February 2021

What does late winter, early spring mean to apartment owners? Time for optimism? Turning over a new leaf?

I have seen three major events I can consistently look forward to each year at this time. Landscape improvements is one. Planting flowers and bushes and refreshing beauty bark, pool preparation. Maybe not in February but it might be time to get these jobs on your vendors’ schedules.

Another is owners pulling the trigger on selling their property. It’s mainly a psychological trigger. There is nothing magical about the January/February time frame that makes this the best time to sell property, but when we’re thinking about it for a while, the lazy summer months roll into a busy fall and holidays, so we put things off. By the first of the year we feel we’ve waited too long and our motivation is higher. Starting my fitness program. Reshuffling my investments. And putting my property up for sale. Done!

The third event we often see is new tenant demand. Not right away in the new year but soon after. The new year might mean starting a new job, finally moving up to that nicer apartment, or just feeling ready to do what, for most people, is a highly stressful disruption in their lives: moving.

We won’t discuss the negative late winter events like tax season and snow storms – because we’re real estate investors and therefore optimists!

Albuquerque, NM – a city known for much more than Walter White and Breaking Bad, it has grown into one of the largest cities in the Southwest with a MSA population of over 900,000. We know Microsoft is a Pacific Northwest company located in Redmond, WA, but did you know it was founded in 1975 in Albuquerque? Bill Gates and Paul Allen wanted to be near the makers of the Altair PC, an early partner, but then decided to move back to the Seattle area, where they were from.

In the years since, Albuquerque has attracted numerous growth industries, maintained a decent 2% population growth rate over the last decade, consistently a top “livable” city in several rankings, and boasts one of the top cities for engineering jobs in the U.S. That’s what Bill and Paul saw in 1975 and we still see today.

Consider job growth rates, though, before deciding to invest. A somewhat anemic average growth rate over the last 10 years of under .5% is mitigated somewhat by a 1% average over the last three pre-covid years.

But study the top industries in Albuquerque. You’ll see they are dominated by professional organizations – University of NM, schools, healthcare, Intel, Kirtland AFB, and, oh yes, Sandia National Labs, one of the most prominent national security research laboratories in the world. If you’re an engineer, showing experience at Sandia on your resume is like graduating from MIT, your golden ticket

When is on-site management needed?
Multifamily investors do best when they target a niche and specialize in it. They target investments by location, deciding they’re going to stick to one metro area so they can scale property management, or by demographic, for example, distressed lowoccupancy properties because they have an efficient crew who will get in, renovate quickly, and have units re-leased in days, not months.

Or by size. Buying and managing a 20 unit property is clearly a different set of challenges than a 200 unit. Not necessarily easier, just different.

It is easy to accept that having someone on-site at an apartment community is a favorable attribute for most prospective tenants. They like that there’s someone representing management. Maybe even a full-time maintenance person, a familiar face when they have an issue in their unit.

But full-time people on site are expensive, and for a property under a certain size, they won’t stay very busy. A 20 unit apartment may only have a vacancy once every month or two. Hardly worthwhile having a property manager or leasing agent on site all the time.

How about a 50 unit property? Or 70, 80, 100 unit property? The short answer is, it depends on a number of factors like rental income and neighborhood security.

The smaller the property, the harder it is to afford someone on site. Under around 80 units, the costs start to outweigh the benefits. But look closer. Are the average rents $500 or are they $1,000? If you want to attract the tenant who will pay $1,000, they may want the security of a person they can talk to about their home.

I have seen 32 unit apartments with a separate building with an office for a leasing agent. That is a very compelling assurance of safety and security to a tenant.

Expensive? Absolutely, if your agent is there 40 hours a week. But could the property manager have them there just two days a week? Or two hours a day every day? And share their time with other properties? Certainly. You get the benefit of on-site management with a fraction of the cost. Alternatively you can convert that office into a rental but if you’re buying the asset to improve it, an on-site agent can provide a huge opportunity to sell the community to tenants.

What about a resident manager? Offer an existing tenant that role? Or find one and offer them a free place to live? Go carefully. That manager builds relationships with tenants, tenants become attached to that manager, and if the manager is not performing their job well, your options may be limited. You can’t end their residency before the lease ends, and if you only terminate their manager role, tenants may be loyal to the manager and resentful to you, their real manager. Gets sticky, but could still work.

For any property with more than 50 units, try to make a limited on-site arrangement work. It is so helpful when turning around a property with problems that you can solve. The on-site presence goes a long way toward attracting and retaining your desirable tenants. It doesn’t need to be full-time and doesn’t need to be permanent, possibly just six to eighteen months. And for maintenance, if you have found a reliable maintenance vendor, ask them to provide just one person for your work consistently. Tenants are okay with someone who is friendly, efficient, and familiar.

Be sure, though, that if you don’t have a full-time on-site manager or maintenance person, your property manager has a nearby office. Not an hour away where they will be highly unmotivated to send someone to the property.

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.