June 2021

I’ve become a big fan of podcasts, specifically for apartment investing. They’re a great distraction when I’m working out or spin-cycling. They always seem to provide me with at least one insight on virtually every episode, some more than others. I tuned into one on BiggerPockets recently about gift-giving in the business world – phenomenal ideas! Another featured a sponsor for a deal I was already familiar with, and another was about LLC protection for your personal assets such as real estate.

These are awesome resources, covering so much ground. Even straightforward shows that just feature a different investor or sponsor with each episode are informative. Someone who has only completed one deal or a handful of deals is often so much more helpful than a seasoned coach. Their experiences, their agony, and their triumphs are fresh and relatable.

I get my podcasts from Stitcher but Apple, of course, probably has the largest selection. It would help your business immensely to be listing to these. Even more important, though, is to find the time in your day to listen to them, when you can be doing something else. Driving, exercising, eating, whenever you can, so it becomes a habit. Listen to them all – Jake and Gino, Old Capital, Best Ever, Multifamily Investor Nation, Whitney Sewell, Real Estate Guys, Michael Blank, Rod Khlief, they’re all very good. And a lot more.

And keep your notebook handy. Write things down. One good idea could make a huge difference in the outcome of a critical part of your business.

Market Update

Columbia, SC – After taking a nearly 10% drop in total jobs last year, Columbia seems to be climbing back to health. We know from our experience with a multifamily property in upstate South Carolina that companies are looking for workers. Maybe there is reluctance for the unemployed to return and expose themselves to Covid risks or maybe government support makes it easy not to work, or possibly wages have just climbed and it has been difficult for some employers to keep up. Whatever the reason, in South Carolina and in many other states, companies are begging for employees.

This has been difficult on Columbia, the capital city. State governments don’t have the same luxury of borrowing to sustain operations that the federal government has, so when revenue drops, spending drops and much of that is on private contractors and employees.

Columbia’s employment base remains with public institutions including the state government, a large hospital system, public schools, Fort Jackson, and University of South Carolina (2010 SEC football champs!), but includes a strong and growing private sector that includes major insurance conglomerates, a big UPS hub, and an extensive bunch of diverse manufacturers.

What can’t be overlooked is that Columbians like Columbia. The climate is nice, the city has great parks, revitalized walkable districts that include art galleries, museums, restaurants, and other features that put it high on peoples’ quality of life rankings.

It is also moving up the Milken Institute’s ranking of Best Performing Cities for 2021. In fact, it was one of the biggest gainers, from #128 in 2020 to #77 in 2021. If you’re looking for the next Best City, look for cities on an upward trajectory like Columbia.

The city’s challenges include attracting growth businesses to the region. While public-focused employers can be very stable and protective in an economic downturn, growth is better driven by private employers who provide the self-perpetuating job and income growth that supports public entities

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Finer Points

Navigating your fears
Many of the podcasts I listen to (see above!) are about being bold, taking proactive steps, and moving beyond your fears. That’s easy to say but I’m sure that accounts for a high number of the people we see at seminars and other events who are excited and ambitious but who will never do a deal. Fear.

On my wall it says “Everything you want is on the other side of fear”. It’s a hurdle because I fear losing money. Most people do, but those with a lot of it, maybe not so much. They have compartmentalized it in their minds as a risk, that they might lose it and if they do they will climb right back and go to it again. Losing that money didn’t change their lifestyle, and their plans were bigger than the next deal.

How do we deal with our fears? First, recognize and isolate the fears you can control, then take steps to either prevent whatever it is that’s causing fear or to reduce the impact of it.

For example, when taking a syndication to close, maybe you fear that no one will invest in your deal. Think about when you will know if investors like your deal. For your first deals, they will take their time, assessing you, the returns, the location, your partners, your business plan, really everything. In the mean time, you have to get it under contract, then you have a number of other tasks that all have to be done right away. Inspection, loan term sheets, legal docs, investor presentation materials. All of it, pretty much all at once.

Then think about what you’re spending, what you’re not going to get back, and when you answer some of those fears. You should expect responses from your investors fairly quickly, say two weeks, but they won’t be firm commitments. Make sure you have more – much more –in soft commits than you need.

You have an inspection period. Will your earnest money go hard (become non-refundable) before you know if you have enough investors? Negotiate plenty of time up front for due diligence. 21 days, 30 days? How about 45 days? Of all the things you can negotiate with the seller, this may be your least flexible part of the offer.

Get your legal docs started. None of your investors can submit funds until the docs are complete and available to them. Legal docs are expensive but necessary. Possibly arrange partial payments for the legal docs, so if the inspection looks bad or your investors are all saying no, your loss can be limited.

Your earnest money is probably your biggest commitment to the deal. When part of it goes hard and you’re not sure if you have the investors, that’s a decision point. Think about, if I have to terminate the deal because I couldn’t find investors, will I try again. If you won’t, then you should terminate the deal before you lose that earnest money. Then go back and find more investors, nurture them, understand them, and make the necessary improvements to your business to increase the likelihood they’ll join the next deal. There will be another deal.

The same principals apply to other fears. Say one of your markets has mainly just one big employer. What happens if they shut down or reduce their workforce. Look at that employer very closely to determine the likelihood of that, although that will be difficult. As healthy as that employer might be, you never know what the company is thinking and you have no control over it. But are these tenants employed there? Are other employers moving into town? How much of the local employment does this company actually provide? It might be a big name employer who’s been there forever, but their total employment is only a small fraction of the region’s employment. Understand the cause of your fears and reckon with it.

Starting out in multifamily requires a level of confidence in your ability to succeed that means you will conquer your fears. It doesn’t mean blindly ignoring real risks but it does mean knowing you will have issues that you didn’t anticipate and you and your team have the skills and resources to solve them.

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.