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July 2021

Where do your investors fit in to your hierarchy of real estate priorities? Are you relieved they decided to invest, ecstatic that they helped you and your team close, or do you hold the belief that they should be grateful they got into your deal?

Sure, they are getting a great deal and you’re as trustworthy as they come. But who really wants to send in their hard-earned cash to a sponsor who doesn’t respect their investment decision. Why would I want to invest with you if you start off with the attitude that I should be grateful for having made it into your deal. Doesn’t matter how great the deal is, if your sponsor has a bad attitude when you invest, it’s not going to get better during all the years your investment sits with them.

Our investors always sit at the pinnacle of priorities. We respect them when they decide our deal isn’t the right fit, and we respect them when we make operational decisions. Like do we have enough funds to make a distribution. Should we refi or sell. Should we tell them about a serious crime on the property.

And how do we express our gratitude or their trust? By communicating, proactively informing them about events, progress, and setbacks, and by being available. You have too many investors and don’t want to take their calls? Then you shouldn’t be sponsoring real estate investments. We’re always available.

We also give back by helping our investors who want to do their own deals. A lot of our investors do. How much help did each of us get when we were starting out? An enormous amount. One investor had me over to his house to talk, others have been on the phone with me for way too long. And they had nothing to sell me. Just a generous heart, and maybe the people they help out progress to the point of finding good deals or becoming qualified partners.

There’s nothing like a strong commitment to a group of trusting investors to keep your head focused on what’s good for them, every day. When your attitude shifts and you stray from that commitment, your partners, managers, vendors, and everyone who you depend on to make this investment a success will see the change and the operational performance of the property will suffer.

Kennewick, WA – Drive east of rainy Seattle and you’re in the desert, then you get to the mighty Columbia River. Where the Columbia and Snake River merge sits three cities – Kennewick, Richland, and Pasco. Kennewick and Richland have a history with big engineering projects and Pasco is more of an agricultural community, taking advantage of sun darn near every day and endless fresh water.

Big engineering started in the area during WWII with the production of nuclear weapons at the Hanford Site. What happens when a lot of smart people move to a region with nothing but sun and big rivers? More smart people move there, and then new businesses spring up. Since WWII this region has become an epicenter for engineering and technology. Although Defense R&D is still dominant, many other businesses call the Kennewick/Richland region home, including Pacific Northwest Labs, one of Department of Energy’s largest R&D facilities and in fact a top research facility for nuclear non-proliferation.

Naturally success breeds success and that has been evident in Kennewick’s growth. Milken Institute recognized Kennewick this year for having one of the biggest gains in in the Best Performing Cities ranking, from #69 last year to #19 this year. They achieved phenomenal job growth recently and have had been a top performer for the last seven years. That along with a #24 ranking in Housing Affordability makes it poised to make some smart investors serious money.

Secret Renters
So much our underwriting, our go/no-go decisions, is based on where are rents today. Not just regionally or in the major metro area, but surrounding the property we are thinking of buying. You can see the financials of your target property and you know the rents. There’s a high rent for a given unit type, and that tells you what that unit type can get, there’s an average rent, and there’s a low rent which could be your opportunity to increase rents. Can you plan on raising all rents for that unit type to the high rent they’re getting? Maybe or maybe not, depending on how the current owner managed to get that rent.

What is critical to understand is what prospective tenants will pay in your market. Other nice properties have lower rents and availability, tenants will go there. Lower rents and no availability? Different story. We use several methods to determine those rents, including Costar reports, property manager recommendations, and research on sites like Zumper, Rentometer and Apartments.com, but the most accurate analysis comes from secret renters.

We hire someone as a freelancer, a virtual assistant, to contact other properties nearby and say they want to rent an apartment. We have a number of questions for them to ask, but they’re going to ask the questions as a conversation, not as an interview. They will enter the answers they’re given in a spreadsheet and send it to us when they’re done.

The information we receive has been much more valuable than any of the other sources. We find out, for example, that 1 bedroom units don’t stay available for more than two days, or that everybody these days has a pet, or that those rents come with a huge move-in special because the demand is just not there. We find out about utility billing – are all bills paid, individually metered, RUBS? And what are tenants being charged for RUBS?

Amenities make a big difference too. Pools may be completely empty nearly all year round but if the climate is hot, tenants may want a pool even if they never use it. Same for fitness rooms, dog parks, barbecue grills, community lounges. What the tenant gets for their rent will determine which property they move into. These are details you will never get anywhere else except asking around.

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.

July 2021

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