Jim Reedy began selling real estate in 1976 while he was a student at the University of Memphis, and within three years, he moved into selling investment properties.
But the current market for investment purchases of single-family homes has rarely been better.
“I’d certainly call it incredible,” said Reedy, founder of Reedy & Co., which helps investors buy and manage single-family homes. “It’s a very robust market.”
Since the housing market hit rock bottom a few years ago, investor interest in Memphis has skyrocketed, and Reedy & Co. has been there to ride the wave.
Since 2012, the company has gone from managing 1,200 homes to more than 2,600. From 2012 to 2013, Reedy & Co. has purchased 1,641 homes for investors, with a total value of more than $106 million.
The boom led Reedy & Co. to relocate from a 2,500-square-foot office in East Memphis to over 20,000 square feet at 4701 Summer Ave.
“It’s really exploded since the housing market bottomed out,” Reedy said. “We saw an opportunity to represent investors and we jumped headlong into the investment market again. It’s been a pretty high-paced environment around here the last couple years.”
Reedy & Co.’s new location included a large warehouse where all the property rehabilitation materials were stored. Suppliers including Home Depot would bring the home renovation supplies to Reedy & Co.
“We could keep our contractors rolling without having to go to the supply houses,” Reedy said. “Within a week after closing, we started with renovations and we were able to quickly renovate all these houses we bought.”
Reedy said large institutional investors such as hedge funds and private equity groups have been targeting the Memphis market. One of Reedy & Co.’s clients is the Connecticut-based hedge fund Building and Land Technology, which now owns around 1,050 homes in the Memphis area.
Several factors aligned to produce the current environment, Reedy said. Housing prices plummeted in 2007 and 2008 following the housing crash and onset of the recession, and a large “shadow inventory” of cheap foreclosure and tax sale properties developed.
“It’s really exploded since the housing market bottomed out. We saw an opportunity ... and we jumped headlong into the investment market again.”
The large supply of relatively inexpensive homes became attractive to investors, who were looking for investment opportunities outside of the stock market and had the cash to buy.
“When the housing market crashed, the single-family market became a new asset class for investors,” Reedy said. “I think the hedge fund guys had so much money and they realized that housing was so cheap and the yields were so high they took a look at it and determined they could buy these houses and get rent appreciation and price appreciation down the road. Their plan is to rent these houses for four or five or six years and then sell them for a big appreciation gain.”
Memphis is not alone. Investors have been gobbling up single-family properties across the country in cities that were hit hard by the recession. Investment groups such as Blackstone Group, American Homes 4 Rent and Colony Capital have acquired thousands of distressed properties, remodeled them and put them up for rent.
“We’ve got hedge funds that are buying single-family homes in the thousands,” said Steve Woodyard of Woodyard Realty Corp. at the Memphis Area Association of Realtors Commercial Council’s 2014 Commercial Property Forecast Summit.
Reedy said the interest from investors has helped improve the Memphis real estate market by chipping away at inventory, reducing the “shadow inventory” that built up after the recession.
“They took a lot of inventory off the market and the prices started firming up,” Reedy said. “I can’t emphasize enough how much the hedge funds have helped grow the market. Everybody thought it would take forever for the prices to improve, but they have really come back because the inventory has been reduced.”
Reedy doesn’t see any signs that investor interest will cool off.
“I think investors will continue to buy in Memphis and I think the big investors are here to stay,” Reedy said.