August, 2023

Where do you find education?

There are countless places to find it but there’s only so much time in the day. Do you go to a conference to learn? That might feel like spending a weekend and learning just one thing that you could have read in an article.

Or training?

I always recommend to people starting out to read the books, take the training, subscribe to podcasts. That’s time consuming but easy. This material will jumpstart your learning and help you join the conversations.

Then your options expand. When you go to conferences and you meet someone experienced, you’ll have better questions. When you listen to podcasts, industry jargon will make sense.

Keep in mind that you can’t know everything, and often you can’t learn “B” until you learn “A”. You might not even know you need to learn “B” until you’ve learned “A”. You might have 20 steps in your journey and don’t know what the steps are beyond 5 let alone how to take them, but you do know there are steps beyond 5.

Your challenge is to pursue and identify the appropriate training and education. Think you need to spend big bucks on coaching? Get your priorities in order. Spending the money will NOT motivate you to do work you could have already done. A whole lot of coaching is getting your head in order. Understanding and eliminating your limiting beliefs, time blocking, goals. Learn that on your own. Your coach should be teaching you advanced real estate, not motivation. Don’t spend the money until you have the basics down, have blocked the time to commit to real estate every day – every day, and the coaching fees don’t drain your bank account.

The adage that you learn the most by doing is especially true in real estate. You search for properties and find one and you have the down payment. If you’ve taken the training and educated yourself, you have to take the next steps and buy it. You won’t know how to select tenants or hire repair people until you do it, so get started.

At some point you will learn about syndication. Maybe it’s not right for you but if you think it is, you have a lot more learning to do. Some great resources are attorneys who produce the syndication documents. Several who I know to be terrific attorneys also hold webinars, record them, post them, and they are available for free.

A lot to consume? You bet, but if this is your direction, these are invaluable. Especially coming from an attorney because they will be much more careful about information that is factual, their opinion, or possibly not relevant in every situation. Webinars from syndicators are also very informative but their advice should be validated from other sources.

Podcasts are one of my favorite sources. Many podcast hosts find impressive guests. They might have many years of experience and shown phenomenal success. Their advice is always good and extremely motivational. I learn about social media, loan options, the state of the market, managing property managers, building teams, and so much more. Go to your favorite podcast app, mine is Spotify. Search for “multifamily real estate” or something similar, pick your favorites, then look every day for their new podcasts. Find an activity like workouts or driving that you do every day, and get in the habit of picking a new podcast episode before getting started.

Of course, all of the other traditional sources can be useful too – Youtube, Instagram, LinkedIn, syndicator websites. When you hear hype, be wary. They probably have something to sell. Maybe that’s totally legitimate but verify it by looking them up, verify their experience and confirm it through other sources. It’s easy to fake it ’til you make it and that is unfortunately prevalent.

Talk to people. Go to your local meetups and to national conferences. You’ll know when someone is knowledgeable, sincere, and willing to help you. They are some of the very best resources.

Market update
Kansas City
– Straddling the Kansas/Missouri border there are differences between the two sides of Kansas City, and technically they’re two different cities, but what matters to investors has more to do with the communities around the city than with the state they’re in. It is an underrated sleeper of an emerging market that just keeps growing.

This update could easily be about the successful cities surrounding KC but it is about the whole metro area, which is substantial. Let’s take a look at some basic numbers, although for KC and most other cities, the numbers don’t tell the whole story. Sometimes they don’t tell much of a story or they are misleading.

Over the last two years job growth has been averaging 3.2% per year. That’s astounding, among the highest in the country. However, if you track the population of just Kansas City, Kansas, it’s flat over the last 30 years. Not so for Overland Park, a suburb of Kansas City, population up 13% over 20 years. Not Lee’s Summit, another suburb, up 121% in 20 years. Not Shawnee, Kansas, up 81%. Not even Kansas City, Missouri, up 17%. This happens in every metro in the U.S. Some areas struggling, some going crazy. That’s why you dig into the submarkets, you talk to brokers and property managers who know the area, and you partner with people in the market. There’s a reason for these differences and you need to find out those reasons.

What does Kansas City have? To start with, a greatly expanded airport with a beautiful new terminal. You’ll wonder why they aren’t all like that. A Panasonic battery factory in Desoto, not far from the south side of Kansas City, which, not coincidentally, is where Overland Park, Lee’s Summit, and Shawnee are. This factory is just getting built and expects to employ 4,000 in it’s first phase. More coming.

Add to this the university culture not far away in Lawrence, KS, home of the University of Kansas. They play national championship basketball there but there’s nothing like living near a major university campus. People live in Lawrence and commute to KC.

A new Meta data center $800M investment will continue to draw people of all professions and skills. These investments lead to a new industry of suppliers and startups, and the service industry, who predominantly rents, struggles to keep up.

Be selective in Kansas City. Drive the roads, watch for new development, check submarket vacancy rents, and, most of all, talk to the brokers and property managers who live there. They will help you maximize your opportunities.

Recent Articles Worth Sharing
Please note, these links might require a login but the accounts are free to create.

A Painful Evaluation of the Current State of CRE
If the Federal Reserve does increase the federal funds rate further, then the default rate will double to 4%…
Read more

Smaller Sales Shine Amidst Larger Deal Declines
In the evolving CRE landscape, smaller sales are making a surprising comeback over their larger counterparts, defying conventional wisdom.

Trend reversal: Historically, CMBS loans below $50 million were considered more vulnerable to …
Read more

The New Era of Rental Prices
Good news is on the horizon for renters: The rapid escalation in rental prices, which had previously seemed unstoppable, appears to be taking a pause.

Rental rollercoaster: Between 2020 and 2022, rents surged by a striking …
Read more

Finer Points of Multifamily Properties
Tracking Budget vs. Actual

Do you budget for your expenses? Of course you do, and if you don’t, you need to. Even the small projects. Skipping the budget is the fast path to financial Armageddon.

Use a professional budgeting and tracking tool if you can but many highly experienced operators do fine with spreadsheets. It takes discipline to make your budget tracking work but if you fall behind, you lose the benefit of the process.

How do you create your budget? That’s the hard part but you have to do it properly. Be crystal clear about what you want to accomplish, which comes from your business plan. Most of your activities cost money so you have to understand what the cost is. Get your estimates, assume prices will increase, pad the estimate by 25%, do whatever you need to do to get estimates and use that as the basis for your budget.

And whatever you do, don’t ballpark your estimate or use your gut. From personal experience, that’s a bad idea. If you don’t know, find someone who does, whose estimates you can rely on, who is basing their estimate on today’s rates. Look at inflation and employment costs. They’ve gone through the roof. Look at insurance rates. Up 40 to 50% because construction costs have skyrocketed. If you’re using an estimate from two, even one year ago, it will be low.

When you track your actual costs vs. your budget, some activities will be one time activities where one invoice is created at the end. Take parking lot resurfacing and striping, for example. You get a bid for $40,000, that’s your budget, or maybe you were smart and padded it or maybe that didn’t include sales tax. You are six months into your ownership and you haven’t started this work yet. You are NOT under budget just because you have spent $0. Don’t include this activity in your total amount over/under budget.

Then your contractor starts the project and they come to you and say they want to fix some alligatoring in the pavement and it will cost $5,000. You say go ahead. You don’t change your budget because that number was already fixed. The budget was communicated to your investors and your lender. You can’t just change it.

At the end of the project you get your invoice for $45,000. That’s where you note it. You were $5,000 over budget and you report it including the reason why. It’s all perfectly reasonable and everyone will understand and accept it.

Except if the budget number was an estimate, not a fixed price, and the actual invoice for that work was $80,000, not $40,000. That’s where investors and lenders will ask questions, as they should. That’s on you, not getting a fixed cost quote, or allowing them to bill you something way more than you expected.

Take another example, unit renovations. You have 100 units to renovate and you budgeted $5,000 each. Of course not every unit is the exact same amount of work, but if you budgeted $5,000 you should have expected it to cost less than that. Now you’re 20 units into the renovations and you are getting contractor invoices. These need to be tracked in your budget. Possibly you budgeted by work type, such as appliances or flooring, but whatever you did, early into your renovations you should have costs tracked by unit.

You’re spending $7,000 per unit, not $5,000. That’s a problem. Do you have enough capital to complete 100 units? Is your lender giving you a draw on renovation expenses?

That is hard enough to report to investors, but your lender might question your ability to complete the project. This means you might not get the income increases you need to be able to sell or refinance the property. You could get gray hairs working through this problem.

But you budgeted and then tracked the actual expenses. You know early on that this is a problem. You didn’t just run out of money. Your planning and diligent expense tracking means you can solve this problem. You’re not out of money and you have options. That’s a great position to be in.

We all have budgets that we’ve blown. Hopefully we have other activities where we beat the budget but when we’re smart and disciplined, we can make the adjustments needed to get back on track.

    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.