Investors sold off Memphis homes at rapid clip

A four-bedroom, two-bath rental in the Fox Meadows neighborhood exemplifies how Memphis has the nation's highest house-flipping rate. 

The Memphis investment-property and management firm Reedy & Co. last year paid $400,000 for a bundle of homes that included the brick ranch-style home at 5737 Scottsdale.

"If I had to put a number on it we paid in the mid-$80,000s for this house,'' chief executive Jim Reedy said. "We recently sold it for $123,000 to an investor, and we probably made 20 grand on it'' after spending about $20,000 for renovations.

Last week, a property database firm called ATTOM Data Solutions released its 2016 Year-End Home Flipping Report, which defines flipping as the arms-length sale of a house for a second time within 12 months.

Nationally, the 193,009 single-family homes and condos that were flipped represented a 3.1 percent increase from 2015 and also the highest number of flips since the 276,067 sales in 2006, ATTOM reported.

Among cities where at least 250 homes were flipped last year, Memphis ranks No. 1 for the portion — 11.7 percent — of all metro area home sales that involved a flip. Another Tennessee city, Clarksville, ranked No. 2 at 10.1 percent.

Reedy & Co. is in the middle of many of the quick Memphis sales. In addition to managing 1,600 rental houses for mostly out-of-town landlords, Reedy buys and sells homes, sometimes by the hundreds.

"This year we'll sell 200 to 300 houses to investors we know, single investors for the most part,'' he said. "And we represent two (investment) funds that will probably buy another 300 to 400 houses'' ranging in price from $100,000 to $250,000.

Several years ago, the Memphis firm sold to Connecticut-based BLT Homes a bundle of 1,080 Memphis houses that Reedy had bought, renovated and managed for two years. In turn, BLT sold the bundle in 2015 to Cerberus Capital Market, a New York investment firm.

Reedy also represents a French investment firm that buys only houses valued between $150,000 and $250,000. "They're making around a 4.5 percent to 5.5 percent return on their money, but in Europe they don't make anything on their money,'' Reedy said.

Well-heeled investors began buying tens of thousands of homes in cities across the country several years ago, after the 2008 Wall Street  crash set off a deep recession that forced millions of homeowners into foreclosure.

Reedy saw the demand for investment homes coming years ago and scaled up, moving up to a 20,000-square-foot headquarters building on Summer and increasing his payroll to 60 people.

Reedy considers "house flipper'' a negative term, preferring terms such as "turnkey operator'' instead. "So what I think of as a flipper, is a guy who owns a house maybe two or three days, buys it super-wholesale," he said. "Sells it to another investor and that true investor takes it all the way through the rehab.''

The data firm ATTOM also identified 39 ZIP codes across the nation where at least one in five home sales was a flip. Eight of those ZIP codes are in Memphis. They are among Memphis neighborhoods riddled with foreclosures: Southeast Memphis (105 flips), Hickory Hill (91), Oakhaven (160), Whitehaven (109), Raleigh (160), Frayser (146), Southwind area (106) and Southwest Memphis (87).

"Those are predominantly black communities,'' said Thomas Byrd, a broker with ERA Legacy Realty who heads the local chapter of black real estate agents called the National Association of Real Estate Brokers.

House flipping is part and parcel of the large number of house sales to out-of-town investors and investment funds, which draw rent income from them. Byrd generally sees house flipping as bad for Memphis.

Flips and out-of-town investors inflate the price of houses for working Memphis families, which helps keep them in rental housing, Byrd indicated. Renting instead of building home equity eliminates a common way for working families to accumulate wealth.

"In some cases you may see a house in Frayser and you look for comps and you see it's $124,000,'' Byrd said. "And you say, 'Whoa, where did that price come from?' You see the same agent working the deal and he may be selling it to somebody in California or Australia.''

Despite the tight supply of houses on the market, Memphis remains known worldwide as a hotbed for investor houses, Byrd said. "Even if the product is not there, there's some agencies out there, they are flipping these houses. Doing the repairs and selling them at supply and demand.''

Reedy & Co. has found a renter for the California landlord who now owns the Fox Meadows house. In April, a family will move in and pay $1,295 a month.

Reedy acknowledges the same business model that makes his company so successful is transferring wealth out of Memphis, but the blame is not with him, he said.

The same Fox Meadow house rented for $1,295 per month could be purchased  with a $900 monthly mortgage, Reedy said.

"For a $1,200 and higher rent, you pay 35 percent more to rent than your house payment would be,'' he said.

His company succeeds "because people aren't doing sound things. You want to scream at them,'' Reedy said. Too many Memphians lack the self-discipline to save the 3.5 percent down payment and maintain for at least two years a clean credit score and employment record, he said.

"People are coming up to rent our homes, they're driving up in nice modern cars and paying $1,000 to $1,500 for rent. It does make me a little mad. That homeownership desire has gone away. Maybe the public is not educated enough,'' Reedy said.

The problem is not a lack of self-discipline, it's lack of education on managing personal finances, said Tim Bolding. He heads the nonprofit agency United Housing, whose mission is to increase homeownership in Memphis.

"It doesn't have to do with (expensive) cars,'' Bolding said. "It's the lifestyle of not knowing how to manage money. ... It's a home-buyer education and financial counseling issue."

In the last fiscal year, United Housing counseled more than 500 people, of whom about 320 bought a home.

Bolding estimates about 1,000 people complete an eight-hour home-buyer education course in Memphis every year. United Housing and other organizations are about to launch a new campaign that includes a goal of providing home-buyer education courses to 4,000 people a year.

"If you know how to manage your money you can live well and get the credit and get that house and the car," Bolding said. "But if you don't have those skills and you can't get a house, you get a car because no credit is needed. You do what you can do.''

Home flips

Memphis leads the nation among metro areas where 250 or more homes were flipped in 2016. Here are flips as a share of all home sales.

Memphis  11.7%

Clarksville, Tenn.  10.1%

Visalia, Calif.   10.1%

Tampa-St. Petersburg 9.9%

Daytona Beach, Fla.  9.9%

Las Vegas   9.2%

Miami          8.8%

Orlando    8.3%

Phoenix   8.0%

New Orleans 7.9%