THE BASIS POINT

Some Big Housing Players Are Betting You’ll Never Buy A Home

Top dogs in the real estate industry are pounding the drum on the lack of affordable housing. The first jobs and wage figures released in 2019 looked strong, but the strength was a surprise and unlikely to be a trend, so we still need more homes that people can afford.

The American Dream machine requires enough supply to go along with the high demand for homeownership that young people express.

But some that control the machine are betting that you’ll always rent your home. I want to call your attention to two notable stories on the topic.

The first story:

Cheddar profiled Domuso, a lending company that guarantees landlords get rent payments by letting renters take credit to pay Domuso in installments.

Landlords, not renters, adopt the service, which is key here.

The company was founded and funded by executives at rental property management companies. That fact, coupled with the statistic that young people are spending record amounts of money on rent, is important.

It means that these execs see renters failing to pay as a significant threat to their business. So significant, in fact, that they’ll invest millions to create a technological solution to blunt its impact.

Remember that this company sells to landlords, so it’s fundamentally working to protect landlords’ businesses and not protect renters. It doesn’t really help you to pay your rent in installments if your rent is half your income.

The second story:

The Wall Street Journal reported that institutional investors who manage rental properties can’t find inventory to purchase, so they’re pivoting to build homes to rent out. These investors are betting that young suburban families who won’t be able afford to buy homes will need to rent for the long term.

It’s telling that one of the investors doesn’t even describe the move as a housing market play.

The build-to-rent strategy is more about adding rental income than finding homes that will rise in value, said Terry Chen, Tricon’s acquisitions chief. “What we’re really after is the durable cash flow,” he said.

It’s not about your eventual goal of homeownership. It’s only about you helping their cash flow.

It means that some well-capitalized players believe you’ll always rent because you can never afford a home. Stories like this are part of every economic cycle, but I call them out because it’s important for you to know how the big players see the housing world.

The takeaway for people in my age bracket:

It’s tough out there right now to find an affordable place to live, but I’ve been pleasantly surprised to start learning how much home you can afford in most markets relative to rents.

Stay tuned as I dive deeper into lessons on renting vs. buying shortly.
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Reference:

Start-Up Domuso Wants to Disrupt the Process of Paying Rent (Cheddar)

L.A. startup raises $3m to disrupt rental business (L.A. Business Journal)

Wall Street’s Big Landlords So Hungry for Houses They’re Building Them (WSJ)

Millennials spend huge on rent, using up 45% of income made by age 30 (USA Today)