How out-of-state companies are buying up homes and changing the St. Louis area market

Courtyard Place is now drawing out-of-state companies chasing their own American Dream.

The cul-de-sac off Shackelford Road near Florissant, with tall trees and wraparound sidewalks, was built as part of the 900-home Pleasant Hollow subdivision. For decades, it welcomed families looking to move from St. Louis into the suburbs.

But during the Great Recession, many of the homes were foreclosed on. The neighborhood, which already had some rentals, attracted more real estate investors. By 2015, large out-of-state companies such as Ohio-based VineBrook Homes, Austin-based Main Street Renewal and private equity-backed FirstKey Homes began buying out the smaller players.

Now, just two homes on Courtyard Place are owned by the residents.

Of the remaining 14, five are owned by smaller investors. The big out-of-state companies own nine.

Today, up to 34,000 single-family homes in St. Louis, St. Louis County and St. Charles County are likely owned by investors, according to a Post-Dispatch analysis of real estate records.

That’s 6.4% of the single-family housing stock in those counties. But that figure has doubled over the past decade. And the concentration is far higher in some parts of the region — south city, North County, and the O’Fallon area of St. Charles County, especially.

They include mom-and-pop landlords who own one or two properties. But the biggest numbers trace to out-of-state companies that own thousands of houses across the region.

The companies typically buy modest, affordable houses, the kind that first-time homebuyers often seek. They buy one house at a time and they buy in bulk — dozens, if not hundreds, of houses in one purchase.

They have helped change the local housing market since the Great Recession, gradually increasing their share each year. The increased competition has forced some homebuyers to pay over asking price, forgo contingencies and repairs, and wait months to close a deal. Renters say they face high annual rent increases and often struggle to get the companies to make timely repairs. Some subdivisions in North County have started to take action, considering ways to limit the number of investor-owned homes.

“You’re just taking away future wealth from people,” said Hazelwood resident Jean Dantzler, who lives next to a rental house owned by an out-of-state company. “They should be able to go and buy a home and not have to bid against all of these companies.”

The companies are backed with millions of dollars and equipped with technology that reduces buying, renovating and renting houses to an algorithm. That’s allowed them to buy more houses and buy them faster than the average homebuyer and even the local real estate investor.

Experts say the companies have reduced the supply of affordable homes in the area. And with higher mortgage rates, many fear that first-time homebuyers are delaying their purchases, and thereby delaying their chance to build wealth.

Already, there are fewer homeowners in St. Louis, St. Louis County and St. Charles County compared to a decade ago. St. Louis County saw the biggest decline — nearly 5 percentage points, to 71.5%, in the first quarter of 2020, the latest data from the U.S. Census Bureau shows.

Investors now own a little more than a fourth of all houses in the Black Jack, Bellefontaine Neighbors and Spanish Lake areas. In parts of Kinloch, Ferguson and Hazelwood, investors are closing in on nearly a quarter of the houses. The city of Florissant found rental houses now outnumber apartments. Out-of-state investors own 45% of its single-family rentals, the city says.

At the same time, average rent for a three-bedroom house in the St. Louis area has risen 37% over the past five years, from $1,098 to $1,504 in August, according to the latest data from real estate firm CoreLogic. Nationwide, rent has grown 39% to an average of $1,933.

Two and a half years ago, one of the out-of-state investment companies asked Spencer Toder, who’s worked in real estate and venture capital, to be its lead broker in the St. Louis region, as someone who knew the landscape and could shape its strategy.

He took a look under the hood and walked away. The business model, he said, is predicated on scale, and profit can only come in two ways: raising rents or adding value to the house.

“These are predators coming in and saying that they’re just going to raise rents every year,” Toder said. “This is a tremendously big shell game that eventually will crash.”

The companies, however, say they’re stabilizing neighborhoods like Courtyard Place by renovating homes that may have seen years of neglect, while providing renters more options of where to live and what schools they can send their children to. They say they offer a better customer experience than mom-and-pop investors.

The companies also say their overall share of the housing market here and across the U.S. is tiny, and that they aren’t to blame for declining homeownership, rising rents and a shortage of homes.

“The family that was going to buy the house has a lot of income, has credit and they probably have a lighter skin tone than the family that moves in after I bought it,” said Sean Dobson, CEO of Amherst Holdings, which owns rental company Main Street Renewal. “There’s a whole bunch of things in this country that have happened over the last 100 years that have created a very sharp divide between who can get a mortgage and can’t. We built a business that serves exactly those people.”

Quentin Felton remembers Courtyard Place as a block where he knew all his neighbors when he owned a home there in the early 2000s.

But in 2007, as the country began tipping toward a recession, Felton lost most of the income he was making as a barber and stylist. He tried working with his lender, New Century Financial Corp., on an adjustable rate mortgage that had an initial interest rate of 9.5%.

“They fought with me and refused, no matter what I did,” Felton said.

New Century Financial foreclosed on him in early 2007, around the time the company — one of the country’s biggest subprime mortgage lenders — filed for bankruptcy. When Felton lost his home, a Wentzville-based real estate investor bought it and sold it 13 years later to VineBrook Homes.

“Now, everybody’s wanting to buy homes and rent them out,” Felton said. “They overinflate the prices on them. And it’s ridiculous.”

After the housing crash, banks foreclosed and real estate investors of all means flocked to the St. Louis region. North County especially was a golden egg for investors because it suffered more foreclosures and had many inexpensive houses up for grabs.

“These companies essentially realize that, in majority minority areas, housing prices are depressed enough that they can be purchased for cash and flipped as a rental and be profitable, pretty much day one,” said Glenn Burleigh, community engagement specialist for the Metropolitan St. Louis Equal Housing and Opportunity Council.

“That’s a real concern for us, that a lot of these suburbs that for generations built equity and wealth for white families are now becoming less likely to build equity and wealth for the residents that have moved there who are Black.”

Many companies targeted metro areas poised to recover quicker, like Atlanta and Los Angeles. Others later began eyeing the Rust Belt, where cities still struggling with the foreclosure crisis had thousands of cheap homes available, said John Johnson, a researcher at Marquette University’s Lubar Center in Milwaukee.

“It’s very profitable to be a landlord in the poorest parts of America,” Johnson said.

On Courtyard Place, Georgia-based FirstKey Homes bought a house first in 2015. VineBrook Homes and Main Street Renewal bought into the neighborhood in 2020 and 2021, data shows.