• A study found Big Four promotions are shaped more by internal politics than auditors' performance.
• Researchers from three universities say managers' reputations influence promotions as much as evaluations.
• Even strong performers can be overruled unless influential managers defend them in committees.

A new study suggests the Big Four's supposedly meritocratic promotion systems may rely far less on performance than on internal politics — and, crucially, on whether your manager is willing to put their own reputation on the line for you.

Within the Big Four professional services firms — Deloitte, PwC, KPMG, and EY— auditors are evaluated throughout the year after each client assignment.

Supervisors generally award A-to-D grades on technical competence, teamwork, leadership, and client relationships, creating a paper trail that appears — at least formally — to determine who gets promoted in the firms' "up-or-out" system.

In theory, auditors who consistently exceed expectations should advance more quickly, while weaker performers may stay at the same level or even be asked to leave the firm.

Inside the promotion room, politics override performance

However, researchers from KEDGE Business School, ISG, and the University of Cambridge gained rare access to two promotion committees inside a Big Four audit firm's Paris office, observing 6.5 hours of deliberations and conducting 61 interviews with 49 auditors and managers between 2015 and 2021.

What they found upends the idea that high performers naturally rise to the top.

According to the paper, promotion committees function far less as objective reviews of auditors' work and far more as "political arenas" where managers lobby, trade favors, and defend their protégés.

Instead of simply aggregating the year's performance evaluations, committees frequently reassess — and even overturn — those scores after heated debate.

In some cases, auditors with solid ratings were downgraded because supervisors admitted their earlier evaluations had been "complacent."

In other cases, strong performers were promoted above higher-scoring peers because influential managers went to bat for them — or because rivals stayed silent.

Thomas Roulet, one of the study's authors and a professor of organizational sociology and leadership at the University of Cambridge, said one of the deeper paradoxes is that "audit firms believe they are particularly fair, square, and transparent, while the collective nature of the work and the collective nature of the evaluation make it opaque and political by nature."

EY, Deloitte, and PwC did not respond to requests for comment from Business Insider.

KPMG pointed to its 2024 Transparency Report, which stated that the firm's compensation and promotion policies are informed by market data and "are clear, simple, fair, and linked to the performance and talent review process."

When managers themselves become the ones under evaluation

The study also found that auditors are not the only ones being evaluated.

Managers' judgment is also under scrutiny, creating a powerful incentive to play it safe in performance reviews and align with what they believe the committee wants.

One senior manager told researchers he fought hard for an employee not just to keep her, but because he didn't want colleagues saying he "overestimates his protégés."

The result, the authors said, is a system where second-order evaluations — evaluations of evaluations — outweigh actual performance.

That dynamic "raises questions about whether promotion committees are fit for purpose," they wrote, and helps explain why many auditors feel the process is opaque, political, and fundamentally unfair.

Roulet added that when managers lack influence — or choose not to expend political capital — high performers suffer.

"Those auditors who don't get support," he said, "get stuck at the same level or, in general, get less recognition than what they deserve. This fosters a strong sense of injustice and unfairness."

While he said Big Four firms "do recognize merit and hard work," he said, "the ranking system can disadvantage even high performers when everybody is a high performer."

Fewer promotions

Internal politics has always been a feature of rising up the ranks within the Big Four, as it is in most corporate jobs.

The firms operate as limited liability partnerships (LLPs), a structure in which partners typically get a vote in strategic matters and a share of annual profits if they hold equity in the business. Making it to the top requires strong people skills, both in building an internal network and winning potential new clients.

You can be technically good, but unless you invest time building those internal networks, you won't progress as quickly, James O'Dowd, founder of the global executive recruiter Patrick Morgan, which specializes in senior partner hiring and industry analysis, previously told Business Insider.

Promotions at all levels of the Big Four have also become tougher to secure as firms struggle to manage sluggish revenue growth and AI disruption to their traditional work.

In May, the UK branch of Deloitte told employees in an internal memo that it would only promote 25% of the workforce. The previous year, the firm promoted 28% of its employees. The same memo said that Deloitte had "faced a particularly challenging year and fell materially short of its performance goals."

• Lowe's CEO Marvin Ellison said AI is already reshaping how the home improvement retailer operates.
• Ellison says he views tech less as a means to replace jobs and more as a way to increase revenue.
• Walmart executives have likewise said AI is likely to affect practically every job in the industry.

Home improvement retailer Lowe's is using AI for more and more tasks, but CEO Marvin Ellison says he isn't looking to the tech to cut labor costs.

Ellison said he views tech less as a means to replace jobs and more as a way to increase revenue, speaking at Morgan Stanley's Consumer and Retail Conference on Tuesday.

"Rather than thinking about it solely as a job replacement tool, how do you think about reducing someone's workload by 50%?" he said.

"Can we now free a merchant up who's spending 50% of their time building spreadsheets, responding to emails, communicating with suppliers? If AI can take that task away, can you now take 50% of that merchant's time, and they can focus on sales-driving initiatives?" he continued. "That's what we're trying to understand."

Ellison said that back when he took over as CEO in 2018, the home improvement industry was in an era of "binders and whiteboards" that has since been supplanted — at his company, at least — with a powerful suite of digital tools, including a partnership with OpenAI.

Indeed, now the development of that very tech stack is seeing efficiency improvements thanks to AI-assisted coding and approval, he said. Ellison has also said AI resources enable store employees to be more helpful on the sales floor.

The investments are also paying off directly with customers via the Mylow chatbot in the Lowe's app.

"We had a couple of questions, like on Thanksgiving, 'My stove is not working. It will not heat." Ellison said. "Luckily, we were able to give them some really good advice on things they can do to check to determine how they can repair."

"It's a lot more difficult than asking what aisle the shampoo is on," he added.

While Ellison has been one of the more prominent retail executives engaging publicly with AI issues, he's by no means alone.

"It's very clear that AI is going to change literally every job," outgoing Walmart CEO Doug McMillon said in September.

At the same Morgan Stanley conference on Tuesday, Walmart CFO John David Rainey likened the adoption of AI to the advent of spreadsheet tools like Microsoft Excel a generation ago — albeit on a much broader and quicker timeline.

"The best performers were those that learned it the most and used it to perform their job," he said.

"AI is going to give people tools to improve their jobs," Rainey added. "In some cases, I think it's fair to say jobs may go away. In other cases, new jobs will be developed."

• I asked six executives in November to share the books that shaped their leadership approach.
• The list features a range of leaders from tech companies, like AWS, to style brands like Revlon.
• The books they pick center on decision-making and leading with emotional intelligence.

It's that time of year again, and if you're searching for the perfect book to gift a family member, spouse, or even your boss, you're in luck.

Last month, I asked six executives from Big Tech companies like AWS, to financial firms like Mastercard, and style brands like Revlon and Mejuri, about the books that have influenced their leadership style.

Their responses included management staples, like "Extreme Ownership: How US Navy Seals Lead," and books focused on soft skills, such as "Emotional Intelligence" or "Quiet."

Read on for the full list:

Sarah Cooper, Amazon Web Services director of AI Native

AWS executive Sarah Cooper said she's rereading Clayton Christensen's "The Innovator's Dilemma." She said the book is filled with guiding principles for capitalizing on disruptive innovation, which are lessons that resonate in today's workforce.

She's also a fan of Daniel Goleman's "Emotional Intelligence," which explores why IQ alone doesn't guarantee success and why emotional awareness matters. Cooper said that leading with empathy is especially critical as AI reshapes the workforce.

"I truly believe that the way we work could change dramatically," Cooper said.

Jennifer Van Buskirk, AT&T head of business operations

AT&T's head of business operations, Jennifer Van Buskirk, told Business Insider that she's "a bit of an adrenaline junkie," and looks for signs of risk-taking when interviewing candidates. Her book picks reflect that intensity.

The executive said "Extreme Ownership: How US Navy Seals Lead" by Jocko Willink and Leif Babin teaches people to take ownership and see things through.

The second book she named, "Get Sh*t Done," by Lauris Liberts and motivational brand Startup Vitamins, was handed to her by the CIO of her former startup. She said it's filled with great quotes that reflect her style of thinking.

Raj Seshadri, Mastercard chief commercial payments officer

Mastercard's Raj Seshadri highlighted the book "Dare to Lead" by Brené Brown. Seshadri said that the book focuses on courage and vulnerability in leadership and argues that great leaders are defined by their ability to build trust and lead with empathy, rather than their titles.

"It provides practical tools for creating brave cultures where people feel safe to take risks and innovate," Seshadri said.

Michelle Peluso, Revlon CEO

Revlon CEO Michelle Peluso said she gravitates more toward biographies over traditional business books because "they offer a more human-centered perspective." A few of her favorites include:

• "Team of Rivals" by Doris Kearns Goodwin
• "Personal History" by Katharine Graham
• "Leonardo da Vinci" by Walter Isaacson
• "Long Walk to Freedom" by Nelson Mandela

Christina Shim, IBM chief sustainability officer

IBM's chief sustainability officer said the company has rallied around the book, "The Geek Way" by Andrew McAfee. She said that IBM CEO Arvind Krishna is working to build a culture inspired by the book, which focuses on four core pillars, including science, ownership, speed, and openness.

Shim said another book that has shaped her own leadership style is Susan Cain's "Quiet." The book explores how to navigate being an introvert in an extroverted world — and she thought it was so important that she bought copies for her entire team. She said that introverts often make up half a team, and understanding how to work effectively together is essential.

Noura Sakkijha, Mejuri CEO

The CEO of jewelry brand Mejuri told Business Insider that many books have influenced her leadership style, but one that stuck with her was Ben Horowitz's "The Hard Thing About Hard Things."

Sakkijha said it helped her understand that building a business is rarely a linear process. She said that sometimes reading other founders' stories made the process look easy. In contrast, Horowitz, who cofounded Andreessen Horowitz, offers practical advice for navigating the most challenging aspects of starting a business, based on his own experience.

"It was really helpful to read his story, how they built the business, the challenges they went through, and the persistence," Sakkijha said.

• Cher Scarlett resigned from Apple after helping to start the employee activist movement, #AppleToo.
• She struggled to find a tech job and later ended up homeless, living out of shelters.
• She now attends community college, sees a bright future, and has no regrets about leaving Apple.

This as-told-to essay is based on a conversation with Cher Scarlett, a 40-year-old former programmer and current community college student based in Southern California. It's been edited for length and clarity.

Growing up in a chaotic household, I never had much of a choice but to figure things out on my own. At age 6, I learned how to bake bread when my family needed dinner, and in middle school, I used that same initiative to teach myself how to code.

My home life worsened, and I dropped out of high school and went down a dark path. When I got pregnant at 19, I knew I wanted a better life for my daughter. I earned my GED with a near-perfect math score and broke into tech as a front-end engineer without a college degree. My tech jobs became my identity and source of self-worth.

Twenty years after starting my tech career, I quit my job at Apple. What followed was one of the hardest times of my life, but it was what I needed to finally see my true value.

My engineering career was fun at times, but unfulfilling

I worked for companies such as Blizzard, Starbucks, and USA Today as a software engineer. I had the opportunity to work on some really interesting projects, but I felt unfulfilled. I was always the activist type at work, speaking out against injustice, and I kept looking for a company that I felt like was making a positive impact on its community and employees.

When I was hired as a principal software engineer at Apple in April of 2020, I thought it was what I'd been looking for: Apple invested in education, installed computers in elementary schools, and even advocated for human and environmental rights. It seemed to embody the counterculture and activist movements that had been ingrained in my identity as someone who grew up in the Seattle area in the 1990s.

I started the #Appletoo movement and had no idea it would impact my career

About a year after I started working at Apple, coworkers and I created the #AppleToo movement, where we gathered testimonials from employees who shared their allegations of harassment, discrimination, abuse, and more.

I later helped send an official open letter to Apple asking for specific changes in how the company handled labor-related issues and complaints.

Two months later, I resigned. I didn't view what I did as something that could ruin my career or put myself in a position where I couldn't provide for my daughter. I was still taught when you see something, say something — so that's what I did.

After I quit Apple, I couldn't find another tech job

I had mixed feelings about my departure. I felt grief and disbelief at how it was ending, but I was self-assured and excited to reshape my vision of how I could impact the world with the software I worked on. I wasn't fearless, but I had a lot of belief that I'd find another programming job because it had never been an issue in the past.

I applied to places that seemed to align with my values, but I wasn't hired. Some hiring managers told me it was because I was underqualified without a college degree.

In August 2023, a year and a half after I left Apple, I ran out of money to pay my bills and enrolled in a community college to pursue a degree in computer science. Not only was it out of desperation because I needed a job to take care of my daughter and myself, but also because without that part of my identity, I felt like nothing.

I experienced homelessness before enrolling in community college

The same month I enrolled, I left an abusive situation in my personal life. I had to send my daughter to live with someone else, and I lived out of my car. I ended up withdrawing from my classes.

I spent some time in shelters before getting referred to an intensive, 10-week domestic violence program. I went to classes daily and counseling sessions multiple times a week to talk about why, my whole life, I kept going towards abusive situations. I realized that I put all of my self-worth into my identity as a software engineer and neglected the rest of myself.

I left the program feeling like a completely different person and re-enrolled in community college, but this time it was for something I've always been passionate about — astrophysics and earth sciences.

I'm on track to graduate with highest honors this spring, and I just applied to transfer programs. I don't know what I'm going to do with my degree yet, but I know that it's something that'll make me happy.

I don't have any regrets about leaving Apple

If I could go back and change anything about the time I left Apple, it would be that I reached out for help with the domestic violence I was facing, instead of suffering in secret.

I'm redefining what success means to me, and it has nothing to do with money or prestige. I've landed an internship at the Jet Propulsion Laboratory and a research assistant position at Caltech. It's interesting because the thing that has gotten me noticed at these places is my programming experience. I'm finally in a place where that's no longer my whole identity, but it's a part of myself that I'm getting to reclaim.

College has done for me something that no other part of my life has given me. I feel rewarded for my hard work. Getting that positive attention means everything to the bright little girl who never got any and has helped me learn to truly value my whole self.

If you quit your job for an unconventional path and want to share your story, please reach out to this reporter at tmartinelli@businessinsider.com.

• Google launched Gemini 3, sparking talks of a strong comeback in the AI race.
• OpenAI became synonymous with AI chatbots, but there are signs that Google is catching up.
• Here's a look at key differences between ChatGPT 5 and Gemini 3.

Google is mounting a striking comeback in the AI race.

After ChatGPT blindsided the company in 2022 and turned OpenAI into the face of generative AI, Google spent three years working to regain its footing.

The company launched Gemini 3, calling it its most advanced model yet. The positive reviews the AI bot has received since its debut could be the clearest sign yet that Google's turnaround is real.

Now, it's OpenAI that appears to be on its heels. As first reported by The Information, Sam Altman sent employees a memo outlining a "code red" situation and calling for rapid improvements to ChatGPT, a sign that OpenAI is taking Google's latest advance seriously.

Here is a look at the differences between GPT-5.1 and Gemini 3, and which one might better suit your needs.

How do ChatGPT-5.1 and Gemini 3 compare in price?

ChatGPT offers a free version, limited to about 10 messages every three hours, with slower response times during peak hours. The free version lacks advanced data analysis features and the ability to create custom GPTs.

ChatGPT Plus costs $20 a month, which gives you unlimited chats and the newest features like AI image generation. For a professional power user, there is also ChatGPT Pro at $200 a month, which provides unlimited access to all of OpenAI's models and offers prioritized response times at peak hours. Groups can buy ChatGPT Team, starting at $25 per user a month, for a collaborative workspace to share resources and custom GPTs.

Google takes a similar approach with Gemini. There's a free tier, but users are limited to five prompts for all tools and up to 100 images per day, and five deep research reports a month. The AI uses a token system to calculate how many more times a task can be performed.

An upgrade to Google AI Pro, which costs $19.99 a month, unlocks the latest model, as well as coding tools, the Gemini assistant in Chrome, and access to Gemini in Google apps. This plan is free for a year for all students. If a basic paid plan is still not enough, Google AI Ultra comes at $249.99 a month. This top-tier plan significantly increases the number of credits the user has to generate AI videos, and it comes with a YouTube Premium subscription.

Where can you access ChatGPT-5 versus Gemini 3?

Where the two tools diverge is in how they integrate with other apps.

ChatGPT works with a wide range of third-party services through plugins, connecting to tools like Slack, Zapier, Instacart, Trello, and more. It's easy for developers to build ChatGPT into their own apps.

In October, OpenAI launched a browser called Atlas that allows users to access GPT straight from the browser. Atlas itself is also powered by GPT and has a chat-style search bar.

Gemini, meanwhile, is built into Google's ecosystem. It plugs directly into Gmail, Google Docs, Drive, Sheets, Calendar, and other Workspace apps. It is also available to developers through Google AI Studio and Google Cloud.

Gemini 3 is the first time Google is introducing its new AI model to search immediately upon release. Without downloading an app or visiting a separate webpage, users can access Gemini 3 in Google search by clicking "AI mode." This could be a major advantage for anyone who already works in Google's world and needs a productivity tool.

Why is everyone talking about Gemini 3?

Google's new Gemini 3 model has been met with a wave of praise since its release in early November, and the buzz is starting to put pressure on rivals.

There are a few reasons Gemini 3 has AI enthusiasts excited.

For starters, the model is built directly into Google Search. Paying subscribers can select a new "Thinking" mode that pipes Gemini's reasoning capabilities into search queries, producing more detailed, context-aware results.

Developers are buzzing about improvements to Gemini's vibe coding capabilities.

Gemini 3 is also touting accuracy gains. As Business Insider's Hugh Langley reported, the company shared new benchmark results showing Gemini 3 scored 37.5% without access to other tools on Humanity's Last Exam, a 2,500-question test covering math, science, history, and reasoning. Google's head of product, Tulsee Doshi, described the results as evidence that Gemini 3 solves math and science problems "with a very high degree of reliability."

In the same Humanity's Last Exam without access to other tools, GPT-5.1 scored 26.5%.

Mayank Kejriwal, a principal scientist at the USC Information Sciences Institute who leads the artificial intelligence and complex systems group, told Business Insider that Gemini 3 marks the biggest leap in large language models this year. Other models only saw "incremental updates."

Kejriwal also pointed to the LMArena leaderboard, where users ask questions and rate responses without knowing which AI chatbot they are engaging with. Gemini 3 is leading in overall score, while ChatGPT-5.1 ranks third, about 300 points behind.

"With Gemini 3, it seems like it is processing text, video, audio, and code in a unified manner," Kejriwal said. "So it's almost like we as humans, we're unified, and your one brain can do all of these different things at the same time, and that's the artificial general intelligence vision — that you're able to do all of these things under one umbrella."

The offers and details on this page may have updated or changed since the time of publication. See our article on Business Insider for current information.

• For Love & Money is a column from Business Insider answering your relationship and money questions.
• This week, a reader wonders how to teach their children to recognize their financial privilege.
• Our columnist suggests centering gratitude in their children's lives and healing their own inner child's relationship with money.

Dear For Love and Money,

My kids are growing up with way more financial security and privilege than I had as a kid. That makes me hugely happy, but I'm struggling to help them understand their privilege and appreciate the value of a dollar.

They're not spoiled brats, but there's a level of expectation, because things that were unfathomable to me as a child — yearly vacations, expensive extracurricular activities — are just the norm for my kids, who are in early elementary school.

I like that my kids get to do things I couldn't do when I was their age. However, what's your advice for getting them to understand how lucky they are? Does that just come with age? Or is this more about me coming to terms with my own hang-ups about a changed financial status?

Sincerely,

Raising Rich Kids

Dear Raising Rich Kids,

It's the natural instinct of every parent to want more for our kids than we had ourselves. It's also natural to think, when we see anyone living a life we perceive as easier than our own, Must be nice. Reconciling these two natural responses takes practice and will be the key to navigating how you feel about the privileged circumstances you've provided for your children.

You asked me if the solution is teaching your kids to understand their luck or if it's getting over your own hang-ups — I think it's a bit of both.

Helping your children understand their privilege is an important part of this conversation. As parents, we're responsible for ensuring they learn not to be entitled, but teaching our kids to recognize their privilege is different from teaching them to feel guilty about it.

This world of security and privilege that you've provided your children is the only world they know; it's not a problem that needs to be solved. Your kids have done nothing wrong by being born lucky. The difference between teaching your kids to recognize their privilege and instilling guilt in them is gratitude.

Make gratitude a central part of their lives

The best way to do that is by first modeling it yourself. You mention that they take for granted things you wouldn't have dreamed of when you were their age. Tell them this! However, be mindful not to frame it as a guilt trip — but rather as your own story.

For instance, instead of saying something like, "When I was your age, I would have thought I'd died and gone to heaven if my mom took me anywhere outside the county," reminisce with your kids about the special little events from your childhood that felt like a really big deal to you. Don't deliver the story like a morality lecture, but don't shy away from the bits that highlight your relative lack of privilege either. Just share pieces of yourself with your children, and trust them to fit the puzzle together.

Remain vocally in awe of your good fortune even now. Your kids will pick up on this thanks-centered worldview and adopt it themselves.

Another way to instill gratitude is to create regular opportunities for giving thanks. Encourage them to write thank-you cards, initiate "one thing you're grateful for" round robins every holiday, family meeting, and long car ride, and introduce them to the idea of gratitude journaling or a gratitude jar. The more often you do it, the more regularly they'll reflect on the good in their lives.

Creating opportunities for your children to give back is another way to guide them away from entitlement issues. Generosity is a habit; get them hooked on it by embedding it into their lives. Give often and regularly, and bring them with you.

Find a local charity that allows children to volunteer and get the whole family involved. Explain to them why it's important to give not only money, but also time. Give them perspective and help them understand that what they take for granted could be the dream of someone else dealt a different hand in life.

Meet your children halfway

But as you mentioned at the end of your letter, your path forward isn't only about improving your children's relationship with their privilege; it'll also require that you address your hang-ups around your improved financial status.

Growing up in a vastly different financial status than you achieve in adulthood can be difficult to adjust to. I know you're happy to be able to give your kids the financial security you never had, but I wonder if on some level you are viewing your children's cushy circumstances through the envious eyes of your inner child: Must be nice. Meanwhile, your inner child, eager to make up for past deprivation. may also be the one creating that cushy life for your kids.

As I mentioned above, all of this is normal. Any comparison-driven resentment you may feel or desire to make up for your own childhood through your kids is a natural human instinct, and you're not a bad person for having these feelings. You're simply human.

That said, I know you don't want to feel resentment toward your kids, even subconsciously, which is why I think the first thing you need to do is recognize where you are viewing things from the perspective of your inner child, so that you can step away from it and step into the perspective of your children. Journaling, setting aside a block of time for reflection, or even investing in a few financial therapy sessions could all be part of your path toward healing your inner child's experience as you come to terms with how different the life you've created for your children is.

If, upon further reflection, you realize there are ways you've started to approach money with a new mindset that don't align with your values, then it may be worth considering whether you want to make some financial changes. For example, maybe you feel you've started throwing money at problems your kids encounter rather than sitting down and working through them together, or you've gotten into a habit of buying them whatever they ask for without conversations about the value of what's being purchased and whether it's necessary.

However, if you are simply worried about the potential impacts of privilege on your children and feel aligned with the lifestyle you're providing for them, you don't need to deny your children nice things just to prove a point.

Trust in your abilities as a parent; after all, you said yourself that your children aren't spoiled brats, and that's no small feat. And don't forget that the luckiest thing about your children's lives is that they have you — a parent who wanted to give them everything, and so you did.

Rooting for all of you,

For Love & Money

A version of this article was originally published in January 2022.

Looking for advice on how your savings, debt, or another financial challenge is affecting your relationships? Write to For Love & Money using this Google form.

Applying for a home loan is a pain. You have to produce a heap of documents — bank statements, tax returns, employment records, tallies of investment accounts — to prove the stability of your financial footing, then wait for a mortgage underwriter to comb through all of it before giving you the thumbs up. I spoke with one exasperated homebuyer who described the process as a "borderline invasion of privacy."

While the average American submits to a financial colonoscopy en route to their dream home, wannabe real estate moguls have found a way to sidestep the hassle. With the help of a once-obscure type of loan, they've built mini-empires ranging from a few homes to a few hundred — without the usual scrutiny from lenders. These landlords include small-time investors eager to expand their portfolios, TikTok tycoons seeking new streams of real estate revenue, and seasoned property managers looking to make smart bets. In recent years, they've taken out billions of dollars' worth of "debt-service coverage ratio" loans — often abbreviated as DSCR — to hoover up homes. The loans enable income-seeking owners to quickly purchase rental properties while dodging annoying questions about their job history or outstanding debts. DSCRs may sound complicated, but obtaining one is relatively straightforward: A landlord just has to show their lender that the desired property will generate enough rent to cover the monthly payments and other basic expenses, such as taxes and insurance. The lender focuses on the property's cash flow, not the borrower's personal creditworthiness.

For some of these landlords, the cash isn't flowing as planned. Serious delinquencies on DSCR loans have nearly quadrupled in the past three years, data from the real estate analytics firm Cotality shows. Although the troubled loans account for only a small fraction of the total dollar amount of outstanding DSCR loans, they're a sign that debt-laden landlords face shakier economics amid a rental market slowdown. And while people in the industry defend the idea behind the loans — "It's still a great product," one lending veteran tells me — they acknowledge the spread of some sketchy practices that contributed to the spike in bad debt, including ambitious rent targets, hasty approvals, and loans for properties where the rental income wouldn't even cover the basic monthly payments.

Despite all the hand-wringing over Wall Street-backed giants gobbling up homes, it's the small and midsize players — prime candidates for DSCR loans — that make up the lion's share of investor purchases. If lenders tighten their standards in response to the recent turbulence, that could mean fewer budding land barons angling for houses. Regular buyers might benefit from less competition for available homes or the forced sales of some of these places. But a little shakiness in the short term doesn't mean these loans, along with the investors seeking real estate riches, will disappear. Big asset managers, keen on putting their money to work in real estate, have embraced the product. And with more people turning to rentals instead of buying, more landlords will take on this debt to multiply their holdings — even if some of their dreams of building real estate kingdoms come crumbling down.

Most people are content to snag their small slice of the American dream, buying one or maybe a couple of properties that they can call home. But there's also a growing class of entrepreneurs chasing real-estate riches. Say you decide to become one of those landlords: You own a couple of rental homes that pull in good money, but you're itching to buy more. Odds are you'll need a loan — it's expensive, and probably unwise, to tie up all your cash in a property when you could use it to do all kinds of other things, like pay for repairs or maybe even purchase more places. The Blackstones and Pretiums of the world have ample access to debt, but it's trickier for a little guy like yourself. Even if your finances are golden, Freddie Mac and Fannie Mae limit the number of so-called "conventional loans" you can get to buy up houses and turn them into rentals. Alternatively, you may encounter a limit with your debt-to-income ratio — you can only take on so many liabilities before the typical lenders put the brakes on any further borrowing. This is when you may turn to the world of DSCR loans, where a bevy of lenders promise quick closings, little inspection of your personal finances, and practically unlimited access to more money down the line, as long as you can find rental properties that promise to deliver cash.

True to their name, debt-service coverage ratio loans center on one key metric: the ratio of the property's expected rental income to its mortgage payment and basic monthly expenses, such as taxes, insurance, and association fees. Let's say the home you've set your sights on brings in $3000 in rent each month, while those expenses total $2,500. Divide that first number by the second, and you get a coverage ratio of 1.2 — well within the typical range for a DSCR loan. Lenders prefer the ratio to be above 1, so that the soon-to-be owner has a little cushion to cover unexpected expenses that are likely to arise, such as a broken water heater or repairs on an aging HVAC system.

DSCR loans for residential investors have been around for more than a decade, but they really came into vogue during the pandemic, when borrowing rates dropped and investors saw a chance to capitalize on rising home prices and juicy rent hikes. Landlord influencers took to social media to preach the gospel of BRRRR — an acronym for Buy, Rehab, Rent, Refinance, Repeat — which they hailed as the golden path to financial freedom. Some of these evangelists leaned on DSCR loans to buy or refinance their properties, extracting equity from their homes and using the funds to scoop up more rentals. Larger firms also began purchasing loans from smaller private lenders, packaging them into portfolios worth hundreds of millions of dollars, and selling the resulting income streams as bonds, a process known as securitization. The embrace by so-called "institutional investors," such as insurance companies and asset managers, who purchase these bonds, along with growing demand from small- to midsize landlords, enabled the industry to flourish. Data from SFR Analytics, a real estate analytics firm specializing in single-family rental homes, shows that DSCR lenders churned out more than $44 billion in loans in 2022, up from just $5.6 billion in 2019.

"It really went from an unknown asset class, or very small asset class, overlooked by much of the commercial world," says Hunter Latta, an executive at the DSCR lender Renovo Capital.

"Fast forward to today, it's a full-blown, widely accepted asset class."

However, several things happened in 2022 that made it trickier for investors to wring cash out of their properties. The Federal Reserve began jacking up interest rates to fight inflation, making it more expensive to borrow money. Home prices had surged in the Covid era, so the properties landlords had invested in during the pandemic came with larger loan balances and heftier monthly payments. With Americans feeling financial pressure and fewer forming new households, the pace of rent growth also slowed. By March 2023, according to Cotality, single-family rents were up just 4.3% year over year, down from the 13.3% jump recorded a year prior. Some landlords found themselves in a bind: They'd taken on loans with higher rates, expecting rents to keep pace. But investing in real estate was no longer the slam dunk it had been just a year or two earlier.

The percentage of DSCR loans in "serious delinquency" — meaning that payments are at least 90 days late or the property is in foreclosure proceedings — has nearly quadrupled since mid-2022, Cotality data shows. Just under 2% of securitized DSCR loans (those packaged together and sold as bonds) fell into that bucket as of August, compared with around 0.5% at the same point in 2022. That may not sound like much, but quadrupling the amount of troubled debt has been enough for lenders to take notice. By contrast, only about 1% of conventional loans are seriously delinquent, according to data from the Mortgage Bankers Association.

Roby Robertson, an executive vice president at LoanLogics, a mortgage technology company, likens this period to a "hangover in a really hot market." The most challenged loans these days were originated in 2022 and 2023, right when the market was turning. Landlords who might have aimed for a conventional loan couldn't make the math work, so they turned to a DSCR to make their investment dreams come true. Some lenders offered quick closings and "sub-unity loans," which meant that the debt coverage ratio on the home was less than 1 — the rent wouldn't be enough to cover the loan payments right out of the gate, so the landlord was either betting on the home's value increasing substantially in the future, or that rents would climb enough to cover the costs. On the other side of the deal, the lender might figure that the landlord had enough skin in the game to make it work: DSCR borrowers usually have to put down at least 20% of the home's value, and often significantly more, in order to get approval, which makes them unlikely to walk away from a property even if they're losing money on it.

Other landlords chose to refinance a traditional loan into a DSCR one, a double-edged sword: Though the new loans allowed them to capitalize on higher home prices and pull money out for more deals, they also wound up locked into higher borrowing rates, requiring higher rents to make the payments.

"There is a direct correlation between cash-out refinances and delinquency," says Alex Offutt, a DSCR executive and industry veteran, referring to landlords who took out loans right as borrowing rates jumped. "You're taking out the cash to go buy more properties, but rents aren't keeping pace with property values, right? So you had people that essentially got themselves into an over-leveraged position where they were not able to collect the rent they thought they could."

Some of these loans left other real estate lenders scratching their heads.

"We'll have a loan that we look at and say there's no way we'd finance that, no way we'd get to that leverage amount," says Sean Kelly-Rand, a managing partner at RD Advisors, an investment firm in Boston. "And then all of a sudden we'll see them get a DSCR loan, and we're like, what?"

Despite the uptick in delinquencies, DSCR loans continue to boom. Landlords secured more than $38 billion in DSCR loans tied to over 100,000 properties last year, according to SFR Analytics. Through October of this year, lenders have cranked out another $32.8 billion on almost 89,000 rental homes. The country's two largest mortgage lenders, United Wholesale Mortgage and Rocket Mortgage, both now offer DSCR loans, with Rocket announcing its entrance to the space just last month.

Comparing recent delinquency rates to 2022 can be misleading, says Robertson, the LoanLogics executive. Low interest rates and rising home prices at the time made it relatively easy for almost anyone to make money in real estate. Additionally, delinquencies are now trending in the right direction, having decreased slightly from a peak of 2.2% early this year. With this perspective in mind, Robertson refers to the rise in bad debt as "natural growing pains of an industry that's kind of hot right now."

"With the market growing as fast as it's growing, I think it's actually pretty healthy," Robertson tells me.

Owners of single-family rental homes face a mixed bag, though. The rent-versus-buy math tilts firmly in their favor — an analysis by the research firm Zelman concluded that the calculation leans toward renting to a degree that hasn't been seen since the early 1980s. If people continue to choose renting over buying, that'll be a boon for landlords. On the other hand, rent growth is middling. Single-family rents in August were up just 1.4% year over year, according to Cotality — a 15-year low. And while some of these landlords may be sweating over stagnant or even falling rents, investors who fall behind on their DSCR loans aren't totally stuck: Because home prices have generally climbed over the past few years, delinquent borrowers are usually able to sell the house and pay off the loan, says Sujoy Saha, an analyst at S&P Global. Still, if fewer well-funded investors are chasing properties and more cash-strapped mini-moguls are dumping their distressed assets, that could mean better odds for regular first-time buyers, who often seek the kinds of entry-level properties that are typically turned into rentals.

For wannabe BRRRRers or members of the FIRE movement, skyrocketing home prices and rock-bottom borrowing rates made the rental business seem like the best way to make a buck just a few years ago. Landlords still see plenty of opportunities to come out ahead — but ultra-cheap loans are no longer part of the equation.

"People got hooked on the cheap money," Offutt tells me. "Anybody can be successful when the money's cheap."

James Rodriguez is a correspondent on Business Insider's Discourse team.

• San Francisco is suing 11 major food brands, accusing the companies of fueling a public health crisis.
• It accused brands like Coca-Cola and Nestlé of selling processed foods that lead to diabetes and obesity.
• The lawsuit comes as the Trump administration cracks down on processed foods.

San Francisco is going after food brands that produce "ultra-processed foods," accusing the companies of fueling a public health crisis.

The 64-page lawsuit, filed on December 2 by San Francisco City Attorney David Chiu, accused some of the country's biggest food brands of selling dangerous, ultra-processed foods to residents of San Francisco.

It named 11 brands as defendants: The Kraft Heinz Company, Mondelez International, Post Holdings, The Coca-Cola Company, Pepsico Inc., General Mills, Nestlé, Kellanova, WK Kellogg Co., Mars Inc., and Conagra Brands.

The lawsuit said that the brands had profited from selling ultra-processed foods, which make people crave what they otherwise would not. The lawsuit accused the brands of failing to include health warnings, making fraudulent claims about the products being healthy, and of targeted marketing at children.

Products from these brands include cereals, candies, soft drinks, and ready-to-eat meals.

"They designed food to be addictive, they knew the addictive food they were engineering was making their customers sick, and they hid the truth from the public," the lawsuit wrote, adding that taxpayers were left to foot the bill of a resulting public health crisis.

It said that ultra-processed foods majorly contribute to obesity, type 2 diabetes, cardiovascular disease, and other chronic illnesses.

Chiu called for the brands to cease further deceptive marketing and pay civil penalties to the city of San Francisco.

Representatives for the 11 brands did not respond to requests for comment from Business Insider.

The lawsuit comes as the US is clamping down on processed foods, a result of Health Secretary Robert F. Kennedy Jr.'s "Make America Healthy Again" movement.

In April, Kennedy said he would phase out eight petroleum-based food dyes in the US by 2027. And in July, President Donald Trump said that Coca-Cola had agreed to use real cane sugar in its products in the US, instead of corn syrup that it now uses.