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February 2020

I just returned from Costa Rica. Lots of great scenery and warm beaches but what surprised me the most was the entrepreneurial people. I’ve not been a world traveler but have no doubt many developing countries around the world have similar qualities. They are people who inspired me and reminded me of what we’re capable of.

My childhood was as normal as anyone’s and I worked hard and got a good job, but Costa Rica is filled with creative and hard working people. Something about needing to survive makes people that way. Their roadside stands had foods and drinks that they created themselves and they grew the ingredients. Their artwork was amazing, explosions of colors capturing the birds and flowers that country is known for. Small shops, stores, stands everywhere, and just individuals who every day open up a collection of what they’re selling. Catering to tourists, of course, but extraordinarily creative.

Our National Park tour guide was young but an extremely well-informed naturalist, explaining details about the origins and behaviors of the animals, not just scripted but showing that he cared enough to learn and absorb a lot of details. And then we come to find out he got an Industrial Engineering degree!

We might sometimes have it too good. As real estate investors, we compete with each other and we often forget that to find a property, to create a deal, and to add value to a property, it takes a significant amount of effort. There are no easy shortcuts and those who succeed found creative solutions, they took on more than they thought they could, and they tried things that did not work out. If our mindset is not completely committed, we fall down. In real estate investing you just don’t do deals without this mindset but in developing countries you might not eat.

Bentonville, Arkansas – who knows what Bentonville is famous for? Only the world’s largest retailer, Walmart. This MSA is really 4 decent sized cities – Bentonville plus Rogers, Springdale, and Fayetteville, with a population of over 600,000. It has actually become a lifestyle destination and is the home of Tyson Foods, JB Hunt, and University of Arkansas as well as Walmart. Job growth over the last 5 years averaging nearly 3.5% and last year close to 4%. That’s outrageous. And housing affordability one of the lowest anywhere with median household income of $81,000.

But so much of the housing is new you have to dig to find older value-add properties. And be wary that they are adding a lot of new units to the market. Their growth in apartment units was 7% last year, the highest in the U.S. Higher than DFW and Nashville according to Costar.

Property Manager Qualities – Proactive
What do you look for in a property manager? Friendly personalities who can relate to your tenants? Ruthless enforcer of on-time rent? Knows every contractor in town? Those can all be great qualities, depending on your personal preferences. I like to know we’re not going to accept excuses for late payment, and we’re especially not going to listen to an acceptable excuse more than once. It’s not easy to be strong about requiring that we be paid in return for providing a person a good home, but that’s our expectation.

What about growing the value of the property? That’s a super vague requirement and it comes in many flavors. Get the rents up? Sure, but how? Maybe your new property’s rents are so low that nobody would move if you increased them, but generally you need to provide something they value, maybe nice amenities like a barbecue station, dog park, or covered parking.

How do you know what to provide? Your property manager should know. They need that one quality that is so hard to find – a proactive mindset.

Is your PM someone who is chronically busy with many properties? Doesn’t respond when you ask what you should be investing in? Or are they hitting you up with ideas, telling you your competitors have barbecue pits and tenants love them, and you should too. Do you encourage their ideas, or is your first thought “all you want to do is spend my money”.

I have a property manager who last year told me he had tenants who sometimes want a fully furnished unit. I was skeptical but he explained the rent premiums these units get, and the cost of the furniture. I agreed. I invested $800 in furniture, increased rent by $200 which at a 7% cap rate increased the value of the unit by almost $3,000. It has been a successful offering.

Clearly there is always a limit to what you can invest in, but you are fortunate if your property manager leads your thinking on your property, suggesting things and encouraging your investment. That’s a property manager who is on your side.

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.

February 2020

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