April 2020

Pursuing acquisitions has become difficult on so many levels, to put it mildly. Buyers have moved from years of having to play in a relentlessly hyper-inflated seller’s market, to a nearly complete absence of new properties being offered for sale. The virus has infected commercial real estate. Sellers and buyers don’t know how to price properties, so owners hang on to them.

The issues buyers deal with today start with not getting inside units. Brokers can’t take marketing pictures, buyers can’t perform due diligence, and inspectors can’t inspect. A lot of lenders are not quoting loans on properties because of uncertain income streams. Courthouses are not open for title searches.

But even more basic than that, who knows what’s coming this month or next. Job loss? Vacancies?

Sellers generally take longer to react to changing markets than buyers. I have not seen properties getting discounted or heard brokers say anything about sellers being more willing to negotiate today. Some still want to sell but believe they can ride this out and income won’t be much impacted. Maybe.

Others want to hold their property, not sell at a discount, and try again later. But because we’re so early in the process, we’re not seeing changes in sellers’ willingness to negotiate pricing and terms. Are you?

We’re still in the hunt, though. We’ll move forward on a property if we can get it under the right terms. We have to assume things like longer close time because lenders are short-staffed and can’t get access to the property, higher interest rates, and no hard money until all the contingencies are waived.

And some extra clauses in contracts. Like a Force Majeure clause that includes global pandemics and Covid 19, a Covid 19 element in the financing contingency, a material adverse change clause. Talk to your attorney about these.

I’m tuning in to podcasts and webinars on these topics. It’s great to hear from experts like attorneys. Were you in a contract to buy? Don’t automatically assume you have to back out and take your losses.

Talk to all the parties involved, get them to share in the pain and to understand that if they force you to back out, their next buyer will require terms worse than yours. Communication!

Clarksville, TN – Do you like military markets? All markets have risk and military towns carry even more risk. Troops deploying all of a sudden, lenders restricting loans to properties with high military tenant base are just a couple of them.

With legislation over the last 20-30 years authorizing closure of military bases, some bases grew and some re-aligned to private use. The trend with many surviving bases has been to see a declining population. This, of course, impacts the businesses around town as well. Maybe the town has succeeded in diversifying its economy but many have not. They’re dependent on the base, joined at the hip.

Clarksville, NC is more than surviving, it is thriving. It has experienced a steady population growth over the last five years. The base in Clarksville, Fort Campbell, spans the border between Tennessee and Kentucky and because of the personnel stationed there, has survived the major cuts in military over the last several years.

This region also benefits from the growth Nashville is experiencing, being 30-45 minutes up the road.

When to end a tenant’s lease
First an advisory note. This information is meant to be helpful under normal circumstances, not during a worldwide pandemic when evictions and other forced move-outs are not in your or the community’s best interests, or not legal.

Your tenant has some issues that you’d like to correct. He or she leaves their unit in a mess and you know the security deposit won’t cover what they’ve done to the unit. You’re also not sure if they’re violating the lease, and they seem nice and pay rent on time.

Or they have a contentious relationship with another tenant, and that tenant, another good renter who you’d like to keep, is thinking of moving because of this. The other tenant tells you things this tenant is doing that sound shocking! So you confront this tenant and this tenant denies the accusation and makes one about the other tenant.

It’s a quandary!

If there is a clear violation of the lease, they are to be given their notice to fix the issue or vacate. But short of that, you still may not want them around any more. They could be poisonous to the community culture and completely incompatible with your goals of creating a safe, nurturing, supportive, family-oriented community. You just have to wait until their lease ends, though.

Here are some guidelines I have found which help to determine if a tenant needs to be told their lease will not be renewed. These guidelines assume your state laws allow the landlord to make these decisions. It’s not meant to be legal advice, though, so don’t interpret it that way.

• Have you told them about the issue yet, given them an opportunity to fix the problem? If so and the problem is still there, they should leave.
• Is there a safety issue? Although this is probably covered in your lease, if they’re doing something which could create any kind of safety risk to the property, their neighbors, the cars, or themselves, they should leave.
• Is there so much filth in the unit that it is nauseating to enter? Pets urinating on the floor? Never vacuumed or cleaned since they moved in? That’s just flagrant, unsanitary, and likely causing much more damage than their security deposit. Give them a short window to clean it thoroughly and prevent pets from further damage, then have them leave if they don’t comply.
• Has more than one tenant complained about them? Just one tenant complaining about another tenant may not be enough to ask the other tenant to leave. You may not be getting good information. Look for a way to substantiate the complaint.
• Have other tenants reported things to you about this tenant? Don’t let this go too long because tenants who report issues are people you very much want in your property, and won’t wait too long for the problem to be fixed. They’ll just leave. Then you still have a bad tenant and lost a good one.
• What is your vacancy and financial condition? If you have a tenant who is dirty but pays their rent on time, is nice, and doesn’t affect other tenants, as long as they’re not creating problems with roaches or rodents, it may be okay for them to stay until the property is more stable.
• What is going on with the tenant personally? Did they just have a baby or a family tragedy? Although we don’t operate property ownership as a charity, we are in this game to improve lives. Look for a way to accommodate this person for some period of time. Offer assistance. This is not the time to end their tenancy.

A good property manager has no trouble making these decisions, but even then, they will want your guidance. Our compassionate hearts should not lead us to expensive problems.

Who We Are

Cardinal Oak Investments acquires, improves, and manages under-valued commercial apartments. We buy B and C class properties of around 100 units in the Southeast and Midwest. We look for properties whose amenities, aesthetics, and appeal have fallen into obsolescence, whose care reflects tired management, and whose location is where a stable workforce wants to live.

And we partner with like-minded investors looking for stable assets that produce good cash flow and strong appreciation.

Founded and managed by John Todderud, Cardinal Oak Investments has acquired properties on both coasts and in between creating annual double-digit returns.

For more information, schedule time with me or contact us.

Please note: Past performance is no indication of future performance.