Software Engineer to Multifamily Investor: Started With a 3 Unit

Steven Weinstock (00:00) This is The Wealth Clock. I'm Steven Weinstock. My guest today spent about three decades in software and IT. And then he walked away to buy apartment buildings full-time. His company now has around $58 million in assets across over 500 units in eight different markets. Stay with us. Steven Weinstock (01:01) And welcome to the show, John Todderud. How are you? John Todderud (01:04) Good, Steven. Thank you. Thank you very much for inviting me. I look forward to talking with you, getting asked some difficult questions and sharing maybe a few stories about what the real estate investing market is like today and potentially help your listeners with a few secrets of things that they can do to help themselves as well. Steven Weinstock (01:25) Sounds good. Okay, John, before we start, I wanna hear about John from I guess three decades ago or over three decades ago. What kind of software were you doing? What kind of IT were you doing? This is way before ChatGPT. This is the beginning of the internet, maybe even before the internet hit mainstream. To me, internet is around nineteen ninety eight, nineteen ninety nine, that's what I consider the global internet starting, America Online becoming popular, the Netscape browser, Yahoo, Lycos, Excite. I think Google was only founded in either ninety eight or two thousand. Were you in this business before that? Talk to me where you were, which part of the country were you in, how'd you get into it? John Todderud (02:07) Yeah, yeah, I'm actually in Seattle now and I've been in here for a lot of time, most of my adult life. I grew up on the East Coast and then came out here for a job and my job in Seattle was for Boeing and that really started my software engineering career. I worked a number of years on interesting projects and yeah, it preceded the internet by a few years and I had a lot of great experiences in that area, watched how things evolved. I had the good luck of being in Microsoft's backyard and just watched that company grow and become what it has become today. My experiences in engineering was through a number of different types of roles, big commercial, real software engineering and then smaller companies. I like the smaller company environment a lot better. I was able to have my hands on things and see how they impacted customers and I had a lot of different experiences and they sort of translated into business experiences and that's where I got a lot of fulfillment out of and I could see the connections to real estate earlier on but that grew as time went on as well. I had some entrepreneurial experiences and worked for different companies and had the ups and downs, was laid off from a company and took that opportunity to start my own business and that's where I was through the 90s, is my own business and producing a software product, selling it, watching the internet grow and being able to leverage all that the internet is today. It wasn't clear at the time but man, we took a lot, we still a lot of eye-opening experiences, a lot of internet opportunities as they say, good and bad. So Steven Weinstock (03:52) Okay, first let's just backtrack here. You gave me a lot. Where on the East Coast are you from? John Todderud (03:57) I was from Delaware, yes. Steven Weinstock (03:58) Got it, got it. Okay, I'm here in New York, born and raised. When I hear East Coast, naturally I'm thinking New York, but Delaware, you are correct, is on the East Coast. It just wasn't what I was thinking. John Todderud (04:09) Okay. Steven Weinstock (04:10) Then you went to Seattle. Seattle, you've been there during a very historic pivotal time. Seattle, wow. So as a kid, I'm forty eight, in the early nineties we're talking music, Nirvana, Pearl Jam, all those guys. They owned the music scene back then. You also have this small little company called Microsoft creating lots of millionaires in that area. I remember reading an article, maybe I think I was a kid. So we're talking in the nineties, that at the time Microsoft produced seven thousand millionaires at the time, you know, through stocks and their employees and all that. And I thought that was a mind blowing number. Obviously you fast forward thirty years, there's so many companies like that, just doing that, you know, all day long with internet and tech. Obviously you have Amazon over there and you have all the companies that feed these companies. So you were really in some, you know, some people would say its own Silicon Valley, really Seattle back then. You saw real estate, especially the private real estate, you probably saw tremendous appreciation around you. All these rich people, rich employees wanting to live in this area. You've noticed all the real estate around you. During this time, while you were in software and tech, did you have any interest in real estate? Were you concerned about real estate at all? Is it something you thought about? Did you invest in it maybe passively? Tell me about your real estate career while you were working in software and tech. John Todderud (05:47) No, the short answer is no. And for not very good reasons. I just didn't, I wasn't seeing myself spending time in the real estate world. There were good opportunities in software and technology, and I was pursuing them. And I could see how people were, like you say, there were a lot of wealth building opportunities, a lot of people were getting wealthy through various aspects of software and technology, not just Microsoft. And I could see it in my area. And that's what I was pursuing. When a company like Microsoft, I mean it goes public. It went public in the 80s and then in the 90s came out with some blockbuster products, Windows 95 and all the Windows series, then the Office Suite and it grew from there. Producing those millionaires has an incredible impact on a lot of young people. And people started pursuing advanced technology degrees and getting education and they were teaching themselves the different programming languages and different technology products because they knew that's where they wanted to be and it's like this self-perpetuating cycle, it produced a lot of new startups and they weren't necessarily college graduates, but they were just very smart people. And a lot of that was a fallout from Microsoft. I mean they left Microsoft and started other companies and it was a very exciting time period and I could see that in the growth of my own company, like pursuing outside investors in my company and seeing what they were interested in and watching people. I just had, through that time period of having my own company, a lot of discussions with potential investors. And it's like, okay, how'd you get to be an investor? Well, I was in this tech company or that tech company and it's just very energizing. It's a very exciting time period and it's really not much different today. It's different in a lot of ways, but same kind of factors are involved with it, people getting involved. And so it wasn't until a little bit later until I decided that I wanted to do something a little different than technology and then looked around and found real estate. Steven Weinstock (08:14) So tell me about your first foray into real estate as an investment. Did you buy an apartment building? Did you start out with a single family home like a lot of investors do? Did somebody come to you with a deal and get you involved? Tell me how you pivoted into real estate. John Todderud (08:34) Yeah, yeah, there's a lot of background about how I arrived at the decision and the different tires that I kicked, so to speak, or the things that I looked at, but ultimately I decided to buy a small multifamily near where I live, about a half hour down the road. It's a three unit. And my analysis process, I kinda use that term loosely because it wasn't all that involved, it should have been, but I realized I'm gonna take this chance on this three unit building and I believe that I can make it better and if there are problems, I can handle the problems. And that is the way that it turned out. I mean I bought it myself. I did not have partners and went and found new tenants and fixed problems and figured out how to do all the different things that a property manager needs to do, communicating with the tenants, getting to know them, figured out how to write a lease and how to interview tenants and made mistakes. And I bought a four unit also, not too far away from this one. And so those seven units I had for several years. I had them and improved them, got better income, and then eventually sold them and scaled up from there. But they were my first properties. I cut my teeth on them and figured out the things that I didn't know. I've always been comfortable with numbers and software tools and so I was focused on distilling it down into data, numbers that I could understand and numbers that had meaning to me and that led to better decisions on my process and then improving the sources of data and discovering what kind of data was out there and this is twenty ten. This is a while ago. It was after the two thousand eight financial crisis. And twenty ten I was buying and twenty eleven, twenty twelve was operating. And then I discovered I wanted to do more than that. And so I started learning more about syndicating and pulling other people's money and how to be a better operator, how to get a professional commercial property manager involved, all those things you learn, but they weren't things I was thinking about on day one. I just didn't, definitely didn't. Steven Weinstock (10:56) Yeah, so you touched on a great point. You mentioned that you started with a three unit. So naturally that means for most people, you were fully involved in just about every aspect of that property. Had you told me your first deal was a hundred and fifty unit property, you know, I would have pushed back and said, Okay, so you dealt with either the capital raising or you dealt with compliance or you dealt with the construction. But when you're dealing with a three unit property, yes, it's smaller, but it's just about owner operator. You are operating that property from top to bottom. You're finding it, you're figuring out how to finance it, you're typically using your own capital for the down payment, and you're dealing with tenants. You're collecting rent. Maybe it's with Zelle or Venmo, but you're in touch with these tenants on a regular basis. So you're really learning the entire process from the ground up and in every aspect of it. You know, how to deal with a tenant that's potentially not paying, how to deal with an annoying tenant, how to deal with a tenant that just constantly complains about different stuff and how to, you know, when to realize you have a great tenant that never calls you, sends the money electronically and, you know, you can go months and months without speaking to them, which, you know, sometimes it's very nice. So you really learned the business full on. How many years were you in the, I call it the one to four space, one unit to four unit. How long were you in that space before you pivoted into the larger multifamily? John Todderud (12:29) Great question. I was in that space for about three years. And I couldn't wait to get out of that space. I did not want to be the day-to-day property manager. I learned a lot from it. I mean the school of hard knocks, but nobody wants that to last forever. When I sold those properties, I was able to buy bigger properties. They were in another part of my state, not too far away. I could still drive to them, two or three hours away. But I couldn't get to them all that often. And so I sold the three unit and bought an eleven unit. And the eleven unit was large enough for a property manager, in my opinion. The people who still operate their own eleven unit properties, which is fantastic. But I wanted a property manager and I got one and so started dealing with them. And they were like a conversation maybe every week or two or once a month or so if things were going well. And then guiding them on what I preferred because they wanted to know how I wanted to renovate units and what the rents were to charge and things like that. And that was a big relief. And I sold the four unit and bought a 15 unit out of it, the same kind of deal. Another part of the state not too far from me, another part of Washington and just learned from them how to manage property managers and that was even more important than how to take care of the day-to-day things on a property myself, is learning how to deal with a property manager. I did not always do it that well and had not great choices in property managers and had to change property managers and that's so difficult and painful and you feel like you failed at that step. But really every time I've gotten a new property manager, it has been the right decision and things have improved. And so I feel I've gotten a lot better at that. But that was a huge step in my multifamily growth, is getting professional property management. Steven Weinstock (14:39) What does today, your day look like in terms of what roles do you have? I'm assuming you're not looking at every lease. I'm assuming you're not dealing with tenants intimately like you were on the smaller properties. What is your role? Do you have a team? You know, how do you break it down? Because there's a lot of moving parts in multifamily, especially if you are across different markets. Different maintenance techs, different vendors, different property management companies. So what does your day look like? What's your responsibilities when you wake up in the morning at, you know, five AM or four AM or whatever it is, what does your day look like? John Todderud (15:22) Yes, I have ownership of my properties through general partnerships and there are obviously other people involved and they are larger properties and so we have a division of responsibilities and I don't always have the same responsibilities on every property. Do you get involved in operational property management, in conversations with property managers, conversations with other team members about how best to manage the properties? In most cases, there are other people that are more accomplished at that, or more experienced and qualified at that than I am. My background, as I mentioned, has been in software and technology, and certainly I'm capable of learning, but I meet and talk with people that have backgrounds more in asset management, construction management, construction itself, and have done remodeling themselves, they're much more knowledgeable and more qualified to take on those asset management roles than I am. I try to help and I have a lot to contribute. And there's a lot of other things that I can do as background, like checking out, finding vendors for certain types of skills that are needed for a property, those kinds of things. That's how I spend a fair amount of my time. I also do spend time looking for other properties and I spend time talking with other prospective partners and I'm always looking for investors, people who are qualified, who have the same interests and have an interest in growing their wealth and I will have conversations with them and see if they're potentially qualified to be a partner as an investor in my properties in the future but that's a different side of my day-to-day work. I'm definitely involved in keeping track of my properties and talking to other investors who have invested with us in other properties and understanding what's going on in their lives and sharing more details about a given property with them, maybe something that wasn't in the reporting that we've been sending to them, but yeah, trying to keep the properties growing and overcoming any challenges that they might have. Steven Weinstock (17:47) When you set up the structure for these larger multifamily, you mentioned a GP, general partner. I'm gonna assume there's a GP, there's an LP, or a bunch of LPs, limited partners. These would be investors into the deal on a passive level, meaning their job really is upfront to just vet the deal, vet the operator, vet you, and then once they're in the deal, they really have no operational responsibility. A lot of syndications, a lot of large properties have this type of ownership. But when it comes to the GP side, the GPs I've seen and the way I have it structured on some of my deals is we'll have multiple GP partners on the GP side and some of those will be a professional capital raiser, somebody who excels at property management or in property construction or in compliance with banks and capital markets. Do you have those types of teammates or partners on the GP side on some of your deals? How do you typically structure everything? John Todderud (19:00) Yes, the answer is yes, we do. Our GPs have people with a lot of deep experiences in relevant areas. One GP, for example, is a mortgage broker and helped us source our loan and has helped us source other refinance loans and is involved in a lot of other properties. And mortgage brokers, incidentally, I would say as a comment, mortgage brokers are a wealth of knowledge and experience. If you're interested in investing, those are some of the first people you want to reach out to. They're interested in providing you a loan because that's how they make their money, but they will also share a lot of insights into the market that you won't find anywhere else. And so we've been grateful for having this person on part of our team, and it's certainly been extremely helpful through the duration of ownership. And in another deal, we have people that have deep experiences in financial markets coming off of Wall Street, and their experience is highly into the numbers and coming out of that they do have connections to other wealthy people, high net worth people that are always looking for other ways to invest their money and have a lot of faith in these particular people and I've got a couple of partners in deals like that and also asset management partners. People who have deep experience taking care of other properties and remodeling and renovating. The one thing that I would say about all of our partners, especially going forward, is we all have capital raising requirements. We all have a requirement and experience and a need to be talking with people in our network and raising capital. It's not okay if someone says, I'm really good with spreadsheets and I'm terrific with the numbers that I can ensure that our numbers and even financial accounting and reporting back to investors, that all that's just gonna be spot on and the numbers are gonna be good. That's good to hear, and that is certainly a prerequisite. But if you don't have a network, if you've not been able to raise capital, you're probably not gonna be a good partner. Because I mean it's not that people good with numbers are a dime a dozen. They're not cheap by any means and any reason, and I would not disparage anybody who's got that skill, but you also need to bring a capital raising skill to a general partnership group. So yes, we've got quite a different, there's probably some others in there that I'm not thinking of. My first deal was three of us as general partners and the way we came together was a good way, but we were all IT people and it worked. And we made it work and we figured things out because we did have some other experiences, but that's not necessarily the best partnership. You've got to have complementary skills. I mean, I'm IT, I don't mind having another IT person, but you gotta be able to do other things too. Steven Weinstock (22:14) I like that. Yeah. Definitely having different skills is so important to the process and to execute the plan. A lot of people live in their own bubble. I know an investor that we have who's a doctor, and he tried on his own to buy a few properties and he would pool money with other doctors that he knew and he never really broke out into getting partners that had other skill sets. So, you know, he knew a lot of doctors and there was a lot of money between those guys, but they didn't have a lot of operational experience and, you know, just something that he told me and, you know, stuck with me with some of the mistakes that he made and it's definitely, you know, multifamily is a team sport. You really have to have your team in place. Buying three family houses, four family houses, you could buy thirty of them and you don't really need anybody else. You could really run everything on your own. When it comes to multifamily, there's just something about it where you need to have good partners, different skill sets. There's so many moving pieces. The banks, you know, they don't care that you're just paying the loan on time. They want paperwork every quarter, every year. They want, you know, inspections all the time. You could buy a three-family house, pay the bill every month, the bank will never reach out to you ever. They could care less if the John Todderud (23:40) Yeah. Steven Weinstock (23:40) property is empty. As long as the payment is coming on time, they're fine. When it comes to the multifamily, there's so many different levers to pull. There's agency debt, there's CMBS loans, there's bank loans, there's bridge debt, there's debt funds, insurance funds. I've done them all. Some of them are easier to deal with, some of them aren't. There's almost no rhyme or reason as to which ones are tough, which ones aren't. Tell me, you're in a bunch of different markets. Tell me some markets that are an instant no. It comes across your desk, you see the zip code, you see the state or the city, and you're not even opening it up. Give me like three or four cities, if they exist. John Todderud (24:19) Yeah, yeah, there's a lot of them around the country. I can start with states. I mean it's so important for you to understand the market at the city level and the market at the submarket level, like neighborhoods, like certain cities. And most cities have smaller suburban cities, the bedroom communities surrounding them, and so you can't just look at the city. You gotta look at the bedroom community that's around it because some of them are good, some of them are not. But even on a higher level than that, there are a lot of states, unfortunately, that have restrictive regulations and onerous requirements on owners and landlords. And it doesn't matter what the city's trying to do or how great the city is or who's living in the city, the state itself has imposed these regulations, and I would stay out of those states. California is one of them, my state of Washington is another, and I can see the regulations in my state, and it's getting worse, not better. And so I would urge caution. And I would also, I mean, not to play both sides of the fence, but there are people in my state who I network with, and they are doing great in real estate. They've figured it out and they know how to work it. And I'd say more power to them. It's not something I would be able to do. They face challenges with the same things that I'm talking about, the regulations and rules about, you know, who you can put in your units and the rules around evicting somebody and not paying rent, all that stuff can be a mess, but they know how to deal with that. So some of those states I would stay away from. Other cities, today I would urge caution around most of the Texas cities. Great state to invest in. People have done phenomenally well, but they're still having challenges with oversupply. Austin in particular, and you can look at the numbers, it's not hard to look up. Year over year rent growth in those places is still negative. And that's not true with all the different areas around a city like Dallas or Houston or Austin. There's areas that are doing well and people that are investing in and I might consider it. I might look at deals in those areas, but in general, if you don't know them too well, I would be super cautious because other areas that are difficult to invest in are in a lot of New England states have similar rules. Massachusetts, New York, New Jersey, they are having challenges. I would not necessarily invest in those areas because of some of the rules. But I don't hold myself out as an expert in those areas. Somebody can easily challenge me and they'd probably be right. It's just that there are so many good areas around the country that if I'm hearing something, even if I haven't researched it or I don't know all that much about it, I'm inclined to just pass on it and focus instead on the good areas, the areas that I do know that are good. There's enough opportunities there. Steven Weinstock (27:33) Okay. Wow. I always like hearing about people who made real estate a second career. For me it's been my whole career, but I'm always fascinated by people who came into this later on. They bring so much more just life experience into it. And it's always fascinating to speak to them about it. Tell my audience where they could reach out to you, a website, LinkedIn, social media, et cetera. John Todderud (28:02) Yeah, yeah. If you start with my name, John Todderud, you can reach me on LinkedIn. It's a pretty unique name. Nobody else with the same one, and LinkedIn, you'll find me very easily. Connect with me there. You can email me directly at John at CardinalOak.com. Cardinal Oak is my company, C-A-R-D-I-N-A-L-O-A-K dot com. You can go to our website, cardinaloak.com, go to the contact page, and enter your name and email. And you'll be in touch. Reach out and you can even schedule time with me on that page. Steven Weinstock (28:36) Okay, John, I will put that all in the show notes. Thank you so much for coming on. I appreciate it. You've added a lot of value to me and I believe my audience would agree. John, thank you so much. John Todderud (28:50) Thank you, Steven. It's been fun talking.