The Rap Against Real Estate Investors and Minorities


Do real estate investors really destroy minority neighborhoods?

By taking converting millions of lower and middle tier homes into rentals, is it true investors are locking minorities out of homeownership?

These and similar contentions are not new, but they linger in the minds of policy makers, journalists and community leaders even as the Foreclosure Era winds down and the housing recovery makes ailing homeowners healthy.

Perhaps the rap against real estate investors was articulated most bluntly last year by Juan Martinez, president of the National Association of Hispanic Real Estate Professionals.

“Wall Street wins again!  Large investors through channels that are unavailable to owner-occupant buyers are purchasing hundreds of thousands of residential properties.  With new housing construction still at a low and buyer demand on the rise, these programs have eliminated housing stock from the owner-occupant market at a time when first-time homebuyers can buy affordable housing at low interest rates…“

Failure to provide home buying opportunities to some of the most important growth segments of our nation – such as the Latino community – not only jeopardizes economic growth for our nation, it com-promises the long-term financial stability of a generation,” he said.


Homeownership is more than a housing option.  It’s a political rallying cry, a way to measure personal success, and a barometer of social and ethnic parity.

In 2002 minority homeownership became a national priority.  “(President George W.)  Bush pushed hard to expand home ownership, especially among minority groups, an initiative that dovetailed with both his ambition to expand Republican appeal and the business interests of some of his biggest donors.  But his housing policies and hands-off approach to regulation encouraged lax lending standards,” said the New York Times after the bubble broke.

Homeownership is also great for business.  It sells houses for homebuilders, loans for lenders, securities for Fannie Mae and Freddie Mac and commissions for real estate agents.  Collectively, the special interest groups that represent these and affiliated businesses are sometimes called the Homeownership Lobby.

It has been amazingly effective not only on the political front like supporting the Bush initiative in 2002 but also in shaping the way America thinks about homeownership.

For example, thanks in large part to research and PR generated by the Homeownership Lobby.  We know homeownership raises test scores, graduates more high school students, stops crime, increases charitable activity, lowers teen pregnancy by children’s living in owned homes, reduces teens’ television screen time, improves health, lowers teen delinquency, raises housing prices—the list goes on but you get the idea.

For eight years I was the top public relations executive for a leading member of the Homeownership Alliance and served on its steering committee.  We never realized our efforts might encourage lenders to make toxic loans to people who couldn’t pay them back, or Fannie to sell lenders’ poisonous subprime paper on Wall Street or real estate agents to sell homes to families that couldn’t afford them.

It was the Boom and home prices looked like they would soar forever.

So explain again why real estate investors are the ones responsible for destroying minority neighborhoods?  Didn’t they clean up the messes the others left behind, often turning abandoned shells into decent homes and making a buck in the process?

At long last, responsible housing experts have taken a hard, objective look at what actually happens in these neighborhoods.

Looking at the Data

A multi-city study of the role of investors in low and moderate-Income neighborhoods by the Brookings Institution’s Metropolitan Policy Program, Harvard University’s Joint Center for Housing Studies, the New York University Furman Center for Real Estate and Urban Policy, and the Urban Institute’s Center for Metropolitan Housing and Communities was quietly published late last year but received little media attention.

The study was published yesterday by the Joint Center.

The researchers looked at neighborhoods in four market areas across the country representing a range of market conditions, including Atlanta, Boston, Cleveland and Las Vegas.  In each market, the researchers focused on the activities of investors in acquiring foreclosed properties in low? and moderate?income neighborhoods in the metropolitan area core county.

Here are some of the key findings:

  • With the exception of Cleveland, investors in the remaining three case study areas did not appear to target their investments in low?income and/or high?minority neighborhoods.  In Cleveland, investors of all sizes were present in minority and distressed neighborhoods, but the largest investors were present in these neighborhoods almost exclusively, while investors of other sizes were present in neighborhoods and cities throughout the county.
  • Strong investor support networks in the four case study communities provide investors with a number of informational and financial advantages over owner occupants and nonprofits that enabled them to be more nimble and act quickly in identifying and purchasing foreclosed properties.
  • All four of the case study teams found that, for the most part, investors will invest in rehabilitation if these improvements offer a suitable return on investment, or, alternatively, if public subsidy is available.  Across the four case study communities, the level of rehabilitation that investors were prepared to undertake on a foreclosed property was influenced by the following factors: the anticipated return on this investment either from rental income or price appreciation, the level of crime or vandalism in the neighborhood where the property is located, whether the investor was based locally or out?of?state, the age of property, the availability of tenants with Housing Choice Vouchers, and whether the property’s intended use was for rental vs. owner occupancy/resale.
  • Private investors in Atlanta estimated renovation costs at $5,000 to $50,000 per property, while investors in Las Vegas who employed a holding strategy estimated renovation costs at approximately $5,000.  Compared to other case study areas, investors in Boston cited the highest range of renovation costs, from $25,000 to $125,000 per property, with one investor noting that he typically spends a minimum of $50,000 to $60,000 on rehab.
  • Rehab strategies also varied among investors depending on whether investors were based locally or out?of?state.  This may reflect differences in the motivation and skills of these two classes of investors.  In some cases out?of?state investors may be lured by the prospect of quick investment returns from property flipping without a deep understanding of the market conditions in neighborhoods where these properties are located. In contrast, local investors should have greater market knowledge and have greater ability to closely manage these properties given their proximity.

The four studies, which are clearly the most exhaustive reviews of investing in lower income communities, found a few issues, such as flippers “milking” properties and skirting of local building codes because neither profit potential minor subsidies were adequate, but nothing like the widespread impact on neighborhoods of, say, the foreclosure blight that investors cleaned up.
Photo Credit: Luigi Rosa has moved to Ipernity

About Author

Steve Cook is the editor of Real Estate Economy Watch and writes for a several leading outlets in addition to BiggerPockets, including Equifax and Total Mortgage. He also provides communications consulting services to leading real estate companies. Previously he was vice president of public affairs for the National Association of Realtors.


  1. Great Article, I think Homeowner ship is very important. I think that lack of knowledge and notknowing where to start causes this issue. I wouldnt want someone t rent for their eest of their lives, I would love to see a tenant go of to do better. Now there are some folks who may nevr become homeowners because they dont want to deal with the headache of home ownership. I believe that this is a dream that everyone should obtain whatever your background is

  2. This may be somewhat off topic, my I find it amusing that Obama claims to be fighting for a stronger middle class, yet it is the middle class who is not privilege to the programs laid out in Steve’s blog. Juan Martinez is right, Wall St wins again. The staunch Obama supporters have turned their blind eye to this. The Wall St owning Main St has to be the biggest hypocrisy against what Obama ran for. O well.

    I agree with Steve, investors help these areas. If minority or low income areas can’t qualify to buy houses, then who else is going to buy them? Their is demand for housing to this demographic and investors are answering that demand. I routinely see investors improve entire streets by buying up the eyesores. Also, investors going into these areas are helping at the local government level by taking ownership of vacant homes and fixing them up. Not only does it improve the street and possibly decrease crime that can happen with a vacant home, but it also creates revenue in the form of Property tax.

  3. Hello!
    I think this has two sides, but the article put them together: Institutionalized Investors vs every day real estate investors. Now, there are a lot of discontent, amongst real estate investors and first time home buyers alike, at the negative affects on them from institutionalized investors have on their portfolios. They aren’t doing anything illegal, but the discontent is valid for both.

    However, the research seemed to be pointing at small business real estate investors, and I have to say the findings seem to correlate with what I see on the ground. As Alex Craig said, personally, I treat the people in the neighborhood with respect (although some will try anyone’s patience), I fix the place up to very high standards, and lead by example of hard work. And then someone from the neighborhood moves in, so depending how you do it, it can be a win/win for everyone.

    Thanks for taking on these subjects, that may be sensitive, but definitely have to be discussed when talking about real estate investing. I mean, when it comes to buying low, these issues consistently come up. Backing it up with data is always a nice touch.

  4. I know that in my market, when a new REO property gets listed, there is usually a set period of time that investors are not allowed to put a bid in. In my market (Rockford, IL), that time period was 15 days and has since been moved to 18 days or longer. The nicer “almost move in ready” homes may sell in that time but those needing an honest to goodness rehab generally do not. I have no problem with that policy and have told my realtor that if we lose to an owner occupant then good. There are plenty of other opportunities out there for me. I have gone so far as to drop out of a bidding war when I found out the other person was going to occupy the home as their principal residence.

    • Tim’

      That’s like Fannie Mae’s policy to limit bids on their REOs to owner occupantts for a set period of time. I have always had the opinion that the policy is meant to put investors at a disadvantage but I’m not suire if it makes much idfference.

  5. Sara Cunningham on

    Alex and Lisa both make good points about how buying and fixing improves a neighborhood in general. There are always going to be people who will never qualify to get a home loan or simply don’t want to own. What we did in our market was to actually take 4 of our properties that we purchased and did up and actually do a Rent To Own agreement with those tenants. OK so the interest they are paying is higher than the bank would charge, but those tenants will eventually own their own homes. By the way 3 of the 4 families are are minorities.

    I feel that we are actually helping these people. I know this isn’t a strategy that everyone wants to follow but it works for us since we have other properties and are continuing to purchase, so when these are paid off we will have replacements. In the meantime our cash flow is great, and if they default, and I hope they don’t, then we get to repossess the property and start all over again.

  6. Interesting topic!

    However, I have one issue and it’s the old “correlation vs. causation” bother:

    “We know homeownership raises test scores, graduates more high school students, stops crime, increases charitable activity, lowers teen pregnancy by children’s living in owned homes, reduces teens’ television screen time, improves health, lowers teen delinquency, raises housing prices—the list goes on but you get the idea.” – The “Homeownership lobby”

    “Owning Ferrari cars lowers the risk of obesity, having mediocre children, and marrying an albino” – some other ridiculous lobby intentionally drawing misleading conclusions.

    Owning one’s home is most certainly tied to economic fortune, which is itself tied to intelligence. Intelligence is the driving factor in almost everything in the above list, not owning a home. The only thing I don’t think it directly drives is “raises home prices”, which isn’t usually a good thing by the way you stupid lobby.

    Please don’t flame me for typing intelligence in the comments to an article with “minorities” in it. Nothing about what I wrote matters what the person looks like or where they came from.

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