June 28, 2023
By: Danielle Jackson, Investor Relations, Senior Manager
The benefits of investing in real estate are vast. The most obvious is the opportunity to generate passive income through contractual and consistent rental payments, but this is just one of many benefits to consider.
- Real estate serves as a hedge against inflation. How? Because historical data shows real estate values increasing at a rate that has outpaced inflation. To put it into perspective, over the last 30 years the average sale price of a home in the U.S. increased by nearly 250%.[1]
- Diversification is a portfolio goal for almost all investors. When looking at diversification investors evaluate the correlation between investments. Private real estate is a key diversifier because over the last 20 years it has been lowly correlated to both stocks and bonds.
- Investing in private real estate via a private placement or managed real estate fund provides a hands-off way to generate passive income without extensive knowledge of housing markets, construction management, property management, and other needed skills that occupy your time and energy. Investing in private placement funds allows you to tap into the expertise and deep relationships of the sponsor and operator.
Real Estate as an Investment
Investing in real estate can be a profitable and secure way to create wealth. Real estate investments are a smart way to balance your portfolio, providing both cash flow and stability.
In times of market volatility, real estate remains a resilient investment option, particularly multifamily properties. Looking at the five recessions over the past 40 years, multifamily has consistently outperformed other commercial real estate sectors because of a nationwide millennial shift towards renting, stable and consistent cash flow, and its tendency to appreciate over time. Multifamily rents were the most resilient and their post-recession rent growth far outpaced any other property type.
For the remainder of 2023, multifamily housing is expected to see above-average performance with rent growth and stabilized vacancy rates lower than they have been in the past several months. Housing fundamentals are expected to remain strong, with occupancy rates projected to hover between 94-95%, rent collections hitting a 3-year high in March 2023 (at 96.4%), and projected national average rent growth of 4%.[2]
This trend can be attributed to various factors, such as changing lifestyle preferences and the rising cost of home ownership. The increased demand, particularly for multifamily properties, has contributed to the sector’s strong performance.
Cash flow is a critical factor contributing to the resilience of multifamily real estate. Rents are contractual, predictable, and units can be turned over easily and re-leased in strong markets to ensure a steady cash flow year over year. The consistent income generated from rents serves as a hedge against market volatility and provides investors a stable source of income.
Finally, multifamily real estate values have increased, or appreciated, over time, making it more resilient to economic downturns relative to other commercial property types. This resilience can be attributed to the basic need for shelter, regardless of the state of the economy. As a result, multifamily properties tend to hold their value during recessions and recover more quickly when the economy rebounds.
Real Estate for Portfolio Diversification
The intent of diversification is to minimize the impact of underperformance in any single investment and avoid concentrated exposure to market fluctuations within any individual asset class.
Diversifying into private real estate investments can lead to multiple cash flow streams, lower risk, and steady appreciation for investors given its low correlation to other major asset classes.
By incorporating multifamily real estate into their portfolios, investors can mitigate the effects of market volatility and reduce their overall exposure to any one type of risk.
Real Estate Investing to Achieve Financial Independence
Investing in property is one of the most popular real assets you can acquire. There’s a reason why many successful investors have real estate in their portfolio – it’s a tangible way to accumulate wealth in a fixed asset.[3] Real estate is categorized as a “hard asset” because it’s a tangible asset, meaning that you can touch it physically. Hard assets will never disappear, think land, and as such they tend to carry far lower risk than other financial assets.
With a value-add strategy you are forcing appreciation by increasing rents and net operating income. Real estate investors describe this increase in property prices and equity as leverage. You can “leverage” the equity or gains earned once you exit your private placement investments and compound your returns by reinvesting over and over again to continue growing your wealth.
By growing your wealth, you are increasing your investable assets. When you have enough investable assets that are generating passive income, you may reach a stage where you have more passive income than you are getting from your job. At this stage, you are now financially free!
Investing in Ashcroft Capital’s Value-Add Fund III
Investing in Ashcroft Capital’s Value-Add Fund III (AVAF3) is a great way to diversify your portfolio and increase your returns. The fund invests in 20–30-year-old Class B multifamily properties that have the potential for significant value-add opportunities.
Investing with Ashcroft Capital, as opposed to investing on your own, offers several key benefits. Investors have access to a team of experienced professionals who possess in-depth knowledge of the real estate market with a track record of executing against a value-add business plan. This expertise allows investors to benefit from the fund’s strategic decision-making and risk-management capabilities. For example, we conduct a:
- 144-point Due Diligence Inspection and complete review of all titles and zoning for our properties. This includes a third-party report and property inspections.
- 38-point on-site evaluation and inspection, including a walk-through of all units, review of maintenance logs, and staff interviews.
- 24-point financial analysis, including on-site lease audits, review of all financial statements, occupancy histories, and cash flow audits.
The AVAF3 offers a distinct advantage over traditional real estate syndications by investing in multiple deals rather than a single property, allowing investors to benefit from the diversification and risk mitigation that comes with a portfolio of assets. By investing in multiple properties, the AVAF3 can take advantage of various market dynamics and opportunities, delivering stronger overall performance and reduced risk for investors.
Ashcroft Capital’s value-add strategy provides additional protection and generates stronger results through targeted improvements to the properties in its portfolio. By focusing on underperforming assets with significant potential for enhancement, we can unlock value by making strategic capital improvements and implementing effective property management. This approach increases the property’s NOI and overall value, strengthening its competitive position in the market. This makes it more attractive to potential renters and better able to withstand market fluctuations.
We have a strong reputation in the real estate investment industry, boasting more than 3,000 investors, of which 65% are repeat investors. This level of trust and loyalty reflects our performance and commitment to delivering value to our investors. We manage 37 communities across Texas, Florida, and Georgia, and our performance is demonstrated through our 32% Net Operating Income (NOI) growth, 25.7% Annual Cash on Cash Return, and 22.7% Limited Partner (LP) Internal Rate of Return.
By choosing to invest with a fund like AVAF3, investors can benefit from the expertise, diversification, and value-add strategy that Ashcroft Capital provides, leading to stronger returns and a more resilient investment portfolio.
To learn more about investing in multifamily apartments or for IRR and cash-on-cash projections, visit https://info.ashcroftcapital.com/fund or schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com.
Sources:
- U.S. Census Bureau and U.S. Department of Housing and Urban Development, Average Sales Price of Houses Sold for the United
States [ASPUS]. fred.stlouisfed.org™. (n.d.). Retrieved May 10, 2023 from https://fred.stlouisfed.org/series/ASPUS - Supply is likely to outstrip demand in 2023, cbre.com™. (n.d.). Retrieved May 8, 2023, from https://www.cbre.com/insights/books/us-real-estate-market-outlook-2023/multifamily
- Why Real Estate Is the Best Long-Term Investment. MoneyCheck. Retrieved May 10, 2023 from https://moneycheck.com/real-estatelon
