Everyone loves Scott Sowders’ house.
He knows this because complete strangers tell him it almost every day in urgent text messages and colorful postcards. They are urging him to “call today” and promise to pay “ALL CASH” for his three-bedroom, 1,110-square-foot home on Ashbrook Drive in Cincinnati’s West Price Hill neighborhood.
They want to give him an offer “on the spot”, they say. No closing costs. No repairs. No questions asked.
Sowders, who has lived in his house for almost two decades, has so far ignored the offers. But dozens of his neighbors have not.
At least 50 homes on Ashbrook Drive, almost half of the properties on the street, are now owned by the same real estate companies that have bombarded Sowders with unwanted offers. These companies, sometimes backed by Wall Street investors, are devouring detached houses across the country and converting them into rental properties.
Nearly 1 in 5 home sales in the Cincinnati market today are to an investor, rather than to a traditional buyer who intends to live in the house. That’s mostly in at least two decades, according to Redfin, the real estate firm.
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And as investors move in, homeowners move out and change neighborhoods like West Price Hill in ways that are both profound and unpredictable.
One company alone, Texas-based VineBrook Homes, owns more than 3,100 homes in Hamilton County, including 29 on Ashbrook Drive, according to an Enquirer analysis of data from The Port, Hamilton County’s development authority.
Property records show that 14 of the company’s houses in Ashbrook were occupied by homeowners at some point in the last decade.
Some of VineBrook’s homes were already rented out when the company bought them. But the company’s business model, as for many large investors, is the same regardless of a property’s history: Straighten up and start collecting rent as soon as possible.
“They want to make everyone tenants,” Sowders said.
In West Price Hill, where generations of working-class families once owned their own homes, more than half of all properties are now for rent.
In a tight housing market, this means that fewer houses are available to potential buyers, limiting alternatives and raising prices. And because the homes that investors buy are also the type of homes first-time buyers are looking for, tenants who want to become homeowners have a harder time finding a place.
They mainly compete with their landlords – the big real estate investment companies – to buy their own home.
“They are buying up all the homes,” said Tyra Coleman, who for several months has been trying to buy a home like the one she rents from VineBrook on Ashbrook Drive. “That’s why you have people stuck.”
Big firms have an edge
Coleman does not have to travel far to see why it is so difficult for her and other potential buyers to hunt for houses these days. Read also : Inked: Recent LI real estate deals. Wherever she looks at Ashbrook, investors are buying homes.
At least half a dozen houses on the street have either “For rent” signs in the courtyard or contractors who repair the houses for tenants. Dozens of others are already occupied by tenants like her.
Coleman, who pays $ 1,120 a month in rent, said she wants to buy a house in the same price range as the one she rents from VineBrook, which according to estimates on the website will cost around $ 130,000 today.
A few months ago, she saw a promising house built in another neighborhood, but when she called to set up a tour, the real estate agent told her that someone else had just bought it.
“It’s very frustrating,” said Coleman, who has two grown children and two children living with her. “It’s like they get first dibs.”
VineBrook and other investors have an advantage over regular home buyers like Coleman because they can pay cash and final costs. There is no waiting for loan approval and no arguing about repairs, which appeals to sellers.
They can also get a jump on other buyers by hiring local real estate agents to keep an eye on new listings and to keep in touch with potential sellers, like Sowders, with all these calls, texts and postcards.
Sometimes investment companies give an advantage just to be so much bigger than other potential buyers.
In 2018, RF Miller Homes sold 270 properties to VineBrook for $ 19 million. RF Miller, based in the Cincinnati suburb of Fairfield, wanted to reduce the portfolio of rental homes, including more on Ashbrook Drive. VineBrook had the money to buy them.
The agreement helped make VineBrook one of the largest external investors in the Cincinnati market.
According to Hamilton County property records, approximately 50 of the 106 properties in Ashbrook are owned by investors today, including the 29 homes owned by VineBrook.
Jay Kratz has been as frustrated as Coleman when it comes to competing with investors for housing. He is director of real estate and development at Price Hill Will, the non-profit organization in the neighborhood that rehabilitates and sells homes with both market prices and affordable prices to individual buyers.
These days, he said, when Price Hill Will calls for a new listing in the neighborhood, it often finds that VineBrook or another investor already has a pending offer to buy it. Kratz said it has reduced the number of homes the nonprofit rehabilitates each year from about four to two.
“I guess there are just going to be a lot fewer people buying homes,” Kratz said. – Something that is unfortunate.
West Price Hill is a target
Streets like Ashbrook are the main target for investors because they have an abundance of modest, affordable homes that can be purchased at a reasonable price, often around $ 100,000 or less. Read also : Report: Business professionals make high returns.
It does not take long before their investment begins to pay off. A recent study by Attom, which tracks real estate markets, found that the average annual return on a three-bedroom rental home in Hamilton County is about 10% of the original investment, including the cost of buying and renovating the house.
This means that a house of $ 100,000 will generate around $ 10,000 a year in income after expenses.
And if rental prices continue to rise – they reached a record high nationally in May – the return will do the same.
The median rent for detached houses in the Cincinnati market increased by 23% in May, to $ 1,450, according to Dwellsy, a rental service. This figure includes all homes, including expensive suburban homes and downtown properties.
VineBrook, which has said in accounts that it primarily invests in moderately priced markets, reported a 7% increase in average rents in Cincinnati to $ 1,150 from the first quarter last year to this year.
The trend is good for investors, but is it good for neighborhoods? The long-term implications for Ashbrook Drive and the nation at large are unclear because nothing similar has happened before.
When Danny Withers paid $ 27,000 in 1978 for his 900-square-foot home in Ashbrook, the real estate agent said it was a “starting home.” But he and his wife liked the neighborhood and decided to stay. They raised children here, retired here and still fill the flower beds every spring with roses, irises and pansies.
Decades ago, Withers said, most of his neighbors owned and maintained their homes for years, like him. Today it is more transient. He said that few in the neighborhood spend the time he spends keeping the house and garden in order.
It’s still a nice street, he said, but that’s not what it was.
“I would rather see people come in and buy the homes, because then it means a little more to them,” Withers said.
A 2016 article published by the Federal Reserve Bank of San Francisco reached a similar conclusion, finding that high turnover among residents is “a factor leading to decline” in middle-class neighborhoods.
But tenants also need a place to live, and investors say they are responding to a need in a city that has one of the largest per capita tenants in America, with tenants accounting for 62% of all Cincinnati households.
They are also reacting to a housing market which, despite recent signs of cooling, has been red-hot for years.
Their growing portfolio of properties, they say, is well maintained and provides rental housing to millions of Americans who cannot afford to buy a home of their own.
They also argue that large investors, because of their financial resources, have saved thousands of homes that would otherwise have fallen into disrepair and become inaccessible to poor tenants.
“We have helped meet the growing demand for safe, functional, clean detached homes at affordable prices,” VineBrook spokesman Matthew Beck said in an email. “We are proud of the investments we make, and the work we do, in and around Cincinnati.”
He said that VineBrook, although now advised and operated by a Texas-based listed real estate investment fund, was founded in Cincinnati and still has employees in the Cincinnati and Dayton area. Most of the homes VineBrook owns, he said, were already rented at the time of purchase, and each of them gets a makeover that averages between $ 25,000 and $ 30,000.
One of VineBrook’s recent acquisitions, a three-bedroom house in 1878 Ashbrook, received new windows, doors, a roof and kitchen appliances on top of the $ 95,000 purchase price.
Investments like that, Beck said, “give families access to homes that might otherwise remain uninhabitable or distressed,” reducing damage and stabilizing neighborhoods.
Pushing back on big investors
This is not how local development authorities see it. To see also : What is a real estate broker?.
They say VineBrook and other external investors are opportunists who are only interested in one thing: pushing as much profit as possible out of Cincinnati. They say that large investment companies use a minimum and increase rental prices as high as the market allows.
“They can not defend what they do,” said Laura Brunner, the port’s president and CEO. “The only thing they can say is, ‘We can make a lot of money.’
One of the attractions of investing in a real estate investment fund like VineBrook is that “they can offer higher dividends than some investments,” according to Investor.gov, in addition to giving individual investors a way to add large-scale income-producing real estate to their portfolios. .
The higher return is possible because the trusts, known as REITs, must distribute 95% of their income to shareholders annually to avoid being taxed at a corporate rate. The trusts must also derive at least 75% of their income from real estate.
VineBrook’s entire portfolio, including the 3,100 homes it owns in Hamilton County, generated approximately $ 31 million in net operating income during the first three months of this year.
This is an increase of 80 percent from the first quarter last year.
“There are not many places where you can get that kind of return on investment in today’s market,” said Rick Sharga, Executive Vice President, Marketing Information at Attom. “You are definitely not going to get it on the stock market right now.”
Most of the growth came from rent increases, which according to Brunner and others have helped raise rental prices across the board and have exacerbated Cincinnati’s shortage of affordable housing.
However, there is no law against making money on real estate. And VineBrook’s rent increases do not appear to be in line with rent increases in the markets in which they operate.
Nevertheless, Brunner said the influx of large investors distorts the local market and, by extension, local communities, such as West Price Hill.
The wave of investment purchases at Ashbrook and elsewhere began during the housing crash and recession more than a decade ago, when millions of homes could be obtained cheaply due to foreclosures. But that wave turned into a tsunami in recent years when large and small investors saw an opportunity and began to acquire detached houses.
Brunner said the mission of the major investment firms often runs counter to the mission of local officials who try to maintain as much owner-occupied housing as possible because they believe it provides stability to neighborhoods.
“How much of our county are we willing to own from someone outside our county?” in Brunner. “What is the long-term effect of that?”
There are still no clear answers to these questions. But there are some disturbing signs, say local development authorities.
In July last year, the city of Cincinnati sued VineBrook for failing to maintain its properties. The lawsuit accused the company of contributing to “damage”, creating “troublesome conditions” and running into hundreds of thousands of dollars in fines.
The lawsuit was settled a month later, and VineBrook pleaded not guilty, but agreed to pay $ 563,000 in fines and unpaid water bills and promised to fix properties that inspectors found violated city rules.
Local officials say the dispute is a warning of what could go wrong when a handful of companies own so many properties.
Another concern, they say, is what happens if the big companies fail and hundreds or thousands of properties end up in forced sales. The region got a glimpse of what it might look like when Raineth Housing, a Los Angeles-based company that owned nearly 200 homes in Hamilton County, went up last year.
The port, by order of Price Hill Will and other nonprofits, moved quickly to buy the homes for $ 14.5 million. The port’s goal now, Brunner said, is to convert these properties back into owners by helping tenants who live there buy them.
But she said the purchase hardly happened because the port had so much competition for Raineth’s properties. She said that 12 investment companies also submitted bids for the homes.
A changing neighborhood on Cincinnati’s west side
Few residents of Ashbrook Drive would be surprised to hear that investors were looking for a good deal.
Carole Burke, a 79-year-old grandmother who has lived in Ashbrook since 1968, said the influence of investors is clear. Because many of her neighbors are now tenants, Burke said, they move in and out more often.
“It seems like someone dies or one of these houses is put up for sale, VineBrook goes in and buys them and turns them into rentals,” she said.
Like Withers, Burke said she only knows a few neighbors now, and she has noticed a decline in the appearance of some homes over the years. Sometimes, if a tenant is evicted, the yard is filled with furniture, mattresses and other belongings.
Sowders, who lives down the street, said he has seen the same scenario unfold around his house in Ashbrook, which his grandfather once owned.
He has kept a bunch of postcards that real estate agents have sent him. He’s sure they would offer more than the $ 81,000 he paid for his house almost 20 years ago, perhaps as much as $ 120,000, but he doubts he will ever call.
If he sold, he had to use the money to find a new place to live.
“What can I buy for that?” he asked.
Sowders suspects that the answer is not much, because he wanted to compete for a new house with the same investors who bought his old house. The odds would be against him, he said. And if things did not work out, he may not be able to find a home he likes as much as he does now.
He may even end up as a tenant, like so many of his neighbors these days on Ashbrook Drive.
Editor’s note: The following journalism students at the University of Cincinnati helped report this story – Toni Baños Tor, Sally Bishop, Angie Bolan, Meg Bolte, Cierra Britten, Emily Chien, Winter Crews, Dani Delaney, Bryn Dippold, straKathleenary LeBus, Meme Long , Harnoor Mann, Katy McAfee, Sean McMahon, Ryan Numberger, David Rees, Aaron Sary, Emma Segrest, Grace Tierney and Falik Zahra.
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