The Problem with Corporate Home Buyers

Written By Melanie Bresnan

There are many factors that have caused the wild rise in home prices over the last year, some of which have been exacerbated or caused by the pandemic.  But one factor has its roots in another crisis over a decade ago: corporate homebuyers.  While iBuyers like Redfin and Opendoor can offer efficiency and sometimes lower transaction costs to buyers and sellers, most corporate buyers are more interested in renting than reselling - and that’s where the more sinister side of corporate real estate investment comes in.

In 2008, the housing market crash sent the economy into a tailspin.  Eight million American households lost their homes to foreclosure.  At the time, investment juggernauts like Blackstone saw an opportunity to buy up these distressed properties and rent them out to the middle-class Americans who could no longer afford to own them.  By 2012, Blackstone’s Invitation Homes (now it’s own independent company), was the largest owner of single-family homes in the United States.

The rapidly increasing home values of the last couple years have attracted even more corporate investment.  In the first quarter of 2021, 15% of single-family home sales were to corporate buyers.  While this isn’t a huge market share, it’s growing and it’s not evenly distributed across the country or across all price bands - and this is where the real problems with giant investment companies buying residential real estate start.

Institutional investors aren’t the root of all evil, but they’re not improving the situation either.  Below, we’ll look at the downside of corporate home buying and what you can do about it.

The areas and price points corporate buyers are targeting are stressing first time homebuyers

Corporate home purchases aren’t evenly distributed throughout the country.  Investment firms have been focused on cities in the Sun Belt that are seeing rapid economic and population growth.  Cities like Atlanta, Charlotte, Fort Worth, and Jacksonville have attracted young adults with lower costs of living and good job opportunities.  Investment firms have also seen opportunity in this growth.  In the early 2010’s, Invitation Homes purchased 90% of homes for sale in some Atlanta zip codes.  In the summer of 2021, corporate homebuyers accounted for 17% of single-family home sales in Atlanta.

Affordable home prices weren’t what drew corporate investors; rather it was the influx of people - and potential renters.  This is called equity mining, where companies purchase in areas that are highly desirable to reap the benefits of rising prices and rents.  As home prices rose exponentially, many would-be homebuyers found themselves priced out of the market and were forced to rent the same homes they might have purchased.  Investment firms saw both the long- and short-term benefits of appreciating real estate assets that could be immediately monetized as rentals.

Corporate buyers have monetary advantages that go far beyond all-cash offers

In Nashville, we’ve heard story after story from frustrated house hunters who find themselves out bid by all-cash buyers or offers tens of thousands above asking price on what should be an affordable starter home.  While investment firms might have more cash on hand, that’s not their only advantage when competing with individual home buyers.

While the average mortgage has a 2-4% interest rate, companies like Invitation Homes are able to borrow at only 1.2% interest, allowing them to offer more for a home while not paying any more than an individual homebuyer with a conventional mortgage over the lifetime of the loan.  Corporate buyers are also able to use the other properties they already own as collateral to purchase more properties.  It’s not hard to see how a young family with a hard limit on their budget would struggle to compete with a multi-billion dollar investment firm - especially when there aren’t enough affordable homes to go around.

First-time buyers are particularly vulnerable, not just because of their budget, but their loans.  FHA loans can experience delays in paperwork or other hiccups that can hold up a closing, giving all-cash corporate buyers an extra leg up.

Sometimes, they’re even able to nab homes before they hit the open market.  When Zillow’s iBuying program failed, they sold 2000 of the homes they had purchased to private equity firm Pretium Partners without ever listing the homes on the public market.  Pretium’s two rental firms already owned over 75,000 properties.

Pricing out would-be first time homebuyers isn’t a coincidence

It’s no coincidence that investment firms and first-time homebuyers are competing for the same homes.  By buying up the limited supply of starter homes in high demand areas before would-be first-time homeowners do, they convert the would-be buyers into renters - a.k.a. customers.

In 2011, Morgan Stanley released a report called “A Rentership Society” on the financial opportunity presented by purchasing and renting out homes foreclosed during the financial crisis.  The title of that report is telling; it presented a vision of future where the majority of Americans are renters and rates of private homeownership - as well as ownership of many other assets that have traditionally been a one-time purchase - continue to dwindle.

Would-be buyers miss out on first-time buyer benefits as well as the generational wealth building of homeownership

There’s nothing inherently wrong with renting.  There are those who could afford to purchase a home but choose the flexibility and low-maintenance lifestyle offered by renting instead.  However, many 20- and 30-somethings are renting not out of choice but necessity.  Priced out of the market, these individual buyers miss out on the tax incentives offered to first-time home buyers.  But there are longer-term implications to a generation unable to purchase a home.

For better or worse, homeownership is arguably the primary means of wealth building and generational wealth transfer in the United States.  This isn’t necessarily right or good, but it’s the system we have.  For many Americans, paying into a mortgage is a form of savings as the equity in their home generally increases over time.  Their home isn’t just shelter; it’s a nest egg and a valuable asset to pass down to their children.  We can see the impacts of homeownership - or being denied the opportunity to own a home - in the lasting effects of redlining.  Redlining, the unjust practice of preventing families of color from buying homes in certain neighborhoods if not denying them financing all together, greatly contributed to the racial wealth gap that still exists today.

What will happen when a generation of young adults, already disproportionately burdened with student debt and a high cost of living compared to their parents and grandparents, is prevented from participating in our country’s primary means of wealth building?  The implications of widening wealth gaps and inequality are dire, particularly when we have yet to fully reckon with the continued impacts of redlining on communities of color.  The push to create a “rentership society” isn’t just frustrating buyers in the short term, it’s seeking to economically disadvantage young adults in a way that will echo through future generations and will disproportionally impact non-white Americans whose ancestors were already denied the opportunity build generational wealth through property ownership.

Corporations are objectively bad landlords

Setting aside the broader implications of rentership society, investment firms are just objectively bad landlords.  Corporate landlords have measurably higher eviction rates than mom-and-pop landlords - including during the pandemic eviction moratoriums.  They also hike up rents more aggressively, with rents rising an average of 20% for new move-ins.

In the town of Spring Hill, just an hour south of Nashville, four companies purchased 700 homes or about 5% of single-family homes in the suburb.  Between 2017 and 2020, the average cost to rent increased from $1,000 to $1,800 per month.

Corporate landlords also tend to argue for lower property taxes.  On the surface, this might not sound like a bad thing, but property taxes fund essential local services.  Investment firms, often located states away from the properties they own, don’t care about school budgets, sidewalks, or local fire departments - at least until it affects their bottom line; and when they own 90% of homes in a neighborhood, residents don’t have a lot of other choices but to rent from them.

The government has supported and encouraged corporate home buying

It wasn’t just the pandemic or the recession that sent corporate home buying into high gear.  The root of the current frenzy is a government pilot program.  In 2012, the federal government launched a program to gauge interest in private equity firms bulk-buying foreclosed homes to rent out.  Obviously, there was interest.

What can I do about it?

It’s easy to feel like powerless against a Wall Street-backed investment firm, especially if you’re competing against them to buy a home.  While it may feel like David facing Goliath, there are ways to stand up to private equity firms.

  • Don’t sell your home to a corporation, if you can help it. Put your house ‘on the market’, dont just sell to the first corporate giant that offers you a deal. Private equity firms can sometimes offer more money than private buyers but you’ll never know what top dollar is if you don’t go to market.

  • Keep the greater good in mind. We can’t tell you not to do what you need to do with your finances. However, if you’ve got the wiggle room to take a slightly less appealing offer, perhaps a slower settlement etc, prioritize selling to a conventional homebuyer. Remember that these private equity firms target neighborhoods, buying up as many of the homes as they can; if they’re trying to buy your home, they’re trying to buy your neighbors’ homes as well.

  • Support new housing development in your town. Institutional investors are exploiting the housing shortage, a shortage which local governments played a not insignificant role in creating. The housing shortage predates the pandemic and is caused in part by residents voting against new housing developments in their neighborhoods. It’s normal to want your neighborhood to stay like it was when you moved there - that’s why you moved there, after all! - but blocking new housing isn’t going to preserve your community in the long run. Change is both natural and inevitable, and it’s better when it’s driven by new community members rather than a corporate landlord.

  • Get involved with your community and local government. From HOAs using their regulatory powers to prevent corporate home purchases to the state of California giving tenants, families, local governments, and housing non-profits priority in purchasing foreclosed properties; there’s a lot community organizing can do to limit the reach of investment firms. However, creating these regulations requires striking a delicate balance between keeping private equity firms out and disadvantaging renters and lower-income buyers. Some of the attempts by HOAs to keep out corporate investors have had the unintended consequences of keeping out renters in general. Many families need to rent regardless of the influence of corporate landlords, and limiting the economic diversity of an area is bad for everyone.

  • Support new housing! We had to say it again because it’s the best thing you can do to limit the impact of institutional investors on your community. More, affordable housing stock is the only thing that’s really going to solve the housing crisis.


Institutional investors are not the root of all our housing problems; they’re just exploiting the brokenness that already exists in the system.  It’s only by solving the issues at the core of our current crisis that we can limit the negative impacts of private equity firms on local housing markets.  By working together and for the benefit of our whole community, not just our own small circle, we can start to fix that brokenness.  Support new housing developments in your area as well as initiatives for affordable housing; and remember that saying not-in-my-backyard to new homes is saying yes to corporate landlords.

Ready to Buy Your Own Home?

If you’d rather own your own home than rent from a corporate landlord, now is the perfect time to start your homebuying (or selling) journey. Get in touch through our contact page or call Zelda Sheldon with Nashville Real Estate Rockstars at Benchmark Realty LLC: (615) 720-7192 or office: (615) 432-2919

Melanie Bresnan
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