Institutional investors are buying thousands of homes in Middle Tennessee and renting them, shaping the market for buyers, renters and sellers.
Rachael Black and her husband wanted to sell their Antioch home, but with varied work schedules, a two-year-old daughter and two large dogs, they were dreading house showings. Their realtor offered a solution: sell to an investment firm.
Black took photos of the home for Progress Residential and her home was under contract with the Scottsdale, Ariz.-based company by that afternoon. While the Blacks may have missed a slightly higher offer from a traditional buyer, they were paid in cash, avoided the hassle of showings and did not have to pay a title fee.
“It made up for the difference,” Black said. “It was a great option for our family.”
Across Middle Tennessee, Progress Residential has bought at least 1,200 homes and converted them to rentals. A handful of other out-of-state investment groups – American Homes 4 Rent, Starwood Waypoint Homes, Streetlane Homes and Main Street Renewal – have also targeted the Nashville market. Together, they own at least 4,900 homes in Smyrna, Murfreesboro, Antioch, Spring Hill, Mt. Juliet and several other fast-growing neighborhoods.
The growth of investment purchases is lucrative for Nashville-area home sellers, but the trend is making home buying more challenging while impacting price and availability for the rental market. The institutional investors take large numbers of available homes out the market for several years at a time, reducing inventory and driving up prices in an already competitive market.
“There is no doubt about it – it’s boxing first-time or second-time home buyers out of the market,” said local real estate investor and developer Bruce McNeilage. “When you make an offer and you are doing 90 or 97 percent financing with contingencies and a mortgage and you want to close in 60 days, you are not going to get the house. American Homes 4 Rent, Progress, even if they are offering the same amount of money, they can close in two weeks and there is no commission. An owner is going to favor that offer 10 times out of 10.”
McNeilage has experienced the upside, having sold 42 Middle Tennessee homes to American Homes 4 Rent in 2015 for $9.6 million. That the Nashville suburbs are near top-rated schools in a thriving metro area makes the market attractive to residents, and thus to these real estate investment companies, and he sees no signs of their interest waning. The bigger their presence, the more they can control rent rates.
American Homes 4 Rent owns 2,500 homes in the Nashville market alone, which comprises more than 5 percent of the market, according to the company’s financial statements. Its national portfolio includes 48,000 homes. On Hardwood Drive in Murfreesboro, the company owns three homes and Progress Residential owns three. On Calderwood Drive in Antioch, American Homes owns five, and Progress has three. The scenario plays out on cul-de-sacs, courts and drives throughout Davidson’s neighboring counties.
In Williamson County, where affordable housing has become a significant challenge, the institutional investors have exacerbated the issue while further boosting the housing market, said Lisa Wurth, president of the Williamson County Association of Realtors.
Their presence is both "a blessing and a curse," she said.
“It does open up more options for rentals,” Wurth said. “The challenge becomes the people renting those homes many times would have bought homes if they hadn’t been competing with these investors. They end up renting from the investors who bought the homes."
Nationally, the percentage of renters has climbed to a 50-year high of 37 percent, according to a 2017 Joint Center for Housing Studies of Harvard University. Tight lending markets, poor credit, rising student debt levels, stagnant wages and a limited supply of homes have each contributed to the influx of renters and a downturn in home-ownership. In 2015, the home-ownership rate was its lowest since 1967.
While the investor presence opens up more homes for renters, it also leads to higher rents. Neven Mansour, who rents from American Homes 4 Rent in Nolensville, pays $2,300 a month and will pay $2,600 in September when her lease becomes month-to-month. When McNeilage owned the same house two years ago, he said he charged $1,900. In the same neighborhood, another tenant said rent climbed by $275 a month since American Homes 4 Rent became the landlord in 2015.
As home prices soar, the American Dream of home-ownership becomes more elusive, McNeilage said. Many of his former and current tenants sign short-term leases because they are determined to buy. Years pass and they have not been able to save the necessary down payment.
“They say they will save 20 grand and buy the house next year,” McNeilage said. “The problem is the house has gone up 10 percent in value. It’s a moving target.”
Real estate investor Tim King, left, and his son, Tyler King, stand by one of the two properties they purchased in 2014. King just sold 18 Nashville area homes to Streetlane Homes.
American Homes 4 Rent, based in Agoura Hills, Calif., charges $1,621 on average in the Nashville area for monthly rent. The company was created in 2011 and by 2013, it had purchased 18,000 homes, primarily through foreclosure auctions or buying in bulk from other property owners, such as McNeilage. The company invests in renovations and earns revenue through rent increases, which was 4.4 percent on average in 2016, according to financial reports.
Illustrating the strength of the investor-owned rental market, Starwood Waypoint, also based in Scottsdale, announced a merger last week with Dallas-based Invitation Homes, which will create an $11 billion company with 82,000 homes in its portfolio, the companies said. Invitation Homes had not bought homes in the Nashville market and this merger provides an entry point. Just 1 percent of the combined company’s portfolio will be located in Nashville, Starwood Waypoint officials said.
Starwood, the only company that responded to requests for comment, said institutional investors still own a small percentage of single-family homes in the area, and given the company’s investment criteria, Starwood generally does not compete with individual buyers. Rent is in line with the broader market, the company said.
Starwood Waypoint’s Nashville homes currently rent for about $1,900 a month on average in the Middle Tennessee area, according to financial reports.
"We believe our single-family rental homes play a critical role in the market’s housing economy by combining the benefits of single-family homeownership with the mobility and convenience that comes with renting," Starwood said in an emailed statement. "These factors appeal to a wide demographic of families who prefer renting or who have been unable to purchase a home."
The increase in rentals in Middle Tennessee communities also concerns homeowners who do not want to see their neighborhood’s value decline. Some neighborhoods have sought to limit the number of rentals, but homeowners are also reluctant to commit to a plan if it limits to whom they can sell their property.
“They say renters are bad for the neighborhood, but the minute they sell, they forget about that and they go to the highest bidder,” McNeilage said.
Metro Councilwoman Jacobia Dowell said in some Antioch neighborhoods, residents have sought to limit the number of rentals as rental ratios can affect homeowners’ ability to refinance, as well as bring down property values if the properties are not well maintained.
“Most rentals have multiple folks living there like a boarding house which results in tons of cars,” Dowell said in an email. “I deal with a lot of codes issues. If they are renting, they are quick to tell me, this is not my home and I am renting, so they don’t care.”
Black said she was concerned about how her neighbors would react to selling to investors that would rent the home out. In her former Antioch neighborhood, 26 homes are owned by Progress Residential and American Homes 4 Rent and comprise nearly 6 percent of the neighborhood. One next-door neighbor told her he understood her decision and another asked for her realtor’s contact information in case he wanted to replicate her sale, she said.
McNeilage said while the investors are adding to demand, the market would be competitive regardless of their presence. Nashville real estate broker Von Richcreek put a home near Antioch on the market two months ago and received 25 offers in three days. Similarly, Black said she competed with 28 others when bidding on a home in Smyrna and lost. On the home they eventually bought, there were at least seven other offers.
“Every major one of the big boys has identified Nashville, and they are going into Nashville," McNeilage said. "There is an unlimited demand and the demand simply can’t get met."
Reach Jamie McGee at 615-259-8071 and on Twitter @JamieMcGee_.
Largest investors in Middle Tennessee:
American Homes 4 Rent owns 2,506 homes in Middle Tennessee
Progress Residential has at least 1,200 homes.
Starwood Waypoint owns 572 homes
Sources: American Homes 4 Rent financial reports, Starwood Waypoint financial reports and public property records.
Where are the investors buying?*
Rutherford: 2,129 homes
Davidson: 930 homes
Wilson: 664 homes
Williamson: 555 homes
Maury: 180 homes
*Figures are a minimum. List is not comprehensive.
Source: Public property records.