CINCINNATI — Demetrius Harper-Edwards and his girlfriend, Sarai Yisrael, spent the pandemic lockdown dreaming of owning a home. They saved for a down payment, and worked to repair their credit.
"I was literally on that couch just going crazy with the paperwork," says Yisrael, who was pregnant with their now 2-year-old son. Harper-Edwards also has twin 8-year-old daughters.
She's a seamstress and sells her own designs; he's a carpenter. Yisrael says buying a place would be especially meaningful for her, since as far as she knows no one in her family ever has.
"My mom and my grandmother, they were actually born in Alabama," Yisrael says. She assumes their ancestors were slaves, and says homeownership would "change the face of our family. ... It means that I can leave a place for my children. It can take some stress off of my children's shoulders."
Of course, home prices skyrocketed during the pandemic, worsening a long-term shortage of affordable housing. Now higher mortgage rates and inflation are putting ownership out of reach for many.
But this year the couple's dream suddenly got more real, when they received a letter saying the house they've rented for four years had changed hands.
It was among 194 homes owned by a California-based investment firm that had gone under. Now, the letter explained, a local development agency was their new landlord and it wanted to help them buy the house.
"So it's just the universe playing out," Harper-Edwards says. "Like OK, you want your shot, here it is."
It's a risky bid to take on the racial wealth gap
The owner of the homes is The Port of Greater Cincinnati Development Authority, known as The Port. It's run by Laura Brunner, who says she was shocked last year when her staff discovered — after months of digging — that institutional investors own at least 4,000 houses in the county.
Most of those houses were bought for cheap after the 2008 housing crash, then turned into rentals. This national trend picked up pace through the pandemic, with institutional investors buying a record share of single-family homes — more than a third of sales in some cities.
Brunner says this threatens to exacerbate the racial wealth gap in Cincinnati, where only a third of Black residents own homes. Here and nationwide, most investor home purchases are in low- to moderate-income and minority neighborhoods.
"They're taking a significant amount of inventory off the table and saying people don't get to own homes anymore," she says. "So they're really capturing them as renters."
Brunner says large investors are also more likely to raise rents, evict tenants and let houses fall into disrepair. She accuses them of treating local properties "like a cash cow," extracting profits but not investing enough to properly maintain them.
So when that California company, Raineth Housing, went under, the Port moved to buy up its properties scattered around Cincinnati. It's a first — she doesn't know of any other public agency like hers in the U.S. that's done it — and it's risky.
Brunner says the agency outbid 12 other investors, taking on $14.5 million in debt for those 194 homes. It has since paid $2 million more toward fixing them up.
"If we have a chance to fight back on this really predatory practice, there was no question that we had to do it," she says.
Rental housing investment is a booming business
Nationally, large investors own just a sliver of the market, says David Howard, executive director of the National Rental Home Council. He rejects the notion that the industry is predatory and says it's responding to a need for rental housing, especially with inflation and higher interest rates making it more difficult for many to buy a home.
"We're entering a period of time where I believe there will be greater demand for rental housing," Howard says, "and I think the industry has an important role to play."
Real estate investing has been a booming business through the pandemic, as skyrocketing home prices forced many to keep renting and average rent reached a record high. But analysts say the growing share of investor-owned homes has helped push out first-time buyers.
Partly in response to such criticism, Howard says some investors are starting to help tenants who want to become owners by, for example, reporting on-time rental payments and sponsoring financial literacy classes.
It's a challenge to fix up homes and keep sales prices low
The Port's purchase price per home averages out to roughly $78,000. But the amount it will sell them for depends on how much it has to spend to fix them up. And once the agency was able to look inside all 194 homes, it was clear many needed a lot more work than expected.
Facilities manager Ron Shouse offers a tour of a rehab underway at a one-level, three-bedroom house. In the kitchen, a contractor is pulling up nails from a saggy wood floor with a large hole. The house was vacant, and Shouse thinks it flooded after pipes froze.
"Floor's rotten," Shouse says. "Pulled it up, it's more rotten than we thought. Cabinets are rotten." His original estimate for repairs was $10,000, but that will go up to include things like new cabinets.
Homes with tenants still in them have also needed work. There were broken furnaces, leaky roofs, mold. Shouse says one family has had a toilet that's not connected to a pipe.
Derrick Davidson and Carolyn Perkins have been in their home more than five years and have appreciated the low rent of $700 a month. But they say they've spent a lot of their own money on repairs and relied on his dad, a retired contractor, and that more work needs to be done.
"The roof would leak. The plumbing and electrical all need to come out," Davidson says. Some front porch steps are rotting out, and they've complained about having only a subfloor inside, with no finished flooring on top. "One of our kids ended up with a bad splinter," Perkins says.
Expensive rehabs to fix problems like these will set up a brutal numbers game.
So far, The Port isn't using public subsidies to fund any of this. Its plan is to make back its money from renting and, eventually, selling the homes. But the whole point is to keep rents affordable, and sales prices low enough that people can pay.
The Port also needs tenants who are ready and able to buy, so it's partnered with a local nonprofit that specializes in just that.
It only works if people are able to buy the homes
At a public library on a recent Monday night, more than a dozen of The Port's new tenants turned out for a homeownership workshop by Working in Neighborhoods, or WIN.
Housing program manager Hope Wilson leads a discussion of credit history, what banks consider when deciding whether to approve a loan, and the many extra costs beyond a mortgage, such as repairing whatever breaks.
"And so either you're going to become very handy, you're gonna make friends with friends who are handy, or you're going to have a great savings account," Wilson says to a mix of knowing nods and nervous laughter.
Out of all The Port's tenants, so far a couple dozen or so have expressed interest in buying, though it may take years before some are ready. The economic and health crises of the past few years set many families back, says Sister Barbara Busch, WIN's executive director. A number of tenants have outstanding back rent, which The Port and its partners are helping them pay through pandemic rental assistance.
Still, Busch is excited about the potential. In recent years she's watched with frustration as low-income families trying to buy homes make multiple offers over many months, only to lose out again and again to investors.
"[The investors] have cash on hand. They can close within 10 days," she says. "They can do all the things that makes both the real estate agent and the seller happy."
When The Port sells to its renters CEO Brunner hopes to control the entire process, ideally issuing its own mortgages at lower rates.
Brunner acknowledges that 200 homes is just a sliver of the market. She wants The Port to buy more and would like to see the program become a national model, though she isn't sure how many other cities have an agency like hers that can finance enough money.
For now, though, among the first on track to buy their home next year are Harper-Edwards and Yisrael. He's dealing with a couple of old payday loans and has applied for student debt relief.
"I'm checking off all these boxes and I'm just like, 'Oh, I didn't think I was going to be able to do that,' " he says. But he's been told he qualifies to move ahead with the process.
Harper-Edwards' family are homeowners — he says one house has been passed down for 60 years. If this all works out, he says, maybe he'll buy another place one day and become a landlord himself.
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