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VOL. 123 | NO. 59 | Tuesday, March 25, 2008

Seasoned Investor Acquires 41 Properties

By Eric Smith

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PROFIT CENTER: Real estate investor Jim Reedy bought the Springs Townhomes in Raleigh for $1 million, the largest piece of a 41-property, $2.4 million portfolio he acquired recently from Roy Adams. A 30-year investment veteran, Reedy will hold onto the Springs and a few other acquisitions, but he plans to flip a lot of the properties. -- Photo By Eric Smith

Real estate investor Jim Reedy needed only one day to acquire $2.4 million worth of investment properties, beefing up his already extensive portfolio.

Reddoch Management LLC, the business that Reedy and his wife, Debi, established two years ago, has bought 41 multifamily and single-family properties throughout the city from Roy Adams, who had chosen to unload his holdings and get out of the real estate gig. The deals all closed March 19.

"He decided to hang it up and retire, and I was able to buy these on a highly leveraged basis," said Reedy, who now owns 400 rental units in town under the entities of Reddoch Management, Memphis Investment Properties and Tennessee Rehab, and who also sells real estate under Reedy and Co. Realtors.

Adams, 71, liked the idea of selling to Reedy, a 30-year real estate investment veteran whose aggressiveness and experience meant the portfolio would be passed along to a worthy successor.

"It fit the need for me to retire and for him to get a good deal," Adams said.

Good for me, good for you

The portfolio includes three Midtown multifamily properties near the medical center, 14 duplexes throughout the city and 23 single-family homes, mostly in East Memphis.

But the mass purchase was highlighted by the $1 million sale of the Springs Townhomes in Raleigh, a 32-unit townhouse-style apartment complex at 2870 Raleigh-LaGrange Road, on the northeast corner of Raleigh-LaGrange and Beverly Hill Street. The Shelby County Assessor's 2007 appraisal on the five-building complex was $950,700.

Reddoch Management took out an $800,000 mortgage loan from Adams and will renovate the property, focusing on the exterior of each building - namely the roofs and the complex's common area.

The large, two-story apartments - 1,250 square feet for a two-bedroom unit and 1,550 for a three-bedroom - with prices starting at $595 mean Reedy shouldn't have trouble keeping them occupied even if he raises rents slightly.

"We're seeing an explosion in rents here," Reedy said. "We're seeing a high demand for apartments and single-family homes, though duplexes are a little bit weak. But we've been raising rents for the past 18 months pretty aggressively here."

With the multifamily market booming, the Springs is the only apartment complex in Reedy's new portfolio that he's keeping. He plans on renovating and flipping the other apartments and the duplexes, while holding onto the single-family homes.

Giving credit where it's due

Reedy understands the importance of landing such a diversified portfolio. With fewer people able to get into homes because of tightened credit, the rental business has become big business in the past nine months.

"Because of the subprime debacle, we've seen a lot of the people who would have qualified for subprime that can't get subprime loans now - they're turning into renters," Reedy said.

And because of that phenomenon, he's seen a rise in the number of people dabbling in real estate investment, chiefly because of Memphis' large proportion of undervalued rental properties.

"There's a lot of interest in properties here," he said

Reedy said out-of-town investors are "flocking here" for the same reason, and he's bought a lot of properties from many of these same investors who decided to get out after a year or two because they grew frustrated with not being hands-on owners.

But this trend of former homeowners becoming renters has its share of problems, too. The multifamily sector has begun facing an issue with credit scores on the rental application, which sometimes presents a hurdle for residents coming off a foreclosure. Reedy said his company doesn't have really rigid rules, which can be an important distinction when other places deny applicants whose credit is shot.

"We look primarily at their ability to pay, their income, more than their credit," Reedy said. "If you're going to stay 90 percent full, you better be willing to look at subprime credit."

An investor's market

Another issue facing real estate investors is the credit they're being issued to buy properties.

Reedy tried selling 75 single-family homes to investors from Phoenix, but he wound up selling only 25 of them to the group because of problems with investor loans.

"It's hard to get a lot of investor loans if you own a lot of properties," Reedy said.

Still, Reedy was happy to take those properties off Adams' hands, and he's looking to make more purchases of entire portfolios - whether it's to flip or hold.

"It's a great market for us right now because the spreads are so great," Reedy said. "The FHA financing now is back in the glamour seat, and that's how we're selling a lot of our houses. Our momentum's pretty good. It's a great time to be an investor if you can get financing."

PROPERTY SALES 83 405 4,276
MORTGAGES 104 424 4,814
BUILDING PERMITS 148 883 10,151
BANKRUPTCIES 53 264 3,149