May 2020

When do you decide to compromise your strict buying criteria? Crazy money chasing every halfway decent property, not getting deals, and you’ve been waiting for the big downturn to buy. Now the downturn has arrived, your powder is dry, and brokers are sending deals.

But wait! These aren’t good deals. Sellers are reporting rent delinquencies and vacancies, but at this stage at least, they aren’t open to lower prices. Was this the big downturn? Is this the buying opportunity we waited for? Where’s the discount? And even more important, should we compromise our buying criteria so we don’t keep missing deals? And more important than that, what does the future hold?

Look back to past market cycles. One thing that has held steady is that market cycles are protracted, not quick turns. Yes this turn hit hard and fast. Did any of us expect to be where we are today in February, just three short months ago? Not many. But we’re not through this, and the affects will be with us for a long time.

Have unemployment, recession, travel bottomed out? Maybe, maybe not. Even if they have, we will keep feeling it for months to come, and its impacts will be felt in unexpected ways. Prepare for it.

Which tells us something about what the future holds. Property owners, like everyone else, come in all varieties. The less capable owners who are struggling with problems at their properties are working on solving their problems. Most have not decided to sell because of their problems.

But expect that to change. Taking mortgage relief from their lender today will mean greater pain in a few months when they have to start paying mortgage again, plus make up for payments they missed. Owners who paid too much and did not have reserves were doing fine, up until now.

It is not time to compromise your strict buying criteria. It is time to be thoughtful, compassionate, and extroverted. Talk to brokers, lenders, partners, owners, anyone in your network whom you want to work with. The deals will come and you will have the opportunity to help property owners solve their problems, on your terms.

St. George, Utah – About seven years ago my family was taking one of our annual National Parks camping trips, this time through Utah. We are blessed out west (my home is Seattle) with so many parks. What treasures. Along the way we passed through St. George. I had heard it was an up and coming real estate market, lots of people moving there, and attracting a lot of diverse new businesses. We were impressed with its beauty and could see why it was attracting people.

Fast forward to today and it has almost 171,000 people. Job Growth has been through the roof. Normally a job growth rate of between 1% and 2% annually is pretty good. St. George’s growth rate over the last 9 years has averaged 5%. #1 in the nation. Clearly, they’re doing something right.

They’re taking advantage of Utah’s favorable business and tax climate, the city straddles the highway between Las Vegas and Salt Lake City, and the geography and weather attract year-round tourism.

If you’re an investor who likes to own property in places you like to visit, St. George might be a fit.

Property Manager Qualities – Extroverted
We’re revisiting this topic as we discussed in a previous newsletter another quality, being proactive. There are many qualities we look for in property managers and being extroverted is one more.

We own properties that are not within driving distance. I like to supplement our property manager services by hiring someone to walk through the property to check it out and report back to me. They just walk through, take pictures, pick up trash if they find it, and send me the pics. I screen them to be sure they’re polite and have good attitudes. One of them, after he had come out a few times, told me he could take care of landscape trimming and grass cutting. I encouraged him to put in a bid, and I ended up using him. He was one of the best I had.

Another one reported to me that the garbage bin was filling up and he knew it was the family in the house next door to our apartments, dumping their garbage in our dumpster. Our guy said I could put a lock on the bin for just tenants. I knew this was not practical but I was curious. How did he know it was the neighbor? I asked him.

He said one of our tenants told him he would see this neighbor out of his window dumping in our bin. And the tenant had it on video. This was incredible! So now we can fix the problem by going directly to the offending neighbor, or to the police. All because our guy had a casual conversation with a tenant in the parking lot.

We put in a lot of effort finding the right property manager. We’ve made mistakes and had to replace them but now apply those learnings and have drastically improved our selection process. We ask about their relationships with tenants – what do they know about their tenants, how do they get to know their tenants, and how has that helped them manage their properties. The answers can be informative.

One of our property managers tells us they have favorite tenants, and those tenants report things we need to know about. The tenants of course want their community to be safe, clean, comfortable, and an enjoyable place to live. But not all of them will report things that go wrong. In fact, most are reluctant. For our property manager to find the tenants who feel safe sharing that kind of feedback, that’s valuable. The relationships exist because the property manager stepped up, started the conversation, and showed interest in what the tenant had to say.

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.