Companies with deep resources are outsourcing management to apps and algorithms, putting home ownership further out of reach.
I am standing on the stoop of an empty brick row house in Pittsburgh, looking into my phone and rotating my head from side to side. The house is in an alleyway facing the back of a church. The mailbox is stuffed with rain-soaked junk mail.
The rental company’s website finishes scanning my face and an algorithm decides that I do resemble the photo on the passport I uploaded earlier. I get a text with a temporary six-digit key code. There is no one waiting to greet me as I enter.
Inside, there’s a living room painted crisp white, a kitchen with new-looking fixtures and two plain bedrooms upstairs. There is also a tiny backyard with, for some reason, just two-thirds of a fence. Also strange: The only bathroom is in the unfinished basement. My guess is some house-flipper sacrificed the one upstairs to construct a second bedroom.
This house—840 square feet, a century old, imperfect but livable—could make for a good “starter home” for someone with a few grand for a down payment and the ability to make monthly mortgage payments, which would almost certainly be less than the average rent in this neighborhood. Instead, it was purchased by Imagine Homes Management, which has been gobbling up houses in Pittsburgh, Minneapolis, and a few other post-industrial metro areas where there still are plenty of cheap single-family homes.
As soon as I leave, I get an automated text asking if I want to apply to rent the place at $1,590 a month. Just like the viewing, I could go through every other step—applying, paying a deposit, moving in and even living there a few years—without speaking to human being. No one would give me a key, just a passcode. This has been the experience of some actual Imagine Home tenants.
Nick Osborne, a medical student, rented a three-bedroom house in the Cleveland area with his partner. In the two years they lived there, they never interacted with anyone at the company in person, he told Motherboard, except one maintenance worker deployed for fixes.
“Moving in was fairly simple,” he said. “All information was left in a folder on the counter and all documents and passcodes provided electronically. There was no direct interaction with anyone.”
Imagine Homes is an example of an “automated landlord,” a company that uses new data tools and technologies to minimize the costs of on-site human labor while collecting profits from rental properties. They are essential to the new and growing sector of companies backed by Wall Street investment firms that buy up thousands of single-family rental homes across several states.
A listing for a home in Pittsburgh from the Imagine Homes website
Founded in 2016, Imagine Homes is linked to Colchis Capital Management, a deep-pocketed West Coast investment fund interested in companies that automate and simplify real estate transactions. Unlike most of the larger mass renters of single-family homes, they haven’t opened leasing offices in any of the cities where they operate—Pittsburgh, Cleveland, Cincinnati, Minneapolis and St. Louis, according to The Automated Landlord, an expansive look at the role of technology in the Wall Street grab of houses, published in the February 2022 issue of the journal Environment and Planning.
The company, which did not respond to multiple requests for comment for this story, has not specified its number of employees. By most indications, it is a scrappy outfit, with 35 employees listed on LinkedIn and 50 to 200 estimated by Indeed, all to manage 1,500 houses across four states and to rapidly acquire more. It outsources and automates most of the tasks that traditional landlords do.
At a time when escalating home prices are pushing more people out of the prospect of ownership, landlord automation doesn’t just help wealthy investment firms own an increasing percentage of the U.S.’s small homes—it makes the whole paradigm possible.
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Think of a landlord. Not just a landlord, but a representation of that class of people. Depending on your experiences (and level of class rage), maybe you picture a jolly old guy who occasionally comes by with a wrench to fasten up a pipe or maybe you seen the dumpy modern incarnation of a feudal lord, siphoning off your income through accrued wealth and land deeds. Maybe it is a corporate representative of a large apartment complex.
Regardless, to function as a landlord, one traditionally needed to do some legwork—or at least have someone do it—enough to show places to applicants and oversee maintenance. For a landlord looking to expand, they also required deep knowledge of a local housing market and willingness to spend countless hours looking for and developing new properties.
This once limited the market of single-family home rentals to small-time landlords or companies that, at most, had properties across one metro area. But this sector was of little interest to Wall Street.
“The single-family rental market was very opaque, because the ownership was so fragmented,” Desiree Fields, an associate professor of geography and global metropolitan studies at the University of California, Berkeley, who wrote the Automated Landlord paper, told Motherboard. “Because of that, it was impossible to do things like securitization or real estate investment trusts”—the complex financial instruments that Wall Street uses to extract money from investments.
Fields completed dozens of interviews with tech vendors and employees at Wall Street rental companies for the Automated Landlord paper.
After the 2008 crash, data brokers like CoreLogic and RealtyTrac began producing heat maps of foreclosures. “Those kinds of advances really enable institutional and large scale financial actors to know a market at a distance without having that kind of intimate, tacit knowledge that comes from actually knowing a place,” said Fields.
Soon, new securities-backed companies were buying vast quantities of small homes (many of them foreclosures) with plans to rent them out. Some of these companies have ballooned into behemoths. Invitation Homes, the largest, has more than 80,000 houses in 16 metro areas. American Homes 4 Rent, founded by self-storage magnate B. Wayne Hughes, has more than 58,000 in 22 states. Even Amazon boss Jeff Bezos has bought into the remote management trend with Arrived Homes, a platform that buys up houses and offers shares to real-estate speculators hoping to turn a profit.
Institutional investment companies own only 3 percent of the single-family home rental market, but they have saturated some areas, like Atlanta, where they own about one in five single-family rentals and are amassing more.
Housing advocates and progressive lawmakers say these types of companies further push lower and middle-income Americans out of homeownership by buying up the kind of older, 1,000-square-foot-ish houses once affordable to first-time homeowners and inflating the market with investors.
There isn’t much data of automated landlords' effect on home prices yet, Brendan McKay, president of advocacy at the Association of Independent Mortgage Experts, told Motherboard. “But it's pretty easy to draw a straight line to the fact that it is making it significantly harder for low- to moderate-income families to become homeowners, because that’s the market that they're buying. So it is absolutely disenfranchising that segment of people.”
Automated landlord companies also use data tools to find and buy up houses at a brisk pace. In her paper, Fields describes “acquisition engines” used to rapidly build these vast portfolios. Housing data is fed into an algorithm, which savors it for neighborhood desirability and amenities, proximity to employment centers, transportation corridors, construction type, and repair needs. Wall Street-backed landlords then use this data to make split-second decisions on which houses to buy. It’s reliable enough, to them, to forego the visual inspection almost any small-time landlord would consider a must.
Imagine Homes—which stretches the robot landlord concept by not even having offices in places where it leases—has recently been on a buying spree. According to search results from local real estate directories, in the last year, an LLC connected to the company purchased 27 houses in Cuyahoga County (home of Cleveland), 49 in Hamilton County (home of Cincinnati) and five in Franklin County, presumably to get a foothold in the Columbus area. Rarely does the company purchase a house for more than $200,000.
It sometimes puts in bids hours after houses go on the market, bids that few others could beat, incentivizing the seller to sell quickly.
Caleb Bone of Cincinnati posted his home—a one-story, three-bedroom house in a “cookie-cutter working-class neighborhood”—for sale last December. He and his wife bought it for $117,000 in 2017 and thought it would go to another young family. But within a few hours, he received a cash offer from an Imagine Homes-connected LLC, for about $10,000 more than his asking price. The company also agreed to waive inspections. He sold it to them for $173,500.
“It was meant to be an offer I couldn’t refuse and I couldn’t,” Bone told Motherboard.
The City of Cincinnati has become so weary of institutional investors that it is now buying houses directly to thwart them.
American Homes 4 Rent did not respond to a request from Motherboard asking to speak to an employee about its use of technology.
A public relations representative for Invitation Homes said the company “enlisted local experts in each market, rolling out a ‘pod-based’ operations model that leveraged local teams paired with industry-leading technology” and always had “the goal of replicating the practice across multiple markets.” The representative would not elaborate on how the company uses its technology.
With some of these firms, automated and digitized processes perform the key functions of a landlord. Showings are done via self-guided tours. Passcodes replace keys. Applications, leases and payments are done through web portals. Repair requests are also put in an online queue, for in-house staffers (for the larger companies, like Invitation Homes) or outsourced to local contractors.
According to Fields’ research, some companies have taken a hands-on approach to tracking repairs, once again employing new technological fixes: geo-tracking workers as they move from job to job and requiring cell phone pics to confirm completed repairs.
Companies have also leaned on tenants to do their own repairs. Invitation Homes once posted how-to guides for small fixes, like replacing toilet flapper valves and replacing garage door lights.
Still, repairs cannot be entirely automated or tossed back on the tenant, and Wall Street landlords struggle with them. Neglected common home issues, like leaky pipes and short circuits, are often highlighted in journalistic exposes of the industry.
Osborne, the Imagine Homes renter near Cleveland, said he often waited longer than expected for simple repairs, like a broken door handle, and there was confusion over who was responsible for lawn care. “I think they relied a little too much on the electronic/remote aspect of everything, neglecting our needs,” he said.
The people working at these companies know the automation aspect is the crux of their business model, said Fields. She attended several investment forums and industry conferences for her research.
“Everywhere, people were kind of singing the praises of technology as the real linchpin in making this new single family rental asset class a reality,” she told Motherboard.
Fields concluded in her paper that “[n]ew information technologies” have “given rise to the ‘automated landlord’, whereby the management of tenants and properties is increasingly not only mediated, but governed, by smartphones, digital platforms, and apps, and the data and analytics these devices and infrastructures gather and enable.”
For people who live in these houses, always shoveling rent payments through a portal, who profits from that payment is a tricky question, one that might require a trip down a rabbit hole of investment and financing.
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Imagine Homes, for example, has a relationship to Colchis Capital Management, although what it is isn't exactly clear. Houses rented out by Imagine Homes are purchased through a handful of LLCs, and each is incorporated in a state where the company does business. On that paperwork—plus paperwork incorporating Imagine Homes itself—are the names of Colchis executives and addresses of the fund’s offices.
Colchis executives did not respond to multiple requests for comment for this story.
Founded in 2005, Colchis entered the real estate market during the Great Recession, using high-tech loan platforms to fill gaps left by banks retreating from the housing market, according to Reuters.
According to its website, Colchis “leverage[s] big data, analytics, technology and operational know-how to strategically invest” in several categories of real estate holdings.
This has meant putting money into all kinds of companies proposing tech shortcuts to real estate investment. Colchis recently invested in one firm that plans to utilize AI for mortgage lending decisions, another looking to use blockchain tech in real estate investment, and one with a program that it claims can replicate all the paperwork needed to create a real estate investment firm in an afternoon.
Business records showing a Minnesota-based LLC linked to Imagine Homes
Most of these multistate companies renting out single-family houses are connected to one or more investor groups. Blackstone Inc., a $950 billion colossus of complex financial products, launched Invitation Homes. The Alaska Permanent Fund, a state-sponsored agency that handles its oil revenue, was a key early investor in American Homes 4 Rent.
Pension and retirement funds also get wrapped up in investments like this.
“I'm sure there are some wealthy individuals that are involved—like ultra-high-net worth-type individuals—but it's a lot of those types of institutional accounts that are partnering with private equity firms,” explained Fields. “A pension fund will bring equity in the form of our retirement accounts, and with that equity, the private equity players can leverage debt from various financial institutions, and together with the equity and the debt, they can undertake acquisition of properties.”
Imagine Homes’ connection to a group whose exclusive interest is automating and simplifying real estate transactions implies an added emphasis in landlord robotization.
According to an SEC filing, one would need to invest $500,000 to join Colchis’ pooled investments, which amount to $975 million in total according to analytics platform Radient.
Landlords, by definition, almost always have more assets than their tenants. But the global investor class behind Colchis—which has offices in San Francisco and Incline Village, a resort town on Lake Tahoe—would probably have even less in common with Imagine Homes tenants, who rent 1,000-square-foot houses in economically-withered cities.
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Last year, Kaylee, who is in her mid-20s, had to move to the Pittsburgh area fast because of a job relocation. She wanted to be in the city, but there weren’t many options that included a yard for her dogs. She found a three-bedroom Imagine Homes property on the real estate listings site Trulia. It was in a sleepy suburb. She counted its closeness to the highway as a consolation.
Rent was $1,590 a month. It was more house than she needed, but she took it and hoped to find a roommate. She asked to use a pseudonym because she still rents from Imagine Homes.
She does everything, from adjusting the thermostat to paying rent, on her phone. “I took to that really easily,” she said. “I am definitely a product of my generation.”
She never found that roommate and after a few months, she felt some incongruity between the price she was paying and the town where she was living, full of grandmas who spent afternoons on their porch and lifelong residents working blue-collar jobs.
“I find it difficult to believe normal people who live and work here would pay that amount,” she said.
Drawn by algorithms, large investors seek out the kinds of areas where Kaylee lives, according to McKay, of the Association of Independent Mortgage Experts.
“They want houses of about $100,000 to $200,000 in what would be considered lower- or moderate-income communities,” he said. “These are places where people have a consistent income but can have some more difficulties than other places in the country becoming homeowners because of credit problems or down payment problems and stuff like that.”
Kaylee decided not to renew the lease when Imagine Homes increased the rent by $110. She also began to feel some discomfort with the rising of home prices, which she blames on investors—like the ones she sends $1,590 a month through a web portal.
“I know what’s happening in the housing market and I hate it,” she said. “I don’t know what will be there when I look [to buy a] house.”
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