Institutional investors purchased hundreds of thousands of homes during the Covid-19 pandemic by leveraging debt other than mortgages, which gave them an advantage over traditional homebuyers.

Now, investors are starting to offload those homes as debt has become more expensive. In turn, nonprofits are starting to capitalize on opportunities to buy back homes from institutional investors to create and preserve more affordable housing.

In January, Twin Cities-based nonprofit Brick By Brick and the Boston-based Housing Partnership Network purchased 345 affordable homes from national investor Pretium Partners, which owns about 97,000 homes nationwide. The single-family homes are located in the seven counties surrounding the Minneapolis-St. Paul area. They also have an average property value of $285,000 compared to the market’s median for-sale price of $345,000, according to Redfin.

“This transaction is transformational,” Robin Hughes, CEO of the Housing Partnership Network, said in a press release. “This sale of single-family homes to local nonprofits will improve the lives of current residents and new homebuyers. This is a new model we will replicate in other regions of the country, with local partners.”

The Atlanta Neighborhood Development Partnership, a nonprofit affordable housing development firm, last year launched a first-of-its-kind partnership with Pretium to acquire investor-owned homes. The pilot gives the nonprofit “first look” rights to view and appraise homes in low-to-moderate income neighborhoods and convert them into affordable properties, allowing nonprofits to buy back homes. So far, ANDP has acquired 10 properties through the pilot, and J.P. Morgan Chase has committed $2 million to expand the pilot this year.

This is happening at a time when the rising cost of debt is leading to institutional investors slowing their purchases of residential properties. Data from John Burns Research and Consulting found that institutional investors were behind just 0.3% of all home sales in Q3 2024 compared to an all-time high of 2.4% in Q2 2022. Meanwhile, Freddie Mac measured the average 30-year mortgage rate at 6.8% as of May 15. Even though institutional investors typically borrow at a rate below the market average, interest rates are still too high to make many deals pencil out.

While these nonprofits’ purchases will help address the shortage of affordable homes in local markets, they still face steep challenges. It can be difficult for nonprofits to raise capital for home-buying initiatives because of their unstable balance sheets. And unlike private investors, nonprofits have to get additional approvals before spending the capital they raise.

Read the full article about nonprofits buying back homes by Robert Davis at Next City.