Tag Archives: landlords

The rise in LLC property owners in Chicago

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A new analysis shows that LLCs now own more properties in Chicago compared to two decades ago:

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In the last two decades, LLCs have become an increasingly common way to own real estate in Chicago, according to a first-of-its-kind analysis of 26 million property records by WBEZ, Injustice Watch and the Mansueto Institute for Urban Innovation at the University of Chicago.

The share of multifamily rentals owned by LLCs increased from 3% in 2006 to 16% in 2022, the analysis shows. Their share of ownership among larger apartment buildings with seven or more units, like the one where Carter resides, increased from 9% in 2006 to 34% in 2022.

Why the increase?

But LLCs gained traction with real estate investors in the 1990s when they realized LLCs had very minimal disclosure requirements, Hamill said. In Illinois, for example, only the manager and agent of an LLC — neither of whom are necessarily owners — are required to be publicly disclosed…

“There’s two big advantages with LLCs. One is the tax advantage that you’re not taxed as a corporation. The other big one is the ability to isolate liability and isolate financial assets,” Immergluck said…

But experts say the issue with LLCs isn’t their protection against legal liability. They say the problem with LLCs is the lack of transparency.

This could be told as a story of how a change in bureaucratic structures – the ways a corporation could incorporate – led to unintended outcomes. A new option from the 1970s eventually proved useful for property owners. But that could prove problematic for renters who cannot easily find people who can address important property issues.

This is a similar but different concern that those expressed in recent years about institutional investors buying up housing. What is similar is that some hard to find or hidden or presumed-to-be self-motivated actor is buying up housing and not acting in the best interests of residents or the broader good. What is different is that the concerns in the article above are primarily about the lack of having a person to contact and hold responsible, not about the numbers of units that are less affordable or less accessible because an LLC or corporation is acting rather than an individual owner. So this may not be a question of whether corporations can buy residential properties; it is about whether residents can know who these corporations are and whether they can be counted on to fulfill the landlord’s duties.

It would be interesting to hear from landlords what they would think of changes that would reveal their ownership. Would landlords who want to do the right thing object to this? Would some still want to not have their ownership public but would respond to residents well through property managers?

“Wall Street landlords” don’t own a big percentage of residential properties though percentages are higher in some clusters

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An analysis of “Wall Street landlords,” big firms buying up residential properties, suggests they do not own a large percentage of residences overall but their property does tend to be in some clusters:

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Nationally, Wall Street landlords that have more than 1,000 units in their portfolios own just 1% of all of America’s family homes and 4% of all of the houses that are rented out. In most areas, their presence is still too small to have much effect on local housing dynamics. If current trends continue, though, their share of the market for single-family rentals could increase 10-fold by the end of the decade, MetLife Investment Management estimates. 

There are a handful of U.S. neighborhoods where investors are densely clustered, particularly in Georgia, North Carolina, Florida and Texas. They have bought more than 1,000 homes in 53 zip codes, putting their ownership of the local housing stock anywhere from 4% to 12%, according to data from real-estate analytics firm Parcl Labs. The data includes some houses temporarily owned by builders, as well as foreclosed properties on banks’ books, but most are held by institutional landlords. 

Wall Street housing investors tend to herd into the same neighborhoods because their algorithms spot the same opportunities. They screen the country for cities and towns with population growth and job openings—places where there is likely to be competition for homes. They prefer to own three-bedroom, suburban properties that are around 1,500 square feet in size and offer a convenient commute downtown. Young parents like these kinds of homes, and landlords like to rent to families because they become sticky tenants once their children enroll in local schools.  

Big landlords are also able to sift through reams of data to spot bargains. The 53 zip codes where they are most densely clustered offer cheap housing. The median single-family home price in these areas is $345,400, based on Redfin data—around a fifth below the national level. Rents, however, are only 3% below the national median. 

It sounds like they have bought more in places where there are deals and money to be made relatively quickly. If unchecked, would they then uncover more places that offer deals and just keep going until there are no deals left?

Or might conditions and the approach of landlords change in the future. Some communities might restrict who can purchase residences. The landlords might be willing to hold on to properties for longer, particularly if higher rents are sustainable. Or the broader housing market twists and turns (currently few sales) might affect how landlords and communities act.

At the moment, I am most intrigued by the numbers: 1% of single-family homes, 4% of rented homes. Are these large enough percentages to fundamentally alter housing? I could see how there would be effects in clusters of owned properties and these clusters could introduce spillover effects to nearby locations or the broader market.

“Small-time landlords still dominate the single-family-rental landscape” and have new tools

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One reporter argues the small landlords of today operate differently:

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Institutional investors — those with more than 1,000 homes in their portfolios — own about 426,000 of the 14.2 million rental homes today, John Burns Research and Consulting found. Most of those properties are in sunny Southern places like Atlanta or Raleigh. Small-time landlords still dominate the single-family-rental landscape, but these aren’t your mom and pop’s “mom-and-pops.” For one, the industry is vastly more transparent than it was in the early 2000s. If you want to see what comparable homes in your neighborhood are renting for, you can scroll through Zillow or visit the website of one of the institutional investors, such as Tricon Residential, Pretium, or Invitation Homes, all of which publicly list their properties and their asking rents. If even that sounds like too much work, companies including Buildium and Roofstock, known mostly for servicing the largest investors in the space, stand at the ready to offer property management and pricing advice — for a fee, of course…

Data on small landlords’ behavior is notoriously scarce, but the latest John Burns figures show that in cities with little to no institutional presence, the smaller landlords are the ones cranking up the pressure. Chattanooga, Tennessee, for instance, has practically zero homes owned by institutional landlords but one of the country’s highest rates of rent growth for single-family homes, with the typical asking rent for new leases up 10% in April from a year prior. Institutional investors own less than 1% of single-family rentals in Grand Rapids, Michigan, but asking rents there were up 8% year over year. In a similar vein, corporate owners may face the most scrutiny over evictions, but mom-and-pop rental owners are more likely to illegally evict their tenants, advocates for both landlords and tenants told Business Insider as part of a wide-ranging investigation into so-called “lockouts.”

Mom-and-pop landlords may not be required to detail their operations in quarterly calls with stock analysts, but most experts I spoke with agreed that even those who own just a handful of properties are getting more with the times…

There will always be some landlords who seek nothing more than a tenant who pays rent on time, doesn’t leave, and doesn’t pick up the phone to complain when something breaks down. For this subset, the onslaught of proptech companies and landlord software may seem like unnecessary money sucks. But others will recognize the need to compete with the more professionalized newcomers — the landlords, both large and small, who fix things on time, let you pay online, and, yes, raise rents accordingly.

If this argument is correct, then it sounds like the information now available to potential landlords and property investors – including for a fee – puts the potential resident at a disadvantage regarding price. Are there tools and information now available on the Internet and social media that help potential renters level the playing field? The potential democratization of information in this sphere may not have benefited everyone in the same way.

I also wonder at the role of expectations about returns on investment among smaller landlords. How much profit should they get? Are they providing a community good or are they hoping to cash out big and/or finance a particular lifestyle? As Americans as a whole expect more money from their houses, how have small-time landlords responded to this?

Why it can take months for rent prices to show up in official data

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It will take time for current rent prices to contribute to measures of inflation:

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To solve this conundrum, the best place to start is to understand that rents are different from almost any other price. When the price of oil or grain goes up, everybody pays more for that good, at the same time. But when listed rents for available apartments rise, only new renters pay those prices. At any given time, the majority of tenants surveyed by the government are paying rent at a price locked in earlier.

So when listed rents rise or fall, those changes can take months before they’re reflected in the national data. How long, exactly? “My gut feeling is that it takes six to eight months to work through the system,” Michael Simonsen, the founder of the housing research firm Altos, told me. That means we can predict two things for the next six months: first, that official measures of rent inflation are going to keep setting 21st-century records for several more months, and second, that rent CPI is likely to peak sometime this winter or early next year.

This creates a strange but important challenge for monetary policy. The Federal Reserve is supposed to be responding to real-time data in order to determine whether to keep raising interest rates to rein in demand. But a big part of rising core inflation in the next few months will be rental inflation, which is probably past its peak. The more the Fed raises rates, the more it discourages residential construction—which not only reduces overall growth but also takes new homes off the market. In the long run, scaled-back construction means fewer houses—which means higher rents for everybody.

To sum up: This is all quite confusing! The annual inflation rate for new rental listings has almost certainly peaked. But the official CPI rent-inflation rate is almost certainly going to keep going up for another quarter or more. This means that, several months from now, if you turn on the news or go online, somebody somewhere will be yelling that rental inflation is out of control. But this exclamation might be equivalent to that of a 17th-century citizen going crazy about something that happened six months earlier—the news simply took that long to cross land and sea.

This sounds like a research methods problem: how to get more up-to-date data into the current measures? A few quick ideas:

  1. Survey rent listings to see what landlords are asking for.
  2. Survey new renters to better track more recent rent prices.
  3. Survey landlords as to the prices of the recent units they rented.

Given how much rides on important economic measures such as the inflation rate, more up-to-date data would be helpful.

“Landlords have the advantage”

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A new report based on feedback from 500 property managers sums up the rental market:

Vacancy rates are at a low not seen in the last 20 years. According to the U.S. Census, national vacancy rates in the second quarter of 2015 were 6.8 percent for rental housing, down nearly a full percentage point (from 7.5 percent) from the same time in 2014. The last time vacancy rates dipped below 6.8 percent was the fourth quarter of 1985 (6.7 percent)…

As the rental market continues to become more saturated, property managers are having to do even less in order to fill apartment openings. In 2015, 55 percent of property managers said that they are less likely to offer concessions in order to fill vacancies than they have been in years past. In fact, 64 percent reported that they are not doing anything different from one year ago, in order to fill vacancies…

88 percent of property managers raised their rent in the last 12 months, which is likely to continue 68 percent of property managers predict that rental rates will continue to rise in the next year by an average of 8 percent, which is a two percent increase over the estimated 6 percent rent hike predicted by property managers back in 2014…

Millennials face limited job prospects, lower incomes and high student loan debts, making it harder to buy and easier to rent. 45 percent of property managers have noticed an increase in the number of millennials renters. (Maybe some were living at home, and have moved out into the rental market).

Renters are staying in their apartments longer. According to property managers, 34 percent found that renters are holding on tight to their apartments and renewing their leases (up from 29 percent in 2014), rather than moving somewhere new.

This fits with other evidence showing a expensive and tight rental market. So when are communities – from big cities that have tended to emphasize luxury units (like Chicago, New York, and Miami) to suburbs that have tended to approve nicer single-family units to protect property values and keep certain people out – going to have more reasonably priced rental units?