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November 2019

The political silly season is almost upon us, which leads to the question we’re all asking ourselves: how does this affect my apartment investments! We can find indicators to point in all directions but we maintain a point of view that we are optimists. We know there is considerable upside potential given the continued strength of today’s economy, but dark clouds loom on the horizon and unprepared
investors get annihilated when the tide turns.

How do you know your market will hold up in a downturn? What are your contingency plans for job losses and vacancies? Where will your tenants come from when no one’s hiring? Seems like an unlikely scenario today, but we lived through it not long ago. It will happen again.

We see market reports that show vacancy and rent trends through the 2005-2010 time period. Some markets got clobbered but others incredibly did not. Look for those markets, research those reports. Check them out at Berkadia, BlackCreekGroup, IRR.com, HousingAlerts.com, and most of the big brokerage web sites. And keep investing!

If you’re a horse racing fan, you’ve probably been to Lexington, KY. It’s a mecca. Monstrous empty homes can be found in Lexington, places where the ultra-wealthy from all over the world come to talk horses, watch horses, race horses, and buy horses. They need a big house for their visits. It’s a beautiful, prosperous city.

It also has drawn a line around the city called the Urban Services Boundary, like a moat. Inside the line, the city and not much room left to grow. Outside the line, and still inside city limits, the rural service area which is mainly horse farms. They intend to keep it that way to protect the horse farms.

Investing in apartments is either inside the boundary line or in a neighboring city, of which there are a few. Lexington has seen growth from a number of different sources, including manufacturing and tech, but also bourbon. Lots of bourbon. One of the broker web sites I visited to get my name on their list of investors asked all the usual questions about what I’m looking for, then the last question was “What is your favorite bourbon?” I knew they were serious.

Lexington is also a very stable economy, one of the most stable you’ll find. A city just north of Lexington, Georgetown, has one of the largest Toyota plants, building hybrid Toyotas and Lexus. I suggested to a broker that when the economy tanks, people stop buying cars. He said he could assure me with 100% certainty that this plant is the very last plant Toyota will slow production. Those models are that much in demand.

Lexington is very much on our radar for available properties, but as you might expect, supply is limited and demand is strong. We don’t expect the growth of this area to be straight up like markets in the Southeast but they also aren’t likely to fall much if the economy turns.

Make Friends With Your Tenants?
How often has one of your tenants surprised you in a bad way? They did something that, as a landlord, you had to find out about. Like assaulted another tenant, dealt drugs, dog jumped through a screen window.

Then you talk to other tenants and find out that this was common behavior by this tenant. The tenant was aggressive or not friendly, they had a lot of people coming and going from their unit late into the night, their dog was wild. Why didn’t you know this?

Property managers are often of two schools of thought on this. Lots of them think it’s not a good idea to get close to tenants because then they ask you for favors and appeal to your empathy for their situation when they can’t get the rent in on time.

Other property managers, though, make it a point to get to know the tenant. But to make friends? No, to assure the tenant that they are looking out for them. There’s a big difference. Tenants want to know their property is being well taken care of. Not just clean and everything works, not just that you’re screening them to keep out bad tenants, but that you’re proactively watching tenants.

Getting to know tenants is one of the most effective ways to head off the bad surprises. And walk-throughs are key to that. Landlord/property manager walk- throughs, not you as the owner unless you’re the landlord too. Tenants outside socializing with friends or each other, join their conversation and make sure they know who you are. Coming and going from their cars, say something to strike up a conversation. Good tenants like to know you’re there. Tenants who don’t like you talking to them, that’s a red flag.

Even better, identify key tenants who can be your eyes on the ground. Not to be spies or informants – or maybe a little – but tenants who will share what they see. If their neighbor is throwing cigarette butts on the ground, they might know who. Late night activity in a unit, loud parties, misbehaving dogs, friends showing up with bags of laundry, tossing the mattress outside, and especially other tenants who all the tenants avoid because the person is loud or angry – you will learn who they are.

Then you have to take action. Confront the offending tenant. Let them know what they’re doing has to stop. Even give them a formal notice if it’s warranted. But make them know that you know what’s going on. Because bad neighbors are a big reason good tenants move out and protective property managers are a big reason they stay.

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.

November 2019

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