you get more acreage and square feet, but the price tag is the same. 400k for anything.


Check this article out from Arizona... This is as crazy as canned buttons. https://www.abc15.com/news/business/micro-estates-under-construction-to-bring-home-affordability-to-tempe




It's a trailer park, but bougie. And you can't take the house with you if you leave. Fuck, it might be worse than a trailer park, and that's saying something...


It's worse. At least standard mobile homes can be relatively spacious. And they can be decent if you buy a newer one.


Wow, $170k to own a 600 square foot home in Tempe. This country is fucked.


The New Zealand housing market: "Amateurs!"


Not true. Anyone trying to buy a home can’t, and almost any company large enough to have employees out of state are already (or will soon be, for most cases) dictating the conditions of working remotely. I’m in tech and there are stipulations in place about keeping salary, working remote, and relocating


Most people can’t just up and leave, even if they *had* to. I nearly took a job that would require me to move to Colorado. It would’ve cost me over $5000 just to move and get settled in. Most people don’t just have $5000 laying around. So they’re stuck where they are, can’t buy, can’t rent. And this is how cities develop homeless tent cities.


Answer: inflation hedge




also related: the Fed has pumped up the supply of money and that money has to be parked somewhere - blackrock doesn't make money if it stuffs it all in a mattress so they park it in real estate. This is also why people like Bill Gates are buying up huge swaths of farmland - he's got so much money he doesn't have anywhere else to put it.


This. It’s a complete broke societal system. The unmeasurable amount of cash in the hands of a few who can’t think of innovative ways to build a better society other than raking in much more cash and “pledge” to give back to society. The society they just robbed of a living wages and they don’t contribute to by paying equal tax. And now disrupt it even more by driving up prices of residential real estate. Complete and utter selfishness. They deserve to be mocked, thrown tomatoes at, spit and yelled at. Have a nice Wednesday.


>It’s a complete broke societal system. The unmeasurable amount of cash in the hands of a few who can’t think of innovative ways to build a better society other than raking in much more cash and “pledge” to give back to society. Its more like "we see that this money is going to be worth a lot less in the future, where can we invest it to preserve that value?" It used to be a joke that people would buy lose diamonds as a hedge against inflation. And gold is always referenced. Now, you could look around and see what other things you could do with that money. The stock market? Man, for some people it looks like a massive bubble - its up almost $10k over the last three years. Crypto? Way too volitile for most folks and really susceptible to spooks (a Musk tweet can have BTC jump or drop...) I mean, you can't keep it in the bank - interest rates are paying worth crap. Go Google "high yield savings accounts" and take a look at those rates... does that make you want to save money and let it grow over time? So stocks look risky short-term, crypto is god-knows-what, savings is out... so now its direct investment... in what? You could probably go buy up some small companies and try to turn them around, but that's really tough. So now what do you do? You go look at the one thing that has performed really well historically as a hedge against inflation - [land and property](https://www.in2013dollars.com/Housing/price-inflation). Even a major event like the Great Recession only stopped housing value growth for a year or two...


For people looking for more of an explanation to this, the US printed huge amounts of money last year and this year when creating stimulus packages. Not sure what it's at at now but at different times in the past year I read that the percent of currently circulating money that was printed since the start of the pandemic was 25% to 30%, which is huge. Historically speaking, when a government starts printing money, it causes inflation to increase, and when they print huge amounts of money it can cause hyperinflation, like when you have to bring a wheelbarrow full of $20s to pay for a sandwich (Venezuela is currently experiencing something like this now). Recently there have been news stories about inflation being at it's highest since 2008 and a lot of people are worried about it continuing to get worse. On the other hand, there are reasons to think it might not get too bad, because most of the Money that was created went to businesses and investors who won't necessarily spend it all immediately. And really, anyone who claims to know what will for sure happens is full of shit because pandemic-induced recession is very much uncharted waters for the world economy. But this company is probably buying houses up to protect their company's money from inflation. The best investment to protect against inflation is real assets, tangible things of real value that will always have demand. When inflation happens, any money you have sitting in an account is losing value. IIRC (probably not) those recent reports said inflation had gone up around 4% I think? So, if that's correct, any money or investment not making at least 4% interest or gains in the same time period is actually losing money. So your checking and savings accounts, your low yield investments, the money in your wallet or under your mattress are all currently losing value as we speak. Meanwhile, a house is actually going up in value with the inflation, saving you from losing money. You can do this with anything that you can reliably sell after the inflation or Hyperinflation occurs. For example, you can take out a mortgage for a $200k house before the inflation occurs, then once inflation has gone crazy, sell your old beater 2001 Honda Civic for, say, $250k of hyperinflated dollars. Then pay off your agreed-upon $200k mortgage with $50k to spare, which you then use to buy a candy bar and you just essentially bought a nice house for less than the cost of a 2001 Honda Civic. But again, before you try to buy a couple houses, or a fleet of 2001 Honda Civics, there are a lot of factors at play here besides the fact that a lot of money was printed recently. That inflation is happening now does not mean that it will continue at its current rate or get worse.


Yes, and to add a little complexity to the answer-- 20%-50% markups are nothing if you're able to obtain an asset at minuscule interest rates, especially if you think interest rates are going up.


Completely agree


This is a brand new term/concept for me. No matter what happens to capital, land and housing will always have value, and can adapt to however capital changes.


Why is this so far down


Because your average Joe (like me) has no idea what this means.


Conspiracy theories


Answer: Blackrock owns about 30% of Invitation Homes, the largest single institutional investor. Invitation homes owns about 80k single family homes, combined all institutional investors owned about 300k single family homes. There are about 70 million single family homes in the US, so they own less than 0.5%. Owner occupants own about 80%, smaller investors own about 20%. In addition to single family homes, homeownership rates including condos townhomes apartments and everything have fluctuated from 60-65% over the last several decades, but they are near 65% and trending up. Many reports like the one from Redfin showing a startling number of purchases by institutional investors use some other definition. Like including any business that purchases real estate and not just publicly traded companies. Many home purchases by institutional investors or regular investors end up with the home being improved and resold again in short period. Most of these homes are not something "a young couple trying to buy a house" would even consider putting an offer on, because they won't qualify for conventional financing. Also So you could have 25%+ of single family home purchases be by investors, even though investors only own 20% of the single family homes and that number hasn't changed(and you also have some owner occupants become investors when they move out without selling). Institutional investors are buying homes to rent them out for a profit primarily. In a lot of markets with very high homeownership rates there are very few single family homes for rent, these rentals can be more profitable than apartments even factoring in the higher maintenance and other costs. Basically they are profiting off the community reinvestment of the homeowners. And more generally with real estate you have favorable tax treatment with depreciation, and real estate is a hedge against inflation, and speculation. Another factor is Fannie Mae subsidizing/securitizing billion dollar loans to institutional investors, but regular investors get a bigger subsidy, and owner occupants get a much larger subsidy so it isn't really a problem So all in, institutional investors buying homes is relatively new, but regular investors have been buying homes forever, at about the same rate overall, and they make up a much larger portion of the market, and there haven't been major changes with homeownership rates


Have you seen home prices in many areas the last few years? Something is changing, and it's changing quickly, and seems to be accelerating.


Answer: So in terms of why BlackRock et al. are doing this, it's simple. With leverage you can very realistically get a 15% per annum return after taxes and expenses. That coupled with very limited downside risk and the fact that this type of asset is "inflation linked". That is to say, even if we had massive inflation, which would destroy the value of most bonds, here you can pass the inflation onto the renter. How do I know: Not going to name my company, but I've been involved with setting up what will become the largest REIT in England. We will buy at a discount as opposed to a premium, but ultimately so long as we can get the required yield (rent divided by purchase price), we'll pay anything. In terms of the banks, we are getting essentially an enormous mortgage from an investment bank at a very good rate (just over 1%), and an LTV of over 70%.


Oh good, I see wealth inequality is continuing to grow.


Answer: There a two reasons a corporation ever makes purchase. First is tax. The company has made a lot of money last year and they need to spend the money so they don’t get taxed as much. Second is speculation, they expect those homes will go up on evaluation because let’s face it, you can’t choose to not have a home, and if supply decreases and demand remains unchanged(it can’t), so will housing price. As to “will this possibly be another 2008”, nobody knows, only guess.


I don't understand how buying real estate helps for taxes. It's inventory or a capital asset if held at year end. It can help for taxes if sold at a loss, but who would intend to lose money to save on taxes?


If they are holding the property as rentals or otherwise using them in a trade or business it wouldn't be a capital asset or inventory. It would be depreciable over 27.5 years. Basically, they get to deduct 1/27.5 of the cost of the house each year. Meanwhile the houses actually aren't losing value that fast, so effectively you get to accelerate an income tax deduction. That said, I doubt that's actually what's motivating these purchases. Residential real estate has historically been a strong investment for consumers; there's not any inherent recent it wouldn't also be for an institutional investor.


Right but only to the extent of the income they're making on those houses depending on their business structure unless I'm confusing the 1040 Sch E/1065 rules with whatever they have going on


You're thinking probably of the "passive loss" limitations that apply to individuals. Certain kinds of activity--notably rental real estate--are called "passive" and any losses from those "passive" activities can only offset against income from other passive activities. But A) that only applies to individuals, not entities like whatever structure they're using here (maybe some kind of REITs? Iunno) and B) it's *all* passive activities, not just the specific houses. So as long as their generating net rental income somewhere they would be able to offset. Again, I don't think this is primarily a tax shelter or anything. I think it's simpler than that: Real estate is an investment. Blackrock is the largest institutional investment firm. Institutional investors want to invest in residential real estate without having to go be landlords themselves. It makes sense that an institutional investor would be buying up a valuable asset expected to grow in value.


Another possibility is that this is an investment made to counter expected inflation. If they can get low cost mortgages, high inflation -- assuming no collapse specifically in housing -- will mean the value of the homes will increase quickly and overtake a locked in low interest rate. I'm not saying this is why they are doing it, but it would be another reason to invest in these sorts of assets


To add to this, if they are buying above market in a specific area they are also raising valuations in that area. A direct result being that house prices go up in that area. I predict future regulations being established due to regular people getting screwed somehow.




No they have the capitol to buy up the entire realestate market and guaranteed that's the plan. This is the feudalist move.


This will go the way of health insurance.


They absolutely do not have the “capitol” to buy up all the real estate in the United States. Blackrock has total assets of about $165 billion. Real estate in NYC alone is worth >$3 trillion. They could buy maybe a few blocks of Manhattan before they ran out of cash. Obviously blackrock has a lot of money but you’re a couple orders of magnitude off.


And of course by buying up inventory they'll pump up values, meaning regular buyers get priced out and are forced to rent. Imagine they'll flex their power to reduce property taxes too.


> you can’t choose to not have a home Actually, we're seeing thousands of people going fulltime RV-ing, or shifting to other housing alternatives. Plus, of course, there's also the people who have been priced out of the market entirely by this speculation, and are now homeless.


Answer: Private Equity and Investment funds are flush with cash, as in there are trillions of dollars in these funds and they are desperate to find anything to get an ROI on. They are also buying up companies left and right, creating even more consolidation in many industries. These mega-investment firms are just throwing cash anywhere to keep it from sitting idle, but they can't spend money faster than they are making it because they run a lot of businesses on debt (where they can cut and bankrupt them if they fail), so they are practically printing money while not actually improving most companies they own because letting them go bankrupt doesn't really cost them anything.