Robot Landlords Are Buying Up Houses

Landlord automation does not merely assist wealthy investment businesses in owning an increasing number of the small homes in the U.S. at a time when rising home prices are discouraging more people from considering homeownership—it actually makes the entire paradigm viable. Here is how robot landlords are buying up the houses.

Consider a landlord. A representative of that class of people, not just a landlord. Depending on your experiences (and level of class hatred), you might envision a cheery elderly man who stops by occasionally with a wrench to tighten a pipe or you might envision the hulking modern equivalent of a feudal lord who steals your income through amassed wealth and property titles. Perhaps it is a company representative for a huge apartment complex.

Whatever the case, in order to perform the duties of a landlord, one had to do some work—or at the very least, have someone else do it—enough to show potential tenants around and manage maintenance. A landlord seeking to grow also needed to have in-depth knowledge of the regional housing market and the time and energy to find and build new properties.

This used to restrict the market for single-family homes to inexperienced landlords or businesses that had, at most, properties spread over one metro area. Wall Street, however, showed little interest in this industry.

“The single-family rental market was very opaque because ownership was so fragmented,” Desiree Fields, an associate professor of geography and global metropolitan studies at the University of California, Berkeley, and the paper’s author, told Motherboard. “Because of that, it was impossible to do things like securitization or real estate investment trusts”—the sophisticated financial vehicles used by Wall Street to extract money from investments.

For the Automated Landlord study, Fields conducted dozens of interviews with tech suppliers and staff members at Wall Street rental companies.

Following the 2008 financial crisis, data brokers such as CoreLogic and RealtyTrac began composing foreclosure heat maps. “Those kinds of advances really enable institutional and large scale financial actors to know a market at a distance without having that kind of intimate, tacit knowledge that comes from actually knowing a place,” said Fields.

Subsequently, new securities-backed companies started purchasing large numbers of small homes (many of which were foreclosures) with the intention of renting them out. Some of these businesses have grown into behemoths. Invitation Homes is the largest, with over 80,000 homes across 16 metro areas. American Homes 4 Rent, created by self-storage tycoon B. Wayne Hughes, has over 58,000 locations in 22 states. Even Amazon CEO Jeff Bezos has jumped on the remote management bandwagon with Arrived Homes, a platform that buys properties and sells shares to real-estate investors looking to profit.

Institutional investment firms possess about 3% (read below) of the single-family home rental market, but they have saturated some locations, such as Atlanta, where they own nearly one in every five single-family rentals and are increasing their holdings.

Housing advocates and progressive lawmakers argue that these corporations are further driving lower and middle-income Americans out of homeownership by purchasing older, 1,000-square-foot-ish properties that were once affordable to first-time buyers and inflating the market with investors.

There is not much data on the impact of automated landlords on property prices yet, according to Brendan McKay, president of advocacy at the Association of Independent Mortgage Experts. “But it’s pretty easy to draw a straight line to the fact that it is making it significantly harder for low- to moderate-income families to become homeowners, because that’s the market that they’re buying. So it is absolutely disenfranchising that segment of people.”

Data tools are also employed by automated landlord firms to discover and buy residences swiftly. Fields mentions “acquisition engines” used to rapidly develop these massive portfolios in her work. Data about housing is fed into an algorithm, which evaluates it based on neighborhood desirability and amenities, proximity to employment areas, transit corridors, construction type, and repair needs. The data is then used by Wall Street-backed landlords to make split-second decisions on which residences to buy. It is dependable enough for them to skip the visual check that practically any small-time landlord would consider essential.

Imagine Homes, which takes the robot landlord notion a step further by not even having offices in the locations where it leases, has lately embarked on a shopping spree. According to search results from local real estate directories, an LLC affiliated with the company acquired 27 residences in Cuyahoga County (home of Cleveland), 49 in Hamilton County (home of Cincinnati), and five in Franklin County in the last year, presumably to establish a presence in the Columbus area. The corporation rarely spends more than $200,000 on a home.

It occasionally places bids on properties hours after they hit the market—bids that are difficult to match—in an effort to encourage the seller to close the deal swiftly.

In a “cookie-cutter working-class neighborhood,” Caleb Bone of Cincinnati listed his one-story, three-bedroom home for sale last December. In 2017, he and his wife paid $117,000 for it with the expectation that it will be purchased by a young family. However, he soon received a cash offer for around $10,000 more than his asking price from an LLC tied to Imagine Homes. The business also consented to forego inspections. They paid him $173,500 for it.

“It was meant to be an offer I couldn’t refuse and I couldn’t,” Bone told Motherboard.

The city of Cincinnati has grown so tired of institutional investors that it is now purchasing houses directly to keep them at bay.

According to an Invitation Homes public relations spokesperson, the business “enlisted local experts in each market, rolling out a ‘pod-based’ operations model that leveraged local teams paired with industry-leading technology,” with the “goal of replicating the practice across multiple markets.” The spokesman would not go into detail about how the company employs its tech.

The primary functions of a landlord are performed by automated and digital processes in some of these organizations. Self-guided tours are used for showings. Keys are replaced by passcodes. Web portals are used for applications, leases, and payments. Repair requests are also routed through an online queue, either for in-house workers (for larger corporations like Invitation Homes) or for local contractors.

According to Fields’ research, some businesses have taken a hands-on approach to tracking repairs, relying on new technical fixes such as geo-tracking workers as they go from task to task and needing cell phone photos to validate completed repairs.

Businesses have also relied on tenants to perform their own maintenance. Invitation Homes used to post how-to guidelines for minor repairs like changing toilet flapper valves and garage door lights.

Repairs, however, cannot be completely automated or thrown back on the tenant, and Wall Street landlords face challenges with them. Neglected common household issues, such as leaky pipes and short circuits, are frequently highlighted in industry journalism exposes.

Osborne, a renter at Imagine Homes near Cleveland, said he frequently had to wait longer than anticipated for simple repairs, such as a damaged door handle, and there was ambiguity about who was accountable for lawn care.  “I think they relied a little too much on the electronic/remote aspect of everything, neglecting our needs,” he said.

According to Fields, employees at these organizations understand that automation is crucial to their business strategy. For her research, she attended a number of investment forums and industry conferences.

“Everywhere, people were kind of singing the praises of technology as the real linchpin in making this new single family rental asset class a reality,” she told Motherboard.

Fields concluded in her paper that “[n]ew information technologies” have “given rise to the ‘automated landlord’, whereby the management of tenants and properties is increasingly not only mediated, but governed, by smartphones, digital platforms, and apps, and the data and analytics these devices and infrastructures gather and enable.”

Who gains from rent payments made through a portal is a tough topic for those who reside in these dwellings, one that may necessitate a trip down a rabbit hole of investment and money.

Imagine Homes, for instance, has a link with Colchis Capital Management, albeit the nature of that partnership is unclear. Imagine Homes rents out houses through a number of LLCs, each of which is incorporated in a state where the company operates. The names of Colchis executives and the addresses of the fund’s offices are listed on that documentation, as well as documents incorporating Imagine Homes itself.

According to Reuters, Colchis joined the real estate market during the Great Recession, employing high-tech loan platforms to fill holes left by banks withdrawing from the property market.

Colchis “leverage[s] big data, analytics, technology and operational know-how to strategically invest” in a variety of real estate assets, per its website.

This has required investing money in a variety of businesses that advocate technological shortcuts for real estate investing. Colchis recently made investments in three companies: one looking to use blockchain technology in real estate investment; another looking to use AI for mortgage lending decisions; and a third with a program that promises to duplicate all the paperwork required to establish a real estate investment firm in a single afternoon.

The majority of these multistate corporations that rent out single-family homes are linked to one or more investor groups. Invitation Homes was launched by Blackstone Inc., a $950 billion giant of complicated financial products. The Alaska Permanent Fund, a state-sponsored entity in charge of the state’s oil earnings, was an early investor in American Homes 4 Rent.

Pension and retirement funds are likewise entangled in such ventures.

“I’m sure there are some wealthy individuals that are involved—like ultra-high-net worth-type individuals—but it’s a lot of those types of institutional accounts that are partnering with private equity firms,” explained Fields. “A pension fund will bring equity in the form of our retirement accounts, and with that equity, the private equity players can leverage debt from various financial institutions, and together with the equity and the debt, they can undertake acquisition of properties.”

The affiliation of Imagine Homes with a business whose exclusive focus is on automating and simplifying real estate transactions suggests an increased emphasis on landlord robotization.

According to an SEC filing, it takes $500,000 to join Colchis’ pooled investments, which total $975 million, according to analytics platform Radient.

By definition, landlords always have more assets than tenants. However, the global investor class behind Colchis, which has headquarters in San Francisco and Incline Village, a vacation town on Lake Tahoe, would have even less in common with Imagine Homes residents, who rent 1,000-square-foot dwellings in economically depressed areas.

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