Investor home purchases raise rental concerns

September 7, 2013

Thousands of houses in Indianapolis and surrounding counties have been bought by investors in the past year, driving up prices and fueling residents' worries about what the future holds for their neighborhoods.

The mass purchases by big investors have fueled a 19-percent increase in sales of existing homes in the past 12 months. About half the increase is due to the investor activity.

Jim Litten, president of the residential division at F.C. Tucker, estimated that more than 10 percent, or 2,700, of the 27,000 homes that sold in the area in the past year were bought by institutional and other investors.

"They're buying a ton of homes," Litten told The Indianapolis Star.

The buyers aren't home flippers, who flooded the market during the mortgage meltdown in 2006-08. Most intend to rent out the homes they've purchased, many of which were sold at sheriffs' sales.

The more than $400 million the investors have spent in the past year has driven down the housing vacancy rate and shored up prices, which dropped 15 percent between 2003 and 2011 but have risen nearly 2 percent since then.

But it's also made some neighborhoods more of a rental market in Indianapolis, which has seen its homeownership rate drop from a high of 79 percent in 2006 to 67 percent.

Christopher Stark, who bought a Noblesville house with his wife in 2004, said he is worried about how American Homes 4 Rent's plan to convert houses on his curved street to rentals will affect resale values.

Neighbor Dan Ropte said he shares Stark's concern but said the California-based company offered him $5,000 more for his three-bedroom house than an agent wanted to list it for. The $125,000 deal was too good to pass up, he said.

"They pay cash, and you don't have to do an appraisal," he said. "And they didn't want anything fixed."

Some mortgage brokers expressed concern that the purchases could distort the market.

When the investor groups decide to put their money into "something else bright and shiny, we're going to see a false equity raise, and then the bottom's going to fall out," said Lucy Brenton, a mortgage broker and board member of the Central Indiana Real Estate Investors Association.

Indiana's low housing prices make it an attractive market for investment groups, said Lance Rhoades, a broker-owner for the Re/Max Centerstone realty office in Hendricks County.

American Homes 4 Rent, for example, has paid an average of $149,000 for its Indianapolis houses, the lowest per-home price among the eight largest markets in which it has bought houses.

Rhoades called the institutional money a "mixed blessing."

"It's kind of got a nasty connotation: Out-of-towners coming in and buying up properties. I've had 'em come to me and say, 'I'm looking for 100 homes.' "

On the other hand, Rhoades notes: "It's not all bad because it's pushing prices up a bit."


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