The company has been acquiring occupied rental houses around Atlanta and northern Florida cast off by other big landlords and promoting homeownership to the tenants it inherits.
Promise Homes dangles monthly rent discounts to tenants who boost their credit scores and counsels them on how to do so. It banks emergency rent credit for those who consistently pay on time and will vouch for model tenants when they apply for home loans.
The for-profit company works with Operation Hope, a nonprofit founded by John Hope Bryant that seeks to reduce the racial wealth gap with financial literacy and access to credit. Promise Homes pays Operation Hope to provide the counseling to its residents.
Closely held Promise Homes offers counseling and financial literacy programs to all of its tenants. Many of its renters are Black, given the demographics of the areas in which the company operates and the houses that big home-rental companies have shed while shifting to higher-priced neighborhoods.
Black Americans lag far behind their compatriots when it comes to homeownership. At the end of last year they owned at a rate of 44.1%, 5 percentage points behind Hispanics and distant to white Americans’ 74.5%.
Economists on and off Wall Street say the gap is problematic since homeownership is the primary means by which Americans accumulate wealth. Home equity allows Americans to pay for college and cover medical expenses without going deep into debt, fund retirement and pass on wealth to the next generation.
Most people in our category are going rent-to-rent. At some point they’ve lost their aspiration to be homeowners,” said Mr. Bryant, who is chief executive of Promise Homes. “We are aspirational rehab.”
Black homeownership peaked in 2004 just shy of 50% and tumbled with the housing market a few years later. These days it is about the same as a half-century ago, when the Fair Housing Act outlawed discriminatory policies like redlining, which cut off mortgage financing in Black neighborhoods.
Citigroup Inc. economists estimate that eliminating the homeownership disparity with improved credit access for Black Americans would have driven an additional $154 billion of home sales and $64 billion more spent at hardware stores, car dealers and furniture shops over the past 20 years.
“Amid a once-in-a-century global pandemic that has resulted in staggering economic and job losses, investors should welcome ideas and actions that can add value. Closing racial gaps is one,” the bank’s economists wrote in a September report.
Mr. Bryant started Promise Homes four years ago with financial backing from Tony Ressler and Michael Arougheti, who founded Ares Management Corp. and operate in the same stratosphere of high finance as the property barons who gobbled up foreclosed homes during the housing bust. Mr. Bryant believes Promise Homes, which owns about 700 houses, can expand and someday rival those multibillion-dollar rental operations.
The biggest, including Invitation Homes Inc. and American Homes 4 Rent, own tens of thousands of houses across the country. Atlanta, where there are more single-family rentals than anywhere else in the country, is a stronghold.
Invitation Homes owns roughly 12,500 houses around the Georgia capital. American Homes 4 Rent has about 4,000. Most were bought cheap at foreclosure auctions.
Before it was a locus of mega landlords, Atlanta’s wooded sprawl was a hotbed for predatory lending. Lenders like Countrywide Financial Corp. showered risky mortgages upon borrowers with little regard for their ability to repay or even understand the true costs of the loans.
The house in Decatur that Eric and Charletha Weems rented was emblematic.
The 1,700-square-foot split level was bought from a builder in 1999 by a man who refinanced five years later with Countrywide, according to Dekalb County property records. When that man defaulted after home prices crashed, Invitation Homes bought the house at an auction outside the county courthouse in September 2013 for $56,000. That price is about half of what the man had borrowed with a Veterans Affairs-backed loan to buy the house originally.
The Weems’s were five years into their tenancy and fretting over the regular rent increases when Promise Homes bought the house from Invitation Homes.
After the foreclosure bonanza, the big landlords sorted their houses to maximize returns. They sold off houses at the lower end of the market and beefed up in the best neighborhoods using computer programs to home in on the best rental prospects the moment they hit the market. They sought houses that would attract higher earners, who are more consistent rent payers. Car troubles and sick children don’t cost them hours at work and income like they do lower earners. By the time Invitation Homes sold the Decatur split level, the annual household income of its typical tenants was $100,000.
Promise Homes’s crash-courses in personal finance appealed to Mr. Weems, who had begun to consider homeownership given Atlanta’s rising rents.
“When I was younger, everyone had a house, regardless of their income. They had a house if they didn’t have anything else,” the grandfather of 19 said. “You ever think of visiting your grandparents on a holiday in their apartment? That sentence doesn’t sound right. You went to their house.”
A house—or at least home equity—is something to hand down, he said. He signed up for his landlord’s credit, homeownership and entrepreneurship programs, the latter to boost his appliance-repair business.
A year later, the couple bought a $140,000 house in nearby Stonecrest. Promise Homes leased the Decatur rental anew for $1,250 a month.
Mr. Weems, 64, and his wife weren’t the first Promise Homes tenants to buy a house, but he was the first to do so after working with Operation Hope’s counselors. Others have been preapproved by lenders to house-hunt.
Yvonne “Dee” Wyatt, 63, rents from Promise Homes in Jonesboro, a southern suburb. She bought a townhouse in 2009 for $145,000 with the help of a down payment assistance program but defaulted on her mortgage nine years later after losing her job with a local school system.
The townhouse fetched $158,000 at auction, county property records show. A few months later, it sold for $175,000. The flip highlighted $30,000 of home equity that would have been Ms. Wyatt’s had she been able to hang on.
Ms. Wyatt has worked with the landlord to lift her credit score and came out of entrepreneurial training with a clerical and notary business. She hopes homeownership is next.
“Owning a home is important to me,” she said. “It’s a secure place; you can make it your own and feel comfortable.”