June 2020

Are you ready to invest based on what the world will look like when the pandemic is over? Most of us, including myself, believe the world will not return to normal postpandemic, and a new normal will emerge. Here a few thoughts.

People may migrate out of cities so they can be away from crowds and less likely to pick up the next nasty virus. But I’m doubtful this will be a noticeable change. Businesses still set up shop in the cities and people still need to get to work. And we have a short memory, so fear of viruses likely won’t cause a mass exodus.

We will return to air travel. Zoom is great for business meetings but not the real thing. People make big buying decisions because they trust who they’re dealing with, and nothing builds trust like personal contact. Those of us who fly for pleasure – vacations, visiting friends and relatives – will get tired of sitting at home. Flights are already filling, loads and passenger counts are up – just a little and it will be a long road to recovery, but travelers wants to fly. When more data shows that people are not contracting Covid 19 on planes, air travel will return.

Telecommuting – now there’s a trend we can embrace! If your work allows it, more businesses will make this temporary arrangement permanent. Sure, they have to figure out how to onboard a new employee to a virtual office, and how to be sure we’re not frittering away our time during the day. But think of all the new time you have each day not driving to and from work, and think of the highways not nearly so jammed during rush hour or throughout the day. It could be awesome. And yes, it could lead to an exodus from the cities, into not just the suburbs but any quaint little town in a low-tax state, with high speed internet.

Tulsa, Oklahoma – The plains of Oklahoma are sprawling but there is beauty in unexpected places. Tulsa emerged in the 1800s as a Native American settlement and saw its share of violent conflict over the years, but transformed into the “Oil Capital of the World”, and has now transformed again into a burgeoning center for aviation, technology, finance, and telecom with a population of over 1 million.

So much so that it made Inc. Magazine’s list of top 50 best cities to start a business.

And was the #1 city for wage growth in the U.S. in 2019. That’s pretty spectacular!

Tulsa launched a privately funded initiative to attract businesses and offered $10,000 for people to move there, if they were self-employed and didn’t already live in Oklahoma. Not a bad way to pull in people who know how to grow an economy.

Is Tulsa still Oil Capital of the World? Not exactly. City-data.com reports natural resources and mining jobs at just 4,200, compared with financial at 42,000, manufacturing at 45,000, and trade, transportation, and utilities at 81,000. With oil today at $38 a barrel, any job losses in the industry are outweighed by the benefits of lower fuel costs.

How do you track repair expenses
There are always enlightening insights buried in the details of property management reports. From utilities to pest control to landscaping to repairs, those monthly expenses tell a story. Why do we have landscape charges in the winter? Snow? No, because the contract is for the landscaper to come out and just clean up debris. You might be getting overcharged. Water bill spiked in the summer even though you don’t irrigate your lawn? Your tenants might be feeding a hose from their faucet out the window to water their plants or wash their car.

What can we learn from repair expenses? We see physical assets that break, maybe too often. We see tenants that are careless or negligent. And we see maintenance staff who are overcharging.

How are you categorizing your expenses? There are lots of ways of grouping your repair expenses. For tax purposes you certainly want to categorize it as a repair or capital expense but accounting information should do more than support your tax return. It should inform your role as asset manager of your property. Make it work for you.

Do you want to know what each room in your units costs to repair? Then have easy-toassign room codes or labels that you can attach to each repair expense. Then you can run reports grouping repair expense by, say, “Bathroom”, and see that it costs you an average of $400 to replace a toilet. Too high? Yes, but you might not have noticed until you started tracking it.

One of my most valuable tracking tools is unit number. We assign a unit number to every repair expense transaction where the work was performed on a specific unit. With a high number of units (which realistically could be anything more than four units!) you’re not going to remember that 6 months ago you had a very high repair expense charge for this one unit.

But tag the transaction with the unit number and you’ll see that last year you spent $150 on it in January, nothing again until April when you spent $4,000 on it, then nothing again until November when you spent another $3,500. Why? You dig into it and find that the November work was very similar to the April work. Shouldn’t it have been fixed right the first time?

This is very hard to track, unless you are disciplined enough to enter the information when it happens, and run your tracking reports to surface these insights.

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.