January 19, 2022

JF2696: 4 Ways to Find Low Competition, High Cash Flow Multifamily Markets with John Todderud

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Focusing on smaller, growing markets for multifamily properties has provided John Todderud a chance to get ahead of the competition. Existing competition is low, and opportunity for cash-flow heavy properties is high—if you know what you’re looking for. In this episode, John discusses what to look for when selecting a potential business partner and how to find and evaluate multifamily markets.

John Todderud | Real Estate Background

  • Founder of Cardinal Oak Investments which buys multifamily properties in growing markets with cash flow and limited competition for deals. They work with partners to help them manage the asset, fund the equity, maintain the books, and communicate with investors.
  • Portfolio: 96-unit in Tulsa, OK as GP. Two investments as LP.
  • Recently sold two properties: a 32-unit he syndicated in Greenville, SC, and a 15-unit in Yakima, WA. He’s doing a 1031 exchange from the 15-unit, buying a 40-unit apartment complex in Kansas City.
  • Based in: Renton, Washington
  • Say hi to him at: www.cardinaloak.com | Instagram: @johntodderudoutdoors | john@cardinaloak.com
  • Best Ever Book: Killers of the Flower Moon: The Osage Murders and the Birth of the FBI by David Grann.

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Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed. This is the world’s longest-running daily real estate investing podcast. Today we have John Tudderud with us. John, how are you doing?

John Tudderud: I’m good. Thank you, Slocomb.

Slocomb Reed: John is the founder of Cardinal Oak Investments, which buys multifamily properties in growing markets with cash flow and limited competition for deals. They work with partners to help them manage the asset, fund the equity, maintain the books, and communicate with investors. In John’s current portfolio, he has a 96-unit in Tulsa, Oklahoma as the GP, he’s in a couple of investments as LP, he recently sold two properties, one in Greenville, South Carolina, and one in Washington State. He’s doing a 1031 exchange from a 15-unit in Yakima… Is it Yakima, Washington?

John Tudderud: Yakima.

Slocomb Reed: Yakima. And he’s buying a 40-unit in Kansas City with those funds. John is based in Renton, Washington. John, I don’t normally think of Tulsa, Oklahoma, Kansas City, Greenville, South Carolina as markets with very little competition for deals. Have you found that the properties that you’re offering on, there are not a lot of other bidders?

John Tudderud: Well, there are a couple of different aspects to that. One is certainly there is competition. There are people interested in those markets and that’s what attracts me to them. They are not the high growth, rocket ship markets like Dallas, Phoenix, Atlanta, Florida markets, those places. There are definitely competitors. I look for properties and look for broker relationships where my competition is not so high, where maybe I’m one of the first people that they call. It takes time to get there, but these markets are like that; a lot of other markets can be as well. The South Carolina markets – there’s a lot of interest in Greenville, and I was super-interested in the City of Greenville. This is actually about 45 minutes outside of Greenville. A couple of brokers mentioned that this is a growing area, and then I saw this property come up. And it benefits from the growth of Greenville, but it’s a little bit different of a market, the city of Anderson; definitely a growing market, but a little more rural. For the other markets, Oklahoma City and Tulsa – they’re awesome markets. A lot of people don’t like them; they will talk down the markets because they’re not, again, the high-growth markets. There’s competition there for sure, and it’s getting better.

I want to be in a market where there is a good opportunity to sell, when I’m getting ready to sell it, there are buyers, there are people interested in the market, and they can see the value. For Kansas City – Kansas City is kind of a new market for me. The more I see it, the more I like it, though. There’s just a lot of growth benefiting from people moving in from the coasts, and this particular area of Kansas City is a very clean, high-growth, and well-run part of the town. So super excited about it.

Slocomb Reed: Nice. How long have you been a GP and syndicated apartment deals?

John Tudderud: About four years. I started about four years ago syndicating my first deal, and came into it because I had properties of my own prior to that. Smaller properties starting about 11 years ago, owned them, built them up, just did all the management, and really a lot of the renovations at the beginning. It’s good practice to get to know what the building systems are really; it wasn’t my experience or background. I could learn the processes of taking care of the units, finding new tenants, creating leases, talking to prospective tenants, knowing when it’s time to raise the rents, and all that stuff that you get good at by doing it on smaller properties and then gradually grew them. I had small properties, sold them off, and could take the equity into slightly bigger properties… And through the course of that, I joined networking groups; I really wasn’t setting out to syndicate or buy properties with a lot of other people, but I learned the process; I talked to people who were doing it, I learned how interesting it was, I found other people who wanted to join my deals, and gradually grew into learning about syndications. I took the classes, a lot of training and education along the line, and went to meetups and networking groups and talked to people. Really, that’s why most of us get in or stay in real estate, is because it’s exciting and we meet interesting people. Along those lines, I decided, I made a decision along the line there, “Hey, I can do this, I can learn what’s needed to do it, I can develop the relationships needed to syndicate a property, and let’s get started.” So I found properties, took one forward, and was successful in our first venture.

Slocomb Reed: John, what has led you to choose the markets that you’re currently invested in? You said they’re not as hyper-competitive as some of the faster-growing areas, they have good cash flow… What are your criteria for a market where you’re looking for deals?

John Tudderud: I want the market to be a pretty good size; it doesn’t have to be an enormous market like Houston or Dallas. I want to know that there’s a lot of properties around and available, I want to know that I can sell it when we’ve achieved our goals, and I want to know that there’s good growth – there’s population growth, there’s job growth, and that there are multifamily properties around in the area, certain population levels… There are a lot of numbers you can use; 75,000, 100,000 people or so, but I look around for markets that are growing that way.

Then you look at, or at least what I do, is look at other things like crime statistics, how well is the city taken care of, what new and interesting things are they doing. In Tulsa, large benefactors are putting down these $10,000 rewards for people to move there – entrepreneurs, people who build a business… And that’s awesome. If you’re thinking of moving to a lower-cost part of the country and you have that option, then choosing a place like this and benefiting like that, that’s a great opportunity for someone who wants to move there, and it’s a great opportunity for those of us who provide services like housing services to these people.

So I look for markets where things like that are going on. I read the newspapers, I look for articles, I set Google Alerts on when are jobs coming to an area; [unintelligible [00:07:27].23] are moving like 100, 500 jobs to an area. And really, there are a lot of good markets. I had to settle in on just a few, because you can’t spread yourself too thin. I’ve been in some other markets, and I’m still interested; I have broker relationships in other markets that I have a lot of interest in. For example, I started off in the South-East, that’s how I happened to find the property outside of Greenville. I love the Carolinas, I used to live back East. And – gorgeous areas, it’s another criterion. I like to be able to visit the area and know that there are interesting things in the area. I like the Carolinas, Georgia, even Tennessee, and I found interesting prospects several years ago.

For my work, at least, it became more competitive. I became interested in properties, and talk to the brokers, put in offers, and there were maybe 20 offers on properties, and it was just difficult. I couldn’t come close to cash-flowing properties at the prices that they were paying. So I had to make a decision and I moved off into sort of the Southern Midwest markets, from Arkansas, Missouri, Kansas, Oklahoma, even Kentucky. Those are good areas, they have good markets in them, and it’s mostly the areas that I focused on.

Break: [00:08:42][00:10:21]

Slocomb Reed: It sounds like you partner with other GP’s to help them take down deals and operate their business plans. Am I reading into that correctly?

John Tudderud: Yeah.

Slocomb Reed: Gotcha. How do those partnerships tend to take shape?

John Tudderud: I like to get to know them. I meet them initially at a lot of different conferences, and I’ll meet them locally at meetups, and various events. I have opportunities to meet people and get to know them, and they get to know me. And over time, if the relationship grows – and it doesn’t always; it’s not always a good fit. But if the relationship grows and we have things that we can mutually do for each other, if there’s a benefit that I have something to offer them and they have something to offer me, then I continue the conversation, and find out what they’re looking for, and what’s their ability to help in a potential deal is. So far, the deals that I’ve done are deals that I’ve sourced and I’ve found the partners. I’m not committed to doing that in the future; I want to work with other people and join a deal that maybe there are a couple of good people together already, and maybe I have a skill that they don’t have, something that I could offer on. But I would find them by talking to people in the industry.

I have a number of contacts. There are a number of people that I do have a good relationship with and I have not done a deal with yet. I’m anxious to; I want to grow the relationships, very strong, nice people, that would be good to work with, and we would all benefit from it. I look forward to developing and growing those relationships.

But you’re right, it’s a big thing. You have to think about who the people are, and is it really a good fit? They might be nice people, but are they really going to work with you? Are they going to be the right partner in the long term?

Slocomb Reed: Tell us more about that, John. What is it that you’re looking for in a partner when you’re going to find and execute on an apartment opportunity?

John Tudderud: That’s a great question, because it wasn’t always a consideration that I gave a lot of thought to earlier on when I first started thinking about syndicating property and knowing that I really can’t do this on my own. I look for people who have some experience. I’m glad to help and train people, and I’ve done that a number of occasions, just to kind of bring people along, and show them why I think that multifamily real estate is so awesome. I’m thoroughly glad to do that. I do like working with people who are more experienced than I am, who have other skills that they can bring. Men and women across the board, all ages, and it’s not necessarily a person that happens to live in the area where I’m investing. That’s valuable, but it’s not all that critical; I can easily get to the market. I look for people who have something that I need in particular. In those conversations, most of us are able to tell that early on; it’s like your first conversation with the person. What do you do? Well, if they’re describing me, then I’m sure it’s a nice conversation and I’m glad I had it, but that’s probably not a good fit for me, for what I’m looking for. I’m looking for other things, like for example, my background is information technology. Software development, and running IT-related businesses, and working in that industry; it is not building systems. And I’ve banged a hammer, and I can go down into a unit that I own and do most of the fixes. But generally, what I fix doesn’t stay fixed, so I need [unintelligible [00:13:53].05] that work. Likewise, for the larger systems. I talked to people — there’s so much knowledge about HVAC systems, roofing types, and flooring types that I don’t have. I’ve developed that, and I’m a lot more knowledgeable over the last several years than I had been in the past. But a good asset manager, somebody who knows renovations and how to do the right types of fix-ups on a building is a valuable partner to me.

Likewise, somebody who is more attentive to the accounting and bookkeeping pieces – I can do that, I have a mind for detail, but I like having somebody who can look at those things more diligently than I am, and take care of a few things like that. I love talking to brokers, and so that’s my strength. I’ll get on the phone with them, I have a lot of them that I talk to on a regular basis, and I maintain the relationships.

Break: [00:14:39][00:17:36]

Slocomb Reed: I would imagine you do talk to a whole lot of brokers with all of the markets that you’re name-dropping. In order to find good deals there, you’ve got to be in touch with so many different brokers in so many different cities. I get where you’re coming from too, John. I’m not nearly as handy as I look. For those of you who are listening to this on the podcast – yes, I look like I would be handy. I’m great for a demo. If you take a wall out and haul the pieces away, I got you. But yeah, it’s a blessing actually, as an owner-operator, to not be handy, because it frees up my time. I have to find somebody else to do that stuff, so I don’t get stuck in it. And the same thing with bookkeeping – I understand how it works, I can read the spreadsheets, but filling them out… Man, I had to get that delegated as well. Which frees up my time to focus on the things that are more dollar productive for me, that I’m better at, that I find more rewarding. So yeah, I get that, John. You were just talking about building broker relationships… What else are you really good at?

John Tudderud: I’m good at the financial pieces. Underwriting… I’ve done a lot of spreadsheet work. Given the fact that I’ve had a software development background, I can make spreadsheets do a lot more than most people can. I use a lot of the programming tools [unintelligible [00:18:56].15] spreadsheet. I have underwriting templates that have evolved over the years, that give me good information pretty quickly. So I can take what the broker is providing, and it’s not just knowing “Does this expense amount for a given expense category makes sense or not?” I mean, certainly that’s valuable, too. But being able to move it through the process quickly, and come to a decision quickly. So I’m good with the underwriting part of it. I talk to the brokers, I get deals sent to me, and I can tell pretty quickly if it’s worth pursuing or not. Those are probably the two things that I do the best.

Staying with the deal long-term is something I’m passionate about also, and staying on the calls with the property manager, and being sure that our goals are being met, and that they understand what we’re saying – those are things that I’m totally obsessed with; it’s making sure that we are on track with whatever business goals we had, and sustain with it. Even if I’m not saying “Here’s how we should renovate this unit coming up”, or if we have some folks who are good at the lender relationships… For example, one of our loans is a bridge loan, and we have draws that we take for renovations, and keeping track of that. One of our partners on a deal is awesome at doing that, so I’m thoroughly glad that we’ve got the skills and the team, that I can track it, ask questions, and understand things… But I’m glad that we’ve got somebody really doing that piece of it.

Slocomb Reed: John, are ready for our Best Ever lightning round?

John Tudderud: Sure.

Slocomb Reed: What is your Best Ever way to give back?

John Tudderud: Well, a close friend of mine – he’d been dedicating his life to a local charity that benefits young women and children who found themselves with nothing. Maybe they have a baby or small children that they’re responsible for, or maybe they came from an abusive relationship or any of a number of a hundred different reasons. The charity is Step by Step in our local area and they’ve been an extraordinary success turning these young lives around. I like to support them. I’ve also been heavily involved with scouting and working with groups supporting local food banks and want to continue doing that.

Slocomb Reed: Nice, what is the Best Ever book you’ve recently read?

John Tudderud: Well, it is a book that was sort of a documentary. It’s called Killers of the Flower Moon. It is to be made into a movie and I’m not sure if the movie is out yet, with Robert De Niro, Sharon Stone, and a couple of other people. But anyway, it’s based in the Northeast Tulsa area. I first heard about it when I was looking at a Tulsa property about a year and a half ago and one of the brokers recommended it. He said if you want to learn about this area, read this book. The book is about the Osage Indians and the history of the US. The Indian community is not a very good part of US history, how the Osage Indians were moved to different parts and settled in northeast Oklahoma in the late 1800s, then in the early 1900s, found themselves living on top of huge reserves of oil, suddenly they’re oil-rich, and how they were taken advantage of. A lot of ugly events took place at the time, a lot of killings and it was just a long story. Then the FBI came in… Or it wasn’t the FBI yet. It was J. Edgar Hoover and some people out of the federal government who came in to investigate crimes. That was the beginning of the FBI. Fascinating, but it was a history of…

Slocomb Reed: Did you find that it informed your investing in Tulsa?

John Tudderud: It did. In fact, it already took place in this small town called Pawhuska. It’s really the county seat of Osage County, North of Tulsa.

Slocomb Reed: Do you own property in that part of Tulsa?

John Tudderud: No. I have a property in the midtown area. My wife and I came and did the inspection last spring. She said, “Well, we have to go to Pawhuska.” I said, “Why?” She said, “Well, that’s where the pioneer woman is.”

Slocomb Reed: John, what’s the most money you’ve lost on a deal?

John Tudderud: All my deals, fortunately, have done pretty well. I’ve not money.

Slocomb Reed: Nice. What’s the most money you’ve made on a deal then?

John Tudderud: Well, most recently, doing this 1031 exchange out of a 15-unit, gotten over six years, it turned about 5x on the investment. We pulled out around 850 or so that will take it into the next year.

Slocomb Reed: John, where can people get in touch with you?

John Tudderud:  The best way to contact me is by email. john@cardinaloak.com.

Slocomb Reed: Awesome. Well, John, thank you for sharing with our Best Ever listeners. Best Ever listeners, thank you for tuning in. If you enjoyed this episode, please be sure to leave us a five-star review and share it with someone you think could benefit from the best real estate investing advice ever. Don’t forget to follow and subscribe to our podcast so you don’t miss anything. Thank you and have a Best Ever day.

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