TikTok Real Estate Influencers and ‘Grifters’ Are in Deep Trouble, Short Seller Says

 

Back in the late 2010s and early 2020s, when interest rates were still near zero, a burgeoning class of amateur real estate titans burst onto the scene. On YouTube and TikTok, many of these self-appointed landlord influencers touted get-rich-quick schemes and promises of financial independence to anyone willing to pay for expensive seminars in the hope of leaving the daily grind behind.

 

People were told that it was, if not easy, then at least possible to become a landlord for anyone willing to take on enough financial risk. Now, so many of these amateur real estate hustlers are struggling to pay back the loans they took out to buy apartment buildings that short-sellers are betting against the lenders who funded them.

 

 

One such short-seller is Viceroy Research, which recently revealed a short position against Arbor Realty Trust, a real estate investment firm. “This was the best short for us because of how leveraged and how bad their actual borrowers are,” Gabe Bernarde, a researcher at Viceroy, told Motherboard. Bernarde said Arbor Realty had repeatedly offered loans to people he characterized as “YouTube gurus,” “grifters,” and “finfluencers.”

 

“This has historically been a responsible industry, [but] it’s been invaded by these financial Twitter investors, TikTok investors,” Bernarde told Motherboard. “They have no financial background to speak of, [and] they’re suddenly being approved for $100 million loans.”

 

Is your landlord an influencer? We want to hear from you. From a non-work device, contact our reporter at roshan.abraham@vice.com.

 

Now, rate hikes over the last 18 months have led to higher borrowing costs and ballooning interest on some mortgages with variable interest rates, and lenders who encouraged the feeding frenzy are dealing with bad debt on their books, often without enough collateral to pay it off, according to the short sellers who spoke to Motherboard.

 

“We had this extremely profitable season where it was almost impossible to lose money on one of these investments,” Bernarde said. That means, however, that when the housing situation deteriorated, “borrowers were not prepared for variable rate interest loans.”

 

Since then, Viceroy has repeatedly called out Arbor in a series of reports, most recently in January letter to Arbor’s auditor, Ernst & Young, in which it said there did “not appear to be a viable rehabilitation strategy to refinance Arbor’s loan book” and that “a vast number of debtors are unsophisticated investors with limited or no history of investing or managing capital.”

 

Viceroy came to its conclusion after examining publicly available data on Arbor’s loans, including its collateralized loan obligations (CLOs), or pools of corporate debt sold as securities, and found at least half of them are underwater, meaning they are worth less than what is still owed on the loan. Arbor bundles its loans into CLOs to raise cash from investors and dole out more loans. Viceroy said at least 17 percent of the loans it examined were delinquent.

 

Viceroy said most of the Arbor loans that are underwater are “bridge loans,” or loans used to rehabilitate properties before the borrower can refinance with a more stable government-backed loan. Bridge loans are ideal for amateur online investors, many of whom advocate what they call the “BRRR” method of real estate investment, which stands for “Buy, Rehab, Rent, Refinance, Repeat.” YouTube is flooded with videos promoting this method, many of which make it appear relatively easy.

 

 

Arbor did not immediately respond to a list of questions emailed by Motherboard. But Viceroy said Arbor is merely one part of a larger story, and that irresponsible lending has plagued the multifamily apartment industry for years, leading to distressed loans with potentially negative ramifications for landlords and tenants alike. Now, the “quality” of such loans is deteriorating “across the entire space,” Bernarde said.

 

Ratings agencies like Trepp and Fitch Ratings have also been sounding the alarm about an increase in delinquent loans this year, according to Bloomberg.

 

Part of what enables low-experience investors to purchase large multifamily apartments is real estate syndication, which allows individuals and groups to crowdfund capital and help them secure a loan. Funders can pool money from platforms like Crowdstreet that promise an “easier way to build a real estate portfolio, no landlording required.” Numerous YouTube videos and amateur gurus boast real estate syndication in multifamily apartments as an easy way to “passively” invest in homes.

 

In a November report, Viceroy highlighted several Arbor borrowers that it characterized as  “personalities in the world of retail investing seminars” who “pitch syndication of multifamily real estate deals to relatively unsophisticated investors.”

 

 

One of them was Elisa Zhang, who runs “EZ Financial Independence University” and teaches an online course in passive real estate investing. On her website, Zhang says she had felt unfulfilled at her job and became a landlord to spend more time with her children, comparing the decision to taking the “red pill” in the Matrix.

 

“You can do this, too. I know it. I believe it. And I can help,” Zhang states on her site.

 

Zhang, who claims to own over 3,500 apartment units, qualified for two loans from Arbor totaling $75.2 million to purchase 574 apartment units at Kendall Manor Apartments in Houston and Amara Apartments in Phoenix, which she co-owns with real estate syndicators Lavatube Capital and real estate podcaster Lane Kawaoka, according to Viceroy’s report. (Amara Apartments has a 1.2 star rating on Yelp after 36 almost entirely negative reviews.) Motherboard reached out to Zhang for comment but has not received a response.

 

Raul Bolufe, a real estate influencer who went viral on TikTok last January after he filmed himself raising rent on a tenant by $1,000, told Motherboard the effects of influencers like himself are partly to blame for the wave of distressed loans and that real estate syndication was “80 percent of the problem.”

 

While he believes the goals of real estate influencers like himself included a genuine desire to help people learn how to make passive income, Bolufe said the number of such influencers grew too quickly.

 

“There’s nothing wrong with being a first-time inexperienced buyer,” Bolufe added. “But there’s inexperienced buyers that actually had a lot of reach and a lot of money available to them— whether it was a friend or family, their followers, maybe they made a lot of money in crypto or TikTok or whatever—and they just got into assets that they didn’t know much about or they didn’t really pencil out.”

 

Yet it’s tenants who will likely feel the worst after-effects. Buildings that are over-leveraged can experience rent hikes and deferred maintenance as landlords struggle to pay back the money they owe. Viceroy estimates that even hiking rents of 30 percent wouldn’t allow landlords to pay back interest for some of the loans, let alone deal with much-needed repairs on buildings.

 

In its report, Viceroy highlighted a building purchased with an Arbor loan that has not had an inspection in five years. Others have a lack of trash pickup or worse.

 

“It’s not so much that the property looks a bit shit. The building is on fire,” said Aidan Lau, another analyst at Viceroy. He meant that literally. In a November report, Viceroy published a picture taken by a renter and posted to an online review which depicts flames engulfing a unit at Lantana Apartments in Nevada, which has suffered a rash of fires in the past few years.

 

Philip Garboden, a professor of affordable housing at the University of Hawaii who has studied the rise of small real estate investors, said the effects of reckless lending on tenants is what makes amateur real estate so concerning.

 

“If somebody wants to go and start a cupcake business … and they fail at that cupcake business, that was bad for them, but overall it doesn’t hurt,” Garboden said. “Whereas if you invest in rental houses in Cleveland, and you fail at that, then that community has a boarded up vacant house, whatever tenants you had in there are living in deplorable conditions.”

 

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