WS1851 Use Data And Technology To Scale Your Business | John Todderud

Join us for an insightful discussion with our guest, John Todderud, owner of Cardinal Oak Investments. He shares his journey from software and technology to real estate syndication, discussing how he cleverly applied his IT skills to create processes and tools in the real estate sector. Listen in as John Todderud shares valuable tips on managing your time effectively while holding onto your W2 job as you transition into real estate, a business with no ceiling to opportunities.

John Todderud continues the conversation with his unique experience in using his tech skills in various roles. He emphasizes the importance of communication in customer service and how the value of sales and marketing in building a business cannot be overstated. John highlights how his proficiency in Excel has been a game-changer in his real estate investments. Moreover, he underlines the significance of a team member who can present data in a clear and understandable way.

Lastly, we explore the nuts and bolts of underwriting a multifamily investment with John Todderud. He guides us through the process of researching rent comps, understanding the local market, and collaborating with property managers. He further sheds light on modeling rental income, vacancy rates, and potential rent increases for a realistic view of potential returns. As John shares his advice for passive investors and the most crucial metrics he tracks, you will gain invaluable insights into balancing personal and professional life and giving back to the community. Tune in for a wealth of knowledge from a tech expert turned real estate guru.



Want to learn more from John Todderud and connect with him directly? Drop him an email at john@cardinaloak.com and don't forget to connect with him on LinkedIn for even more valuable insights. Let's get the conversation started! 

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Transcript

00:00 - John Todderud (Guest)
each unit each month over a period of time in the future, and how many units can I renovate this month? Then I can come up with rents per month and roll it up by the year including the vacancies driven by renovations. I'm taking it off the market and have more realistic numbers for what those rents are this coming year, the next year, the following year and use those in my underwriting. 

00:29 - Whitney Sewell (Host)
This is your daily Real Estate Syndication Show. I'm your host, whitney Soule. Today, our guest is John Toderud. He has 330 doors under management. He's the owner of Cardinal Oak Investments, a multifamily investor or syndicator. He began his real estate career during his software and technology career, but first smaller properties than shifting to partnering with other ambitious real estate investors to acquire larger properties as well. You're going to hear him talk about how he used his previous experiences to get into this business and I feel like he had some really good skill sets that almost all of us need on the team one way or the other. But he did just that and even some details around talking to brokers and getting accurate data that I feel like it's going to help you to underwrite properties better. John, welcome to the show. I'm looking forward to diving into your superpower because I feel like it's something that's so important in our business and we want to learn from you today. But before we do that, and how did you get into the syndication business? What were you doing beforehand? 

01:34 - John Todderud (Guest)
Well, thank you, Whitney. I appreciate the opportunity. Before syndication I had a career in IT. I had a number of years in software, software development, software managing other developers, and I had my own business for a number of years and then was consulting for a while and I've just always been related to software. I tried to stay close to the technology, but then E-Kaida moved into different fields that are still related to it and implemented software systems A lot of real interesting IT and computer related consulting projects. But I did that for quite a while until I migrated myself into real estate and into syndication. 

02:16 - Whitney Sewell (Host)
Wow, awesome. So why not double down on your tech skills or all these years in tech? Why not double down on that or that business or even that consulting, and just invest passively? Why jump in actively in syndication or commercial real estate? 

02:35 - John Todderud (Guest)
Good question. I have always liked the things that had no ceiling to my opportunity. Passive investing is a great opportunity and I love it and I do a lot of it. It's for a lot of different types of people who are busy and have strong skills and professions of their own, but there is an unnatural upside limit You're going to make what is projected maybe a little bit more. 

03:05
I like to know that I can do more, to do better and to build more wealth. And looking around, I found real estate. I mean my profession. Yes, you grow, you build your income and you can save money. You can put amounts of it aside and build your wealth that way and invest it into the traditional things for a one case stocks, mutual funds, etfs, all that kind of thing. 

03:33
For me, I was looking for something more an ability to use the skills and talents that I had and to develop processes and tools which I had become good at, and leverage these skills in a field that provided new and different and better upside opportunity for me. And I found real estate as the vehicle for that, starting off small, of course, and then building into large things, but I mean I did it both together for quite a while, as most people do. It's like how do I get into my out of my W2 job? You start by holding on to your W2 job and finding a way to do these other things in the times that you have available and figure that part out. If you have difficulty managing your time with a W2 job. You're probably not going to do much better quitting your job and would jump in into real estate. I mean, there's exceptions to that, of course, but you've got to to manage that part of your life. 

04:32 - Whitney Sewell (Host)
Yeah, no, that's very wise, Very good wisdom there. I appreciate that. Something I love that you said right off the bat, though, too, is because you like things that have no ceiling for the opportunity that you have, and I can so relate to that. I was with Kentucky State Police and it's like if I wanted to promote, I was going to make like $2,500 more dollars a year for a worse schedule and more responsibility. It was like wait a minute, or even that. It was like not much further. I could go for 25 years, right, or then federal agent, and it was like man, in three years, I've maxed out my seedlings. It's like what's next? So then here come real estate for me as well. I love that as well, that there's just no ceiling. It's like what can you dream up or make happen? 

05:16
Let's talk about how you've used your skills to do just that and your tech skills. No doubt I could benefit from a few more tech skills myself, but I have to hire people like yourself that have those skills often. But you have an ability to use numbers, consolidate numbers, gain information, right, I know. And let's type in what does that mean for you and how you know? Talk about how you've used those tech skills that you have, because I think many can relate to that or some type of skill set that man. It may be hard for them to see how they can use it in this industry. 

05:51 - John Todderud (Guest)
Yeah, yeah. So I'll go through a few things that are related to the tech skills that I have and that I've utilized, but a few other discoveries in my own life from prior roles and job roles. One of them that I think that was key was I was a software engineer and I went to work for a small company. I was working for a large company a big project, one small piece on a big project and then I went to work for a small company and I was one of the principal engineers on a small software product and developing the product and we sold it to customers and the customers were just like ordinary people and like departments and various businesses and the product had problems and the customers were coming back to us and they were saying we spent all this money and this thing doesn't work and all that stuff and everybody's heard that. But it was a painful lesson in how to take care of customers and how to interact with them and how to listen to their problems and to talk them through certain situations. And I mean I've always had the ability to talk, but I've never really done much of it, never been in a job prior to that where I had to talk someone off the fence, so to speak, and be able to bring him down and understand and then go to work to fix the problem, understand what the problem is and buy myself some time to fix it and then fix it and I did that on a number of occasions with various customers and I mean it's super fulfilling, it really is enjoyable. I mean, as you get it done, it's like building a software product. I'm so proud and the product looks great and I like what I did. But in this case you're working with customers and so that was one time. Other times we're working with people who are very good at sales and marketing and realizing how man they can build a business because they're so good at talking with people. And these are not my tech skills. They're working as a tech person in a company that had a product to sell and it's not like some hyper sales person, but it's just that it's the marketing and nurturing relationships aspect of it. That. Not that I was listening to them and suddenly I could do that, but just I was appreciating the value of what they brought to that organization and how the organization could not have done what they did without that value. 

08:26
And then it's moving into. I had my own business because I knew a product line and I knew a market and I sat down and developed a software product for that market and then I could go back to people who or go to people who I knew and demonstrate it, sort of show it to them not really a full-fledged dog and pony show, but sitting down shoulder to shoulder showing them how the software worked and they became initial customers and then building a business around that. And then it's all the aspects of building a business, the accounting and certainly marketing and finance and leading other people. The tech part of it was always there in the background and I had to understand how different pieces fit together and I had to think about processes. And is doing this thing manually over and over again really the best use of my time? Is this what I should be doing or should I build something else around it? 

09:26
And then, as real estate came along, it's looking at. There are a lot of processes anybody who's done anything in real estate, investing on their own or buying homes or for rent or anything like that. There are a lot of different things associated with it and anybody can guess the whole lot of what it is. But is there a way to? I would say, automate it, but automate sometimes too strong of a word. At least you need to understand what you're doing and know that this is the way I did at this time. Next time and there will be next time I'm going to do it this way, the same way. It's like if it's three months down the line, I'm not going to have to try to remember what I did. I'm documenting processes and I'm trying to get them better each time, and it's that whole mentality and mentality in real estate that you developed from, in my case, a technology perspective. 

10:26
The advantage that I had was, out of a lot of IT consulting roles, you get to be expert at spreadsheets. 

10:37
Microsoft Excel is like I'm in that 24-7 and you get to know. I mean, I did a lot of consulting at Microsoft, so naturally everybody used it. But you just develop a high proficiency, and so that's what I've taken into real estate as well. I look at software products and I think, yeah, those are great products, but I can do the same thing at a spreadsheet and then, once I have, I can improve it and tweak it, and I've done that with my underwriting. I'd say that's probably the number one tech skill that I've brought into real estate is being able to compile my thoughts and my analysis and everything else about my business into spreadsheets. My challenge, of course, is that real estate is a team sport and you bring in other people and I have to show them spreadsheets, and if my spreadsheet looks like a bunch of garbage that only I understand that it's really not doing the job, and so then I'm improving things like readability and simplicity and boiling things down what does this particular audience need to see and what's the best way to present it? 

11:45 - Whitney Sewell (Host)
No doubt that is a skill set that every real estate company needs on their team. I feel like every time I learn some more things about what Excel can do, I realize I've just barely skimmed the surface of all the things that it's capable of, and thankfully there's numerous people on our team that are a lot better at it than I am. Yeah, or we would be way behind on that front, but I want to jump into some underwriting specifically, and maybe some of those skill sets that you can help the listeners with, and I know one thing you had mentioned beforehand is like things you do in underwriting that give you an advantage, right? Why don't we jump into a few of those? 

12:28 - John Todderud (Guest)
Okay, yeah, one of them is my processes around net rules. I've developed the process where I'm not just using some rent escalator number 2.5%, 3%, 3.5%, what's the number? What's a conservative? I'm conservative. I'm only estimating 2.5% per year. That's a good way to do it. Most underwriting models assume that's how you're going to do it. 

12:55
But I'm digging deeper. I'm looking in a lot of rent cop analysis. I'm looking around. What are the other properties and units similar units in terms of size, square footage, age, condition around that area? What are they renting for? What can they get? I'm looking for renovated units too. What is an owner getting for a unit that's been renovated real nicely, and how renovated is it? As we all know, there's different scales. The rent comps are critical. What could I get if I'm going to spend $3,000, $5,000, $10,000 on renovating a unit on a property that I bought? What could the rent be for that? That's information that you can extrapolate. You can use it in a way that says okay, here's the current rent roll. I got the rent roll from the owners. The lease is up on this month. I'm going to take that unit down and I'm going to renovate it. 

13:59
When I put it back up this is the rent that I'm going to get, for it doesn't matter what the rent was today. It could be that it's a $500 rent and the renovated units could be $800, because that's where the market is. This particular owner didn't want to raise rents. They kept them low, or whatever that story is, or that owner's been good at it. Their rents are already $725, $750, but even their market rent is $800. 

14:25
I can look at that and say I'm going to get $800 out of it once I renovate it. Then it's going to be at least $800 for 12 months. Then I'm going to raise the rent by something $30, $40, 3%, some number like that. I mean that's all arbitrary. I can model all of that, each unit each month over a period of time in the future, and how many units are going to renovate. This month I can renovate three, I can renovate eight or 12 or whatever that number happens to be. I can model all of that. Then I can come up with rents per month and roll it up by the year, including the vacancies driven by renovations. I'm taking it off the market and have more realistic numbers for what those rents are this coming year, the next year and the following year I use those in my underwriting. 

15:17 - Whitney Sewell (Host)
That's where your assumption becomes less of an assumption. It may be still an assumption, but it's more accurate than maybe just throwing in a percentage in there Exactly. 

15:28 - John Todderud (Guest)
With partners. If I'm sharing this, I've got general partners and they need to be bought in. If what I'm doing is hocus pocus, or it makes sense or I made a lot of unreasonable assumptions, then they're not going to buy in, as they shouldn't. I wouldn't buy into theirs. They need to understand it so that they can make critical feedback. John, you can't assume that you're going to get 5% to 7% just not a rent increase out of this unit. That's too aggressive. Then I can dial it back. Whatever those assumptions are that I made that are questionable, they can call me out on it and change them and model it again and see if the property still works. John Greenewald. 

16:11 - Whitney Sewell (Host)
Speak to where you're getting the data from and finding good data, finding the good data and pulling the information out that you know is most accurate, I guess, or where you get it, how you use it, john Greenewald. 

16:23 - John Todderud (Guest)
Lots of different types of data. There's market data, demographic data. There are several good sources for that. I love to see population growth and jobs growth. I like to see household incomes, average home sale prices. A lot of that data is from citydatacom. I like to see job growth numbers from your labor statistics. I track all that with the rates of increase on those numbers, Even though there's a lot of inaccuracy about it. That's my main source about market data. With respect to rent comps, the rent comp data is a little more difficult to track. There are a lot of good websites out there. You can look at the data from an underwriting report from CoStar. 

17:07
You can look at data from Rentometer and go to a lot of these websites Zumper, zillow, trulia they all have data to a certain degree. A level of inaccuracy to all of it, though, and you have to be fully aware of it. Costar gets the data as well as they can. I mean, where do they own apartmentscom or they own some assets like that, where they have sources of data and they can see what the apartments are, but you don't know what condition the units are, you don't know about availability, and their data is somewhat old. Rentometer is even worse. I mean, I have a subscription and I use it, but it's just like a quick snapshot. I look at the comps that they're using and they might be eight or 10 months old, and it's just. I mean, it gives you a sort of a feel, but it's really not something to base your numbers on. 

18:03
Truly, the best rent comps are from two sources. One is property managers in the area, and you could talk to them. You're thinking of buying. You come across as credible. They will share information, they will let you know where the rents should be, and their information is good because I mean, if they've got enough properties, they know what the rents are. The second is that I will have somebody call around to the comps and I have a set of questions and I have a virtual assistant or somebody on my team do it and call the comps. They are a renter. They got to come across as a real renter, not just like the neighboring property manager who's doing a survey. They got to come across as a legit renter and ask these questions and try to find out where the rents are. 

18:56
What are your amenities? What are the fees? Do you have and do you have something? Now? I need a two bedroom unit and do you have anything at all? We don't have it right now, but we will in January, february, it's coming right up and that tells you that they are full. Whatever rents they're charging, maybe they're not even high enough. That's great information. What condition were these units just recently remodeled? Those are conversations that you have that you're not going to read in CoStar. Learn from a property manager. 

19:29 - Whitney Sewell (Host)
Love the detail there, and even having your assistant somebody, do that right, so you're not even having to take the time to do that, but you're outsourcing that in a way that you can get much more accurate data right. I mean just much more accurate. I love that and taking the time to make that happen. Speak to give us maybe a tip on how you're successful at getting as much information from brokers as well that you need. 

19:56 - John Todderud (Guest)
Only through long-term relationships. You're not gonna get any of the brokers, let alone the good ones, to share. That good information with you in the first couple of phone calls to them Is something I tell everybody is. Starting off is that you need to start developing those relationships. Call the broker and they will recognize you as somebody new to this process and there's no getting around it. It's totally fine. A broker might say they might not give you the time of day. They might say I don't think we're a good fit or whatever. They might just blow you off. 

20:32
But others will talk to you and you'll come up with some brokers who are knowledgeable in the market. Most of them are very respectful. I shouldn't say it. I mean they want to help. They're not gonna spend an hour on the phone on the first phone call with you, especially when they're not sure if you'll even move forward on something. But you develop those relationships. You talk to them for a little while. They ask you a few questions and then three or four weeks later you're calling them again and say hey, remember me. And blah, blah, blah. You remember some details about them, like what school did they do? What are the hobbies go to, what are their? Do you know? They follow the local football team or basketball or whatever it is, or anything about their kids that they mentioned. That's something that you can call up with them and they'll remember the conversation. 

21:22
And little by little, the conversation gets better and then, they start answering like the first thing they say is hey, John, they can see my name on the whole color ID, but I realized that they remember who I am and that's a great position to be in. And my criteria, my buy box or the things that I look for in properties has changed over time and you just need to remind them and they'll say, like, well, now, what are you looking for? Again, and I tell them and it might be different than what I said before, but I just renewing those things and you have these conversations and then they send you things. So there's different kinds of brokers. They're the ones that are really not out knocking on doors or talking to owners, and they might know the market, but they're more likely to pull up listings, local listings of properties. They're good people to talk to. 

22:20
Granted, you're not gonna see anything and you might get the same information for more than one of them, but they're still worthwhile. Certainly, the brokers who list properties are at the top of the pack. They're the ones that you want to know and hear from and you wanna hear about good deals, about good properties coming to the market as early as you can. And the other thing I would say about brokers is that they're not always great about following up with you. I've had so many phone calls where I'm talking to them and they recognize, they know me. I've talked to them a number of times and I describe it and they say oh yeah, I just happened to have this one that you knew what my criteria was. Why didn't you send that to me? And so I hear about things because I'm being proactive with brokers. 

23:14 - Whitney Sewell (Host)
Yeah, no doubt about it, and I like what you said. The first call may be five minutes, and that's okay, but it's the following up, right, staying in touch, and well, one thing I wanted to ask you, john, with your tech skills too, before we move to a few final questions, is how do you see or even use AI right now in connection to Excel and even underwriting, or are there ways you think to do that now? 

23:39 - John Todderud (Guest)
I am very interested in AI. To be honest with you, I've not spent a lot of time using it. Where I think AI offers the best opportunities and is in analysis of markets and analysis of the renter base and being able to tell whether a renter is truly qualified or not, whether they've got issues in their background that I think you could look up and find and be able to the whole term paths of progress. What's the path of progress? Where? How is that influencing market values and what people are doing in a neighborhood? 

24:19
Ai is so good at collecting information from so many different sources. They can see things coming. I mean, I've had deals where I've talked to brokers and they've told me that this broker was just at a city council meeting and they approved a permit or a new business coming to the area. This is going to manufacture medical devices and it was going to be built in this one patch of vacant land. I mean, nobody knew it was coming and they'd be employing like 2,000 people in the next two or three years, and not many people were at this council meeting and so the broker heard it, shared it with me. It's those kinds of things that AI can pick up on. 

25:04 - Whitney Sewell (Host)
Yeah, for sure, for sure, John. Well, to move to a few final questions, any predictions that you have for the real estate market over the next six, 12 months and how that's affecting the decisions you're making? 

25:15 - John Todderud (Guest)
I've been optimistic. I'm not under any illusion that the economy is getting better. I think the economy still has a lot of rough patches to go. It's not wouldn't be surprised to see us in a recession, but I think that, given where interest rates are where they feel like they're starting to peak and where there's a lot of dry, powder, a lot of buyers have been on the sidelines for a long time. 

25:39
A lot of sellers have been holding out. Sellers are going to decide to put the property on the market. Buyers are going to come down in pricing. The gap between buyer and seller rate Pricing is going to continue to close as it has. The smart buyers are going to realize that they're not going to wait for six months or a year when everybody decides it's safe to get it back into the market. They're going to start generating activity in the market very soon After the first of the years. It's traditionally when there's a lot of renewed activity. Maybe I'm too optimistic, but I have reason to believe that now is a good time to be getting back in and continuing to be aggressive and finding the good deals. 

26:28 - Whitney Sewell (Host)
What's your best source for meeting new investors right now? 

26:32 - John Todderud (Guest)
It has been multi-family conferences, but it's been shifting. This year I've been on a role with social media. I've been improving my social media presence. I have a ways to go, but I like what I've been doing and I like the reaction that I get from people who have appreciated the thoughts that I share on social media and Instagram and LinkedIn and so forth. But no, I like the one-on-one interactions at multifamily conferences and I spend a lot of time going to those. Those are insightful for me and opportunity to meet people who are interested in what I do. 

27:13 - Whitney Sewell (Host)
What's your best advice for passive investors right now? It is to continue to vet the team. 

27:21 - John Todderud (Guest)
A lot of passive investors are looking so closely at the deal and what the opportunities are. But it's the team and their track record, and particularly going full cycle, that's gonna make or break a deal. And seeing a syndicator, a sponsor, a group of people that not necessarily with thousands of units that they bought but they put together a team of experienced people who do know the market and who you've developed a relationship with, I think that's just as important. You can't go passive, investing only based on email correspondence or reviewing the website. 

28:00 - Whitney Sewell (Host)
For sure, john. What are some of the most important metrics that you track? Maybe one or two that are maybe a personal metric or a professional metric. 

28:09 - John Todderud (Guest)
Personal metrics are how many broker contacts I've made. It's important to me that I keep the phone calls up and I'm measuring the number of phone calls that I've made and the connections that I've made. I track how many investor meetings I can get and how many people have based on the marketing that I've done or who have expressed initial interest. How many of them are turning into phone calls. And I mean I think another important metric and it might be contrary areas is how well I'm balancing my personal, my family life and my professional life and being able to say that I didn't quit a 40, 50 hour W2 job only to work 50 or 60 hours in real estate. That's really. It was not my goal. 

29:09
And I think I've been pretty good at that, but I'm constantly aware of it and I have to fight it to not make it. It is extremely fulfilling, but I've got other aspects to my life as well, as we all do. 

29:24 - Whitney Sewell (Host)
I think that's a guard you have to always keep up. Is that how many hours you're working and family business balance there, if there is one. But, john, how do you like to give back? 

29:35 - John Todderud (Guest)
I've given back a number of ways. I've been involved in the scouting organization. I've had two boys, and I know that scouting is open to girls now also, which I think is awesome. Actually, I think that they've opened it up and I've spent a lot of time in that organization. More recently, there's an organization that's not too far from me that provides services to young women with young children who have found themselves in very distressed, unfortunate situations maybe abusive partners or in no job skills and this trains them and brings them back into society, and so I try to support them financially as much as I can. 

30:23 - Whitney Sewell (Host)
Nice, nice, well, john, grateful for your time today and just really sharing how you've moved from you know, using your tech skills, to moving to an industry that maybe there's no ceiling, and flourishing there and applying those skills in a big way and I know a lot of the listeners can relate to that as well and especially some of the underwriting techniques that you shared and how to get that data and ensure it's accuracy. You know as well before using it right and then how that helps you in promoting that deal or showing it to partners and things like that. So, john, thank you again. How can the listeners get in touch with you and learn more about you? 

31:00 - John Todderud (Guest)
A couple of different ways. One easy way is to go to learnaboutapartmentscom. It's just learn about apartments we're thinking. Email me. My email is JohnJohachen at CardinalOakcom C-A-R-D-I-N-A-L-O-A-Kcom. 

31:22 - Whitney Sewell (Host)
Thank you for being with us again today. I hope that you have learned a lot from the show. Don't forget to like and subscribe. I hope you're telling your friends about the real estate syndication show and how they can also build wealth in real estate. You can also go to lifebridgecapitalcom and start investing today.