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Exploring REITs and Syndications in 2024

April 10, 2024

By: Lennon Lee, Investor Relations Associate

REITs and Syndications

Understanding the Difference Between REITs and Syndications 

Investing in real estate offers many avenues for both seasoned investors and novices, with Real Estate Syndications and Real Estate Investment Trusts (REITs) standing out as two prominent options. Understanding the nuances, advantages, and drawbacks of each is essential for making informed investment decisions. Let us delve into the disparities between REITs and syndications, exploring their pros and cons objectively.

Real Estate Syndications: Harnessing the Power of Direct Ownership

Real Estate Syndications involve pooling funds from multiple investors to acquire and manage real estate properties. Additionally, investors can leverage the expertise of experienced sponsors or operators in the syndication process. Here are the key pros and cons associated with this investment avenue:

Pros: 
1. Direct Ownership: Investors in syndications enjoy direct ownership of the underlying properties, enabling them to benefit from potential appreciation and cash flow.
2. Higher Returns: Syndications often offer the potential for higher returns compared to REITs, particularly in value-add or opportunistic real estate strategies.
3. Tax Benefits: Syndication investors may benefit from tax advantages such as depreciation deductions, and potential capital gains advantages.
4. Alignment of Interests: Syndication sponsors typically co-invest alongside other investors, fostering alignment of interests and potentially mitigating conflicts of interest.

Cons: 
1. Higher Minimum Investments: Real Estate Syndications typically require higher minimum investments compared to REITs, making them less accessible to some investors.
2. Illiquidity: Syndications are illiquid investments, with limited opportunities for early exit or liquidity compared to publicly traded REITs.
3. Accessibility: Syndications may not always be available or accessible to everyday investors due to their exclusive nature and higher minimum investment requirements.

 

REITs: Embracing Liquidity and Diversification

REITs are publicly traded companies that own, operate, or finance income-producing real estate across various sectors. Let us examine the pros and cons associated with investing in REITs:

Pros:
1. Liquidity: REIT shares can be bought and sold on stock exchanges, offering investors liquidity and flexibility to adjust their investment positions.
2. Diversification: REITs typically provide investors with exposure to a diversified portfolio of properties across different sectors, geographies, and property types.
3. Public Accessibility: REITs are accessible to a broad spectrum of investors, allowing for easy entry and exit from the investment.

Cons:
1. Lower Potential Returns: REITs may offer lower potential returns compared to direct real estate investments or syndications, particularly in certain market environments.
2. Lack of Control: Investors in REITs have limited control over the underlying properties and investment decisions, relying on the expertise of management teams.
3. No Tax Efficiencies: Unlike syndications, REITs do not offer the same level of tax efficiency or benefits like pass-through depreciation, potentially reducing overall investment returns.

Ultimately, investors should carefully evaluate their financial goals, risk tolerance, and investment horizon when choosing between these options, ensuring alignment with their overall investment strategy. 

 

What more to consider when investing in REITs or Syndications in 2024 

By investing in a syndication, investors have a more hands-on approach in the selection of the sponsor and management team. This level of control allows for greater customization and alignment with specific investment goals and preferences. 

It is important to note that with syndication, you have the advantage of investing directly in the underlying real estate. This may provide tax benefits, including depreciation. In syndication deals, investors may be able to offset their income with depreciation expenses, depending on their particular circumstances.  

Furthermore, real estate syndications offer the potential for higher returns as syndicators normally focus on acquiring properties with substantial growth prospects. The combination of potential tax benefits, cash flow, and the ability to tap into the expertise of seasoned sponsors makes syndication an attractive option for those seeking optimal returns on their investments. 

 

Ashcroft Capital: Your Trusted Partner in Syndication 

When considering real estate syndication, it is crucial to partner with a reputable firm with a proven track record of success. Ashcroft Capital is a leading real estate investment firm specializing in multifamily properties. With an experienced team, a thorough due diligence process, and a commitment to transparency, Ashcroft Capital offers investors the opportunity to access high-quality syndication deals. 

Our investments aim to deliver substantial returns, considering both consistent cash flow and profits generated from the eventual sale of the asset. On average, our syndication deals have yielded annual returns exceeding 25 percent. 

As you navigate the investing landscape in 2024, consider the benefits of real estate syndication over REITs. Syndication provides greater transparency, customization, and potential for higher returns—partner with a trusted firm, like Ashcroft Capital, to explore the exciting opportunities syndication offers. Remember, thoughtful and well-informed decisions are the key to success in the ever-changing financial market. 

If you would like to learn more about REITs and Syndications or are interested in Ashcroft Capital’s current offerings, schedule a call with Investor Relations today.

lennon@ashcroftcapital.com

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Creating Your Own Economy: Focus on What is in Your Control

April 4, 2024

By: Travis Watts, Director of Investor Development

Three Practical Steps to Shape Your Own Economy: 

  1. Market Opportunities: Market shifts, such as fluctuations in interest rates, present opportunities for savvy investors. For instance, the recent rise in interest rates has led to a decline in commercial real estate prices, offering an opportunity to capitalize and “buy-the-dip.” At least for those willing to take action. 
  2. Short-Term Spending: Wage increases, and high inflation have no doubt impacted consumer prices. Take for example restaurants increasing their prices. While this may be the case, the reality is we can adjust our spending habits – opting to dine out less frequently or cooking at home – we can mitigate the effects of this inflation on our personal budget. It is simply a choice. 
  3. Long-Term Savings: Rising fuel prices might prompt consideration of alternative transportation options, such as electric vehicles. Likewise, escalating electricity costs could incentivize investment in renewable energy sources like solar panels. These cost savings can continue for years to come. 

  

Multifamily Investments Beyond the Headlines 

In a world inundated with ads, opinions, and fear-based headlines, it can be useful to take a step back and consider our own individual reality from time to time.   

I recently had an epiphany during a conversation with an investor as we discussed the multifamily real estate sector. The classic question arose, “Is now a good time to invest in multifamily?” His concern was prompted by a news report he had read. The report suggested that apartment rents could soften in 2024.  

Reflecting upon this information, I could not help but consider the multifamily investments I have made over the past year. In the deals I have been involved in, the rents are steadily on the rise; many of them are on track to achieve a 5-10% rent increase by the end of the year.  

This reflects investing in value-add business plans where an older property is purchased at a discount because it needs renovation and has below market rents in place due to its outdated condition. The business plan is simply to renovate and improve the property, while increasing the rents back to the market level.  

So, the disparity between “rents declining” according to a news report and “rents increasing” according to my actual portfolio, underscored a fundamental truth: our perspectives shape our reality. 

  

Scenarios to Consider:

#1 If a news report stated the national median household income was $75,000, but your personal income was $150,000, the report would hold little relevance, because your personal economy is what matters to you.  

#2 If a news headline stated “US inflation peaked out around 9% in 2022, Americans are now scrambling” the reality is your individual inflation rate could have varied significantly based on your specific circumstances that year. For example, if you chose to cut your expenses by 9% in 2022, you might have experienced minimal inflation impact, even none at all.  

 

Building Your Financial Future Beyond Media Narratives  

The point is: you are the architect of your own reality. It is not dictated by headlines, news, or media narratives – it is determined by your choices, and actions. 

We control our own economy, and we can steer our financial future toward success, despite what is on the news or in the media. With uncertainty and economic volatility, opportunities are reserved for those willing to act. By remaining adaptable during market shifts, we can navigate the ever-changing economic landscape with confidence and resilience. 

Want to learn more about multifamily investment or our current offerings? We welcome you to schedule a call with our investor relations team today.

travis@ashcroftcapital.com

 

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Beyond Retirement: From Air Force Wings to Real Estate Roots

April 2, 2024

Investor Feature - Real Estate Retirement - Jim Cummings

“One of my biggest realizations was that no matter what business you’re in, you’re actually in business for yourself.” 

 

Refusing to Retire 

Air Force veteran, and still-active real estate broker, Jim Cummings is celebrating his 81st birthday this year. He has devoted his career and a large portion of his investment portfolio to real estate––and he’s still not in the mood to retire.  

“I got licensed in 1988, progressed through being an agent, then a broker, and eventually went out on my own,” says Jim, summarizing his long and successful career. Along the way, he’s amassed a great deal of wisdom (and property), and his investment journey is a classic study in transitioning from single-family property management to real estate investing.   

Jim Cummings - Air Force

 

Getting the Hang of Real Estate 

“In a military career, you move every few years, and you become familiar with buying and selling houses,” explains Jim. “So, that sparked an interest in real estate. I actually got a license before I left the service. When I retired from the Air Force, the economy was not good, but a friend of mine I’d been stationed with before was an agent, and I just decided that if I’m going to do it, now is the time to take the plunge.”  

It was the bottom of the dotcom bust, but more experienced colleagues encouraged Jim that he would do well as soon as the market recovered. “I just kind of persevered. Fortunately, my wife was working, and I was bringing enough money from the military that we could keep food on the table, the lights turned on, and the rent paid. As the market turned up, those first few years were probably the hardest I’ve ever worked in any job––and I’ve worked in an oil field.” 

Jim recalls learning how to work “smarter, not harder” in those early years. “You learn what you have to do and what you need to make happen,” he says. And he was helped along by the advice of a trusted mentor:

“It doesn’t matter if you go with a big company, a small company, or a medium sized company. It’s all up to you. You either make it yourself or you don’t make it.”  

 

Learning to Make Smart Real Estate Investments 

Luckily Jim was a quick learner––and determined to find success in his career as well as his investment strategy. But it wasn’t without trial and error. “While I was still in the Air Force at the last duty station, I bought a vacant lot with the idea that if I end up staying, I’m going to build a triplex. It was in a relatively renewed duplex community that was within a mile or so of where we lived at that point. When we decided we weren’t going to stay there, I just put up a sign and made a few thousand dollars on it.” 

Around the same time, Jim acquired two rental properties in Austin, Texas. “Market timing was not good––I lost my shirt on both of them!” he laments in good humor. “When I moved back to Austin, I basically ended up giving them both away to get out from under the expense of it.” 

With his investment feet now firmly underneath him, it was smooth sailing into the future for Jim and his family. “I bought a foreclosure, which we moved into, but it wasn’t in great shape,” Jim explains. “There was actually a lot in the same neighborhood that I ended up buying myself with the idea that I’d build a house on it and resell it. But once we got the house built, we decided to move into the new house and keep the old one for rental property. That’s really where the investment started.” 

“I always could see the potential for real estate. It’s a good way to make use of other people’s money, and over time you can grow yourself a real estate business.” 

Jim was able to quickly pay off the note for his first home using rental income, and even remodeled it before selling when he moved the family to College Station. “I made a pretty good pile of money on it, so I took the proceeds from the sale and ended up putting down the minimum required on one new property, and then put all the rest into another one.” 

This became Jim’s preferred real estate investment strategy. He’s since added two additional properties, with the eventual goal of up to eight. “Interest rates have kind of taken me out of meeting my income goals on properties at this point in time, so that’s where I am now. I have four investment properties of my own. One will be paid off in June, and the others are cash flowing pretty well.”  

Additionally, Jim still manages three properties for his clients, down from a hefty load of 25 under his purview in the past. And the result of all this experience in the industry? “I’ve been bloodied a little bit, so I have a pretty good feel for what makes real estate profitable or not,” he says.  

Jim Cummings - Kids

 

Letting Ashcroft Capital Do the Heavy Lifting 

Jim is a self-described “recovering workaholic” and doesn’t plan to ever fully retire, but he recently found himself needing to offload some of the labor of single-family property management. That’s when he turned to Ashcroft to facilitate a more passive income investing strategy. “I’ve reached the point that I’m getting too old to continue pursuing more single-family properties. And with the market the way it is, I just want to put my money to work.”  

After hearing about Ashcroft on BiggerPockets, Jim was inspired to connect with the team.

“With the interest rate staying up there and some money on hand, I just said, ‘Now’s the time to take the plunge.’ So, we took off a small chunk and invested with Ashcroft just to see how well it worked. I was looking to get more return than CDs, which at that point were doing little or nothing. The fact that I could expect a 13-14%, maybe even up to 20%, total return on the investment was attractive to me.”  

However, for Jim, money is just the byproduct of good decisions and good intentions––and we couldn’t agree more. His philosophy is, “Take care of the customer; the money will take care of itself. They’re paying good hard-earned money, and they deserve a great place to live. That’s what you’re there to provide, and ideally, you’re making a profit in the end.”  

Jim is just one of our 3,000+ investors. Hear what passive income has meant to over 100 of our investors.

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Master Networking at Conferences: Strategies for Success

March 26, 2024

By: Travis Watts, Director of Investor Development

Master Networking at Conferences

Preparation Meets Opportunity: Strategic Networking at Conferences 

Mastering networking at conferences is a critical skill set for professionals seeking to expand their personal and business networks. These events offer opportunities to forge new connections, elevate your brand, and explore avenues for growth, whether in seeking investment opportunities, staying current with economic trends, or cultivating strategic partnerships.  

However, effective networking requires a deliberate and strategic approach. Conferences, such as the Best Ever Conference are renowned for the ability to deliver these objectives, but success ultimately hinges on proactive engagement and preparation. 

Five Strategies for Networking at Conferences 

  1. Define Specific Goals 
  2. Preparation and Research 
  3. Add Value to Others 
  4. Follow Up 
  5. Remain Open-Minded 

 

Best Ever Conference Networking

 

To optimize your conference experience, several key strategies can be employed. Firstly, it is imperative to enter the event with a clear understanding of your goals and objectives. Defining specific goals provide a roadmap for productive networking endeavors. Moreover, cultivating a growth mindset and a willingness to contribute value in every interaction fosters meaningful connections and enhances the overall experience. 

Preparation is key. Conducting research ahead of time on fellow attendees by utilizing networking platforms, like the Whova App, allows individuals to identify potential contacts and initiate conversations proactively. Additionally, leveraging social media platforms, such as LinkedIn or BiggerPockets, for engagement can further expand networking opportunities before, during, and after the conference. 

Central to effective networking is the ability to add value to those you connect with. Whether it involves showcasing your expertise, offering assistance, making introductions, or identifying synergies, prioritizing the needs of others fosters reciprocal relationships and lays the groundwork for future collaborations. By adopting a long-term perspective and focusing on quality interactions over quantity, you can cultivate professional relationships that yield mutual benefits. 

 

Best Ever Conference Recap

 

Following up on initial interactions is essential for sustaining momentum and solidifying connections. Thoughtful follow-up communications, characterized by authenticity and professionalism, reinforce rapport and demonstrate commitment to nurturing relationships beyond the confines of the conference environment. 

Lastly, maintaining an open-minded approach is paramount. Acknowledging the diversity of perspectives and skill sets among fellow attendees fosters humility and curiosity, which can open doors to unforeseen opportunities and collaborations. Embracing this mindset not only enriches the networking experience, but also fosters personal and professional growth. 

The True Value of Networking at Conferences 

In summary, mastering networking at conferences demands a strategic blend of preparation, engagement, and follow-through. By adhering to these principles and embodying a commitment to mutual value creation, you can transform conference networking into a catalyst for meaningful connections and professional advancement. Ultimately, success in networking goes far beyond exchanging business cards; it hinges on the cultivation of genuine relationships founded on trust, reciprocity, and shared objectives. 

travis@ashcroftcapital.com

 

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The History of Taxes for Investors

March 22, 2024

By: Travis Watts, Director of Investor Development

How the History of Taxes Shapes Today’s Investment Opportunities 

Taxes have been intertwined with America’s story since its early days, evolving significantly over the centuries. Understanding the history of taxes can shed light on today’s investment landscape and the advantages awaiting investors in 2024. 

 

The History of Taxes: A Journey Through Time 

The Roots of Taxation:

Dating back to the 1700s, the U.S. taxation journey began with tariffs and excise taxes. In this article, we’ll fast forward to a more recognizable tax system that began to take shape later. 

Civil War Era Taxation:

In 1862, the IRS was established under President Lincoln and the Revenue Act was passed. Lasting a decade, this marked the advent of the first progressive tax structure, with tax rates ranging from 3% to 5%. Tax withholding was first introduced, which essentially turned employers into tax collectors on behalf of the government. This was to settle Civil War debts, and the taxation was intended to be temporary until these debts were cleared. 

Permanent Income Tax:

Fast forward to 1913, we witnessed the birth of the first permanent income tax structure in the U.S., featuring progressive rates from 1% to 7% based on income brackets. This was the first modernized taxation system in the U.S.   

World Wars and Tax Changes:

During World War I, the top marginal tax rate surged from 7% in 1913 to 67% by 1917 to alleviate World War I related expenses. The Great Depression era saw FDR’s presidency introduce Social Security and minimum wage, causing tax rates to climb to 79% in 1936. By the end of World War II in 1945, the top tax bracket peaked at a staggering 94%. The U.S. maintained high top tier tax rates for 24 years that ranged between 81% to 91%.  

Shifts in Taxation Policy:

In 1963, President Kennedy proposed major tax cuts, culminating in the Revenue Act of 1964, reducing the top tax bracket down to 70%. President Reagan’s tenure in 1981 further slashed these rates to 50%, marking significant reductions in top line and bottom-line tax brackets as well as reducing corporate taxes and capital gains rates.  

Modern Taxation and Investor Advantage:

As we fast forward to today, the top tax bracket for earned income stands at 37%, and many Americans pay rates much lower than that. For investors, today’s landscape is an even more favorable scenario. Long-term capital gains rates range from 0%, 15%, and 20% (based on income level) for investments held over a year and real estate investments also offer depreciation benefits, which can be a valuable tool offering immediate and significant tax relief for investors.  

 

2024 Investors: Key Takeaways from the History of Taxes 

  1. Today’s tax rates are historically low, compared to many U.S. periods of time.   
  2. There are strategies and investments that can help reduce tax burdens. 
  3. Long-term investing can be tax-efficient (holding longer than 1 year) 
  4. Real estate investment offers tax benefits such as depreciation that you may be able to utilize. 

If you’re looking to learn more about multifamily real estate investments in 2024, please reach out to learn more. 

Watch additional Passive Income Lifestyle episodes on the Ashcroft Capital YouTube channel. 

travis@ashcroftcapital.com

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Ashcroft Capital’s Deal Sourcing Strategies: Maximizing Value

March 19, 2024

By: Travis Watts, Director of Investor Development

Deal Sourcing Strategies

Deal Sourcing Strategies in 2024

Think of a professional sports team scouting for talent. Just as a team meticulously evaluates players to ensure they’re getting the best fit for their roster, we at Ashcroft Capital meticulously analyze apartment communities to ensure they’re the perfect fit for our investors.

Just like a sports team needs top-performing players to excel on the field, we need top-performing properties to excel in the market. But, deal sourcing in 2024 is no easy task.

In fact, last year multifamily investment volume fell by 60% from 2022 to $117.5 billion, marking the lowest annual multifamily investment volume since 2014. General Partners and investors have been scrambling over the past two years to find deals that pencil and many have been unsuccessful in their pursuit.

However, Ashcroft Capital has a competitive advantage in this area. Our thorough deal sourcing strategies ensure that we are acquiring best-in-class properties for our investors. Let’s examine the three ways we go about sourcing deals.  

 

#1 Off-Market Transactions – Unlocking Hidden Gems

In the realm of commercial multifamily transactions, the significance of off-market deals cannot be overstated. Despite the amount of publicly listed properties you may see online, a significant portion of transactions in the commercial space occur discreetly. This is a selling strategy that can help avoid disruptions to current residents and can help ensure that a deal closes on time.

An off-market transaction refers to a deal that occurs directly between two parties without being facilitated through a public marketplace, such as a real estate listing service. A broker is often involved to help facilitate the transaction, though this is not always the case.  

Consider being the owner of a large apartment community and you’re looking to sell. There is a high demand of buyers interested in making a purchase, but every buyer also wants to conduct their own due diligence, walk the units, do inspections, surveys, appraisals and so on. This process will not only disrupt the current residents, but there is also risk if the potential buyer cannot raise the capital needed or if the deal gets re-traded, which means renegotiating the price or terms after getting the property under contract.

This is why off-market transactions are common in the commercial space. In fact, at Ashcroft Capital, over 60% of our acquisitions have been sourced off-market. 

One example of a property we purchased off-market was Elliot Norcross in Atlanta, GA. A broker who we had previously worked with on another deal knew that the owner was thinking about selling this deal. Given the ease of a transaction that we had with the broker, he was able to get us an off market look at this deal and convinced the owner to sell to us. This provided us with the opportunity to forgo multiple bids or having to compete with other buyers in the market.    

Deal Sourcing Elliot Norcross

Photo: Elliot Norcross (Atlanta, GA) 

 

#2 Direct to Seller – Cutting Out the Middleman

In a similar instance, we purchased Vista 121 in Dallas, TX directly from the seller. This was our 2nd deal that we bought from them. They wanted to close and given our previous experience with them and their knowledge of our other deal in the market, they reached out to us about buying Vista 121.

No seller wants to be re-traded or have a deal to fall out of contract. These setbacks can be costly and cause tenant disruption and delays. At Ashcroft Capital, we have an excellent reputation of buying more than 60 acquisitions and selling 26 of them after completing the business plan. This track record of fast and easy transactions is attractive to sellers and brokers.  

Deal Sourcing Vista 121

Photo: Vista 121 (Dallas, TX)  

 

#3 On-Market Multifamily Gems  

Now let’s discuss finding on-market deals that are publicly listed. Some sellers want to get as many eyes on the property as possible in hopes of creating a bidding war. In other cases, it can be a requirement among sellers to market a deal publicly when it comes time to sell.

In acquiring Midtown 501 in Chapel Hill, NC, we bought the property from a group that we had purchased two other deals from and have an extremely strong personal relationship with. We negotiated a purchase price and terms and were able to purchase Midtown 501 at a 20%+ discount relative to previous pricing in that market. Our pre-existing relationship with the seller set us apart from the competition and made this transaction possible.  

Deal Sourcing Midtown 501

Photo: Midtown 501(Chapel Hill, NC)  

 

Why 60% of Our Acquisitions Have Been Sourced Off-Market

Considering all three deal sourcing strategies, most of our deals have been acquired as off-market transactions, but there are pros and cons to consider with each acquisition. Below are a few things to keep in mind when seeking off-market deals.  

 

Exclusivity: Off-market deals offer a level of exclusivity, allowing buyers to access properties that are not widely available to the general market. This can provide a competitive advantage and potentially lead to better negotiating terms. 

Reduced Competition: Since off-market deals are not openly advertised, there is typically less competition from other buyers. This can give buyers a better chance of securing a property at a favorable price without engaging in bidding wars. 

Privacy: Off-market deals provide sellers with privacy and discretion, which can be desirable for various reasons. Sellers may prefer to keep the sale of their property confidential, especially in sensitive situations such as financial distress. 

Potential for Better Deals: Sellers may be more willing to negotiate favorable terms or pricing in off-market transactions, especially if they are motivated to sell quickly or avoid the costs associated with traditional marketing. 

  

Limited Exposure: Off-market deals lack the exposure and visibility that come with listing properties on MLS or other public platforms. This means that sellers may miss out on potential buyers who are not part of their immediate network. 

Risk of Undervaluation: Without the competitive pressure of an open market, sellers may undervalue their properties or settle for lower offers than they could potentially achieve through broader exposure and competition. 

Difficulty Deal Sourcing: Buyers may find it challenging to identify off-market opportunities since these properties are not openly advertised. Securing access to off-market listings often requires strong networks, industry connections, and working with experienced real estate professionals and brokers.  

 

Discovering Diamonds: The Broker Connection 

Brokers can also serve as indispensable allies in our pursuit of exceptional deals. Through close collaboration and clear communication, we leverage their expertise to help source new opportunities. We work closely with brokers specializing in Class B, value-add, garden-style, multifamily properties in Sunbelt markets. We provide them with specific investment criteria and our preferences, and brokers then alert us to new listings and off-market opportunities that match our criteria, ensuring a comprehensive approach to finding the best investments. 

Deal Sourcing Broker Connection

 

Excellence Starts with Location: Maximizing Investor Value

Headquartered in New York City, Ashcroft Capital strategically positions itself to capitalize on opportunities arising from proximity to buyers and sellers. We transact with many large institutional investment firms who are also headquartered in New York City. Our proactive engagement within the real estate investment community affords us invaluable insights and access to exclusive deals that many of our competitors will never see. These relationships have provided dozens of multifamily opportunities for our investors over the years.  

Ashcroft Capital Headquarters

Photo: Ashcroft Capital Headquarters (NYC) 

 

From Vision to Venture: Where We Invest

Focused primarily on US Sunbelt markets, our strategic footprint spans across Texas, Florida, North Carolina, and Georgia. With over 62 acquisitions since inception, our targeted approach aligns seamlessly with the prevailing trend of Americans migrating to Sunbelt metros in pursuit of employment prospects, affordability, and an appealing lifestyle. As these regions flourish with increasing populations and economic growth, the demand for multifamily properties remains robust. 

Deal Sourcing Where We Invest

 

Investing Made Simple 

At Ashcroft Capital, we want to make it simple and easy for our investors. We have you covered from start to finish. From deal sourcing strategies, to evaluating markets, to acquisition, to managing the properties on your behalf. Our investment model is tailored to investors who want to enjoy all the benefits of owning multifamily real estate without the headaches of being a landlord. We are known for our best-in-class value-add strategy that creates forced appreciation in addition to organic market growth.  

 

Our Track Record is a Testament to our Capabilities

Since inception, we have delivered 25%+ annualized cash-on-cash returns to investors on the first 26 deals we have taken full cycle through the business plan. We have over $2.8 billion dollars in assets under management (AUM) and more than 21,000 units. Our track record is a direct result of a commitment to excellence in property management and a focus on capital preservation for our investors. 

Ashcroft Capital Track Record Overview

 

Investing is a Team Sport

Whether you’re a new investor stepping onto the field or a seasoned professional looking to gain further insight into deal sourcing strategies, we welcome you to meet with our team. If you are an accredited investor, please schedule a call to learn more about our current offerings and opportunities. Remember, no investment is without risk. Make sure to consult your investment advisor or speak to an Ashcroft Capital team member before making any financial decisions. 

travis@ashcroftcapital.com

*Past performance is not indicative of future results; investors may loose investment capital. Please see “disclosures” for additional importance information. The number of units, purchase price, and disposition price sum. The average year built is a weighted average based on number of units. All other values are weighted averages based on disposition price. Please see “Disclosures” for more information.

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Identifying Multifamily Markets: Ashcroft Capital’s AAA Process

March 7, 2024

By: Travis Watts, Director of Investor Development

Identifying Multifamily Markets

Choosing the right market to invest in is critical to investing success. In this article we will explore our process for identifying multifamily markets at Ashcroft Capital.  

 

Where We Invest 

Our footprint spans across U.S. Sunbelt markets, throughout Texas, Florida, North Carolina, and Georgia, with over 62 acquisitions since inception. There is a strong trend of Americans migrating from across the country to Sunbelt metros. This has been the case for many years, which has led to us acquiring properties in these markets; however, multifamily markets can change over time, and these metros may not always be in high growth with strong demand. Let’s dive into our selection process and reveal how we navigate this ever-changing landscape when identifying multifamily markets for our investors.  

 

The AAA Process for Identifying Multifamily Markets 

At a minimum of twice per year, we run our Ashcroft Advantage Analyzer, “AAA,” which is our proprietary research-based economic study used to identify the top U.S. markets best positioned for multifamily investment. We utilize a combination of data from third party services, like CoStar, RealPage, and Green Street, as well as U.S. Census information, to collect data on markets across the United States. We then analyze this data and apply a weighting system to help us identify which multifamily markets have the strongest fundamentals for us to target. 

 

Fundamentals We Look For When Identifying Multifamily Markets 

Two fundamental trends we look at very closely are migration trends (where people are moving to) and employment trends (where companies are locating to and where they are already established).  

A growing population helps to reduce vacancies and places demand on the housing sector, which can boost rent growth over time. A diversified and growing job market helps reduce risk by ensuring that our residents have many employment opportunities nearby if one or two sectors are impacted.  

Take for example Dallas, Texas where we have acquired 18 properties.  

Texas has joined California as the only other state in the nation with a population of more than 30 million, according to recent data from the U.S. Census Bureau. Texas’ population has grown by 470,708 people since July 2021, the highest in the country.  

Net domestic migration accounted for roughly half of that growth. This is the number of people moving to Texas from other states, while the other half is split almost evenly between net international migration and natural increase. Natural increase is the difference between births and deaths. 

This increased population growth has created demand for more local housing and has helped push property values and rental rates up. In addition, there is an ongoing need for safe, affordable residential rental housing as many residents are currently priced out of the single-family housing market or cannot afford the rents of newly built, luxury properties in DFW.  

Below, we can see that the employment sectors for Dallas, TX are highly diversified, and many sectors are expanding: 

 

Identifying Multifamily Markets - Dallas Employment Growth by Sector

Additional Metrics 

There are many other categories and trends to consider when it comes to identifying multifamily markets aside from migration trends and the job market. These include, but are not limited to: 

1. Economic Indicators:

  • Employment rates and trends 
  • GDP growth and economic stability 
  • Median household income 
  • Consumer confidence levels 

2. Demographics:

  • Age distribution 
  • Household size and composition 
  • Migration patterns 

3. Housing Market Metrics:

  • Supply and demand dynamics (inventory levels, new construction) 
  • Homeownership rates 
  • Rental vacancy rates 
  • Price trends (median home prices, price-to-rent ratios) 

4. Infrastructure and Development:

  • Transportation infrastructure (highways, public transit) 
  • Accessibility to amenities (schools, shopping centers, parks) 
  • Planned or ongoing developments and infrastructure projects 

5. Regulatory Environment:

  • Zoning regulations and land use policies 
  • Property tax rates 
  • Regulatory environment for landlords and property investors 

6. Market Sentiment and Investment Activity:

  • Investor interest and activity levels 
  • Market sentiment indicators (surveys, sentiment indexes) 
  • Capital flows (investment volume, sources of capital) 

7. Risk Factors:

  • Natural disaster risk (flood zones, earthquake-prone areas) 
  • Environmental concerns (pollution, contamination) 
  • Socio-political stability 

8. Rental Market Dynamics:

  • Rent growth trends 
  • Occupancy rates 
  • Rental yield potential 
  • Affordability for renters 

Analyzing this amount of data is no easy task. That is why we created the AAA process and built an industry-leading team comprised of hundreds of employees, including Analysts, Acquisitions Associates, a Managing Director of Asset Management, a Chief Investment Officer, and a Managing Director of Capital Markets.  

 

Investing Made Simple  

At Ashcroft Capital, we want to make it simple and easy for our investors. We have you covered from start to finish. From identifying multifamily markets, locating properties, and structuring deals, to managing the properties and business plan. Our investment model is tailored for investors who want to enjoy all the benefits of owning multifamily real estate without the headaches of being a landlord. Ashcroft Capital negotiates the purchasing and financing of institutional-quality properties on behalf of investors. We are known for our best-in-class value-add strategy that creates forced appreciation in addition to organic market growth.  

 

Ashcroft Capital’s Track Record 

Since inception, we have delivered 25%+ annualized cash-on-cash returns to investors on the first 26 deals we have taken full cycle through the business plan. We have over $2.8 billion dollars in assets under management (AUM) and more than 21,000 units. Our track record is a direct result of a commitment to excellence in property management and a focus on capital preservation for our investors. Ashcroft Capital Track Record

Next Steps 

Whether you are a new investor or seasoned professional, we welcome you to meet our team.  Accredited investors can schedule a call with one of our team members to learn more about our current offerings and opportunities. No investment is without risk. Make sure to consult your investment advisor or speak to an Ashcroft Capital team member before making any financial decisions.  

 

travis@ashcroftcapital.com

*Past performance is not indicative of future results; investors may lose investment capital. Please see “Disclosures” for more information.

Sources:

  1. Ura, Alexa. “Texas is Now Home to 30 Million People.” The Texas Tribune. December 22, 2022. https://www.texastribune.org/2022/12/22/texas-population-growth-30-million-census/#:~:text=Texas%20has%20joined%20California%20as,from%20the%20U.S.%20Census%20Bureau.
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Generational Wealth: A Keen Accountant’s Investment Strategy

March 5, 2024

Investor Feature - Generational Wealth - William Barry

“What really struck me when I found Ashcroft was that it seemed to be a very conservative company––under-promise, over-deliver.” 

 

Navigating the Seas of Wealth: A Naval Veteran’s Approach to Generational Wealth 

Florida-based William Barry isn’t your average corporate accountant. A world-traveling Naval veteran and family man, William now uses his background in financial analysis and passion for entrepreneurship to build generational wealth.  

Describing his investment journey, William explains, “I had some exposure to investments as an accountant, but it wasn’t until I ended up working at Raymond James that I learned about all the structured products available out there. My sister got involved in raising money for private equity investments, and that really opened my eyes to the world of accredited investors. When I finally hit that mark, I went all in. About 70% of my investments are in private equity, and Ashcroft is part of that split.”

According to William, Ashcroft has one key advantage over his other holdings. “The private equity world is a very slow moving animal,” he says.

“Whatever you put in, it’s going to be five-plus years before you see it come out. That’s the nice part about Ashcroft. It’s one of the few that actually pays the monthly coupon. What that has allowed me to do is build up more funds to do more subscriptions to some other smaller private equity investments.” 

 

 

Investing with Intention 

With much of his net worth wrapped up in investments, William has become a pro at identifying what’s worthy of his hard earned contributions. Before committing to partnership, William always works to understand if there’s “an itch in the market,” as he puts it. “I think the people who have a good idea are those fulfilling a real need,” he says. “However, I really invest more in people than I do businesses. Ashcroft is one of the ‘people’ investments.” 

William first learned of Ashcroft while evaluating his investment strategy in the wake of COVID-19. “I was watching Bloomberg during the pandemic,” he recalls. “I was working from home and had it on in the background. I was looking at what to invest in because the market was going crazy, and I started hearing about companies doing work similar to Ashcroft, but they just didn’t fully click for me.”  

Things finally did click when William discovered Ashcroft through his research. He quickly found that several factors aligned with his values, future vision, and risk tolerance. “I like the rate of return that you guys were making. You also have a strong model that you’re following,” he explains.  

“First of all, your selection criteria is good. And that’s really the first and most key element. After that, you have a team in place to do all the transformation necessary to make that investment grow in value. I like that you’re very vertically integrated. Everybody’s on the same team with the property managers and the construction company that’s doing the work.”

 William Barry Vacation

 

Laying the Foundations for Generational Wealth and Future Prosperity 

While happy to have found a trusted long term partner for passive investing, William isn’t quite ready to give up his work as an accountant and live off the interest. “With all my money tied up in private equity, I’m still living pretty modestly right now––basically, no debt; and although I’m traveling, I’m doing it pretty affordably,” he says.  

“But this is going to be a somewhat extravagant year,” William admits. “I’m going to Peru this month and Kenya in May. We just did Romania in December. I’m probably going to do England in the Fall, and we’re going to throw Colorado in there, too. But mostly, we plan to continue living within our means and watching our investments grow.”  

When it comes time to retire, William will be poised for a comfortable life with even more  international travel. “When I get onto a fixed income platform, it’s pretty much all going to be the Ashcroft funds that drive that,” he says.

“I’m going to push as much money as I can into Ashcroft from my Roth, so I’m not paying any taxes. As I keep getting funds from other PE, the plan is to put it into Ashcroft until I’m at that point where my monthly passive income reaches a level where I don’t have to worry about it.”   

Of course, William isn’t just worried about stockpiling cash for his own retirement. He has a vision for building financial security and generational wealth for his extended family and its future members. “I want to set up a family office for both my mom’s side and my dad’s side. With that base, everyone will be able to buy in (at any level of their investing strategy) for just a portion, even $500, to piggyback off of what the trust is doing. I don’t think my family has had that cohesive idea of us all working together to achieve much greater goals. So, I would like to change that thinking.”  

“It’s not going to benefit my generation. It’s really for the next generation to come.”

William is just one of our 3,000+ investors. Hear what passive income has meant to over 100 of our investors.

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Ashcroft Capital’s Procurement Process: Driving Efficiency and Innovation

February 29, 2024

By: Travis Watts, Director of Investor Development

Inside Ashcroft Capital’s Procurement Process – Streamlining Operations for Unmatched Efficiency 

Typically, a real estate syndicator identifies, structures and acquires assets on behalf of investors.  However, a firm seeking greater self-reliance may opt to internalize additional aspects of the process, such as directly overseeing asset management and ensuring the full implementation of the business plan from inception to completion. This strategy is commonly referred to as vertical integration. At Ashcroft Capital, we aim to set a Gold Standard.   

Our property management company, Birchstone Residential, and its in-house construction team, Birchstone Construction,  have one of the best streamlined in-house procurement processes around. Ashcroft Capital handles all steps of the investment life cycle, yielding the strongest possible returns for investors by streamlining operations in true vertical integration fashion.  

Beyond our property management and construction arms, Ashcroft Capital’s procurement process is a one-of-a-kind cornerstone that truly sets us apart from the competition. This process has decreased our unit renovations timeline to sub-30 days, which is among the fastest turnaround in the industry. 

 

Four Step Procurement Process 

  1. We source materials directly from manufacturers. 
  2. We ship the materials to our Birchstone warehouse in Dallas, TX. 
  3. We organize the materials into individual unit renovation kits. 
  4. We disseminate the renovation kits to our communities. 

Procurement Process

 

20-30% Savings 

We source most renovation materials directly from the manufacturer. This allows for the best possible pricing with the additional benefit of our hardware always being in stock.   

The savings we tend to see are 20 to 30% less than what we see when buying the same amount in bulk from U.S. retailers. We re-run these comparisons on a bi-annual basis to make sure our costs are well below market. This approach creates tremendous efficiencies and locks in pricing to help offset future inflation. In addition, we mitigate supply chain delays by having bulk inventory on-hand for our properties, which is stored in our own warehouse in Dallas, TX. Typically, we place material orders of $5 million or more and forecast the need for about 9 months’ worth of inventory in our orders.  

Procurement Process - Warehouse

 

30% Custom Designed 

About 30% of our renovation materials are custom designed at no additional cost because of our large volume orders. Custom designed items include pendant lights, faucets, vanity lights, and cabinet hardware. Most groups cut items to save money, while we operate more efficiently with higher quality products. Our focus is on providing high quality renovation finishes while saving money through bulk orders comprised of the best materials.  

Procurement Process - Renovations

 

Small Details Lead to Big Savings

Some Examples: 

Light Fixtures – In a standard apartment community, you might see brushed nickel dome lights in the hallways or entrances. We renovate our properties so that they not only have an updated modern look, but also for efficiency. For example, standard dome lights require two light bulbs, resulting in more maintenance. Instead, we use flush mount lights that have a modern sleek look and only require one light bulb. In addition, these custom-made lights are $4 less than the standard dome lights. On a final note, as it pertains to light fixtures, we replace the glass, not the product. Pendent lights are beautiful, they make the space pop for the resident, but sometimes the maintenance team makes a mistake and breaks the glass when installing them. We have a process that accounts for that by having extra glass on hand so that we don’t have to replace the entire unit.  

While these small savings may not seem significant, as we apply this process to thousands of units, a real cost savings benefit adds up for our investors.  

Procurement Process - Fixtures

 

Bar Pulls – The pulls we have on our cabinets are zinc die cast. Working directly with the manufacturers, we can dictate the finishes. Not only does this mean we don’t have to pay a premium for the current trend, but we can also manufacture in a more durable way. For items like cabinet and door pulls, we dictate a zinc die cast finish, which is more durable to wear and tear and from surface rust. Our bar pulls cost about 20 cents less than what most of our competitors pay, and about 30 pulls are needed for each apartment unit we renovate. That’s a $6 savings per unit, but more importantly, a six-figure savings across the portfolio.  

Procurement Process - Bar Pulls

 

Ashcroft Capital’s Procurement Process is Customized to Benefit Investors.    

We mitigate risk by:  

  • Decreasing turnaround time for renovations 
  • Avoiding supply chain delays via bulk ordering  
  • Offsetting inflation costs via bulk ordering  
  • Utilizing In-house construction teams vs third-parties 
  • Using less packaging to reduce our environmental impact 

We increase potential profits by:  

  • 30% cost savings in materials by buying in bulk  
  • Custom-made high-quality materials for our residents leading to higher tenant retention and decreases turnover  

 

Adding Value  

The collaboration of Ashcroft’s fully integrated platform enables us to execute each property’s business plan immediately upon acquisition. Through renovating and revitalizing our apartment communities with our industry-leading value-add business plan, we enhance the quality of our properties, making them more attractive, safer, and appealing for our residents. Simultaneously, we improve value for our investors by boosting net operating income, addressing inefficiencies, and ultimately enhancing property valuation upon sale. 

Ashcroft Capital has you covered from start to finish. From locating properties, to structuring deals, to overseeing property management. Our investment model is tailored to investors who want to enjoy all the benefits of owning multifamily real estate without the headaches of being a landlord. We negotiate the purchasing and financing of institutional-quality properties on behalf of investors and are best known for our best-in-class value-add strategy that creates forced appreciation.  

Procurement Process - Value Add

 

Ashcroft Capital’s Track Record 

Since inception, we have delivered 25%+ annualized cash-on-cash returns to investors on the first 26 deals we have taken full cycle through the business plan. We have over $2.8 billion dollars in assets under management (AUM) and more than 21,000 units. Our track record is a direct result of a commitment to excellence in property management and a focus on capital preservation for our investors.  

Ashcroft Capital Track Record Overview

 

Next Steps 

Whether you are a new investor or seasoned professional, we welcome you to meet our team.  Accredited investors can schedule a call with one of our team members to learn more about our current offerings and opportunities. No investment is without risk. Make sure to consult your investment advisor or speak to an Ashcroft Capital team member before making any financial decisions.  

travis@ashcroftcapital.com

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Leaving Your W2 Job: Navigating the Transition

February 27, 2024

By: Travis Watts, Director of Investor Development

Exploring the Financial Implications of Leaving Your W2 Job 

In the realm of personal finance, few decisions rival the magnitude of leaving behind the security of a W2 job to pursue entrepreneurial ventures or become a full-time investor. It’s a decision with complexities, uncertainties, and profound implications for one’s financial future, but it may be a risk worth taking. In this article, we’ll explore some considerations if you are looking to take the leap yourself.  

 

Key Considerations Before Leaving Your W2 Job 

1. Building a Financial Safety Net

At the heart of the transition lies the importance of financial preparedness. Establishing a cash safety net, typically six months of living expenses, serves as a buffer against unforeseen events in the near term. New businesses can take time to become profitable, and new investments can take time to yield results.

Depending on your circumstances and desired path, you may warrant a more conservative approach, necessitating a year’s worth of reserves or alternative liquidity sources. Planning and budgeting accordingly can improve the odds of long-term success.  

2. Navigating Health Insurance:

Transitioning from an employer-sponsored healthcare plan to private insurance entails a reevaluation of healthcare costs. Understanding the financial implications of health insurance premiums is paramount, as the cost may come as a surprise if you have never shopped for private health insurance.

A recent ValuePenguin.com analysis found that in 2024, Americans will spend a record $584 per month, or $7,008 per year on health insurance, if they purchase a private health insurance plan.  

The cost of private health insurance varies based on several factors, including how you buy your plan. When you buy private health insurance through your state or federal exchange, you could be eligible for subsidies to help with monthly payments and other insurance costs.  

3. Prioritizing Passive Income

Whether embarking on entrepreneurial endeavors or embracing full-time investing, prioritizing passive income is imperative. Passive income offers a world of possibilities from offsetting monthly expenses, adding flexibility to your lifestyle, and providing long-term financial security. According to the legendary investor Warren Buffett, free cash flow—the cash remaining after a company has covered expenses, interest, taxes, and long-term investments—is the most crucial metric.

With this in mind, if you are starting a business, how long will it take before it cash flows? If the business will not cash flow, how will you generate income in the meantime? For investors, cash flow is often overlooked and is not widely taught. Many financial products are intended to be held for long-term equity growth and appreciation. If you intend to venture out today, these may not be useful. Suppose you invested 100% into growth investments and the market declines for the next two years. How will you generate income?   

4. Evaluating Credit Dynamics

The role of credit in post-transition endeavors cannot be overstated. While W2 income is often most favorable with lenders, self-employed individuals may encounter challenges in accessing credit once they branch out on their own. Proactively addressing any upcoming credit needs, like obtaining a mortgage, financing a vehicle, personal loans, or opening new credit cards while you still have W2 income, can put you in a better position for making the transition.  

5. Embracing New Income Opportunities

If you are departing from a W2 job to pursue investing, it does not have to mean active income is a thing of the past. Many investors choose to pursue part-time employment, side hobbies, passion projects, or charity work and often derive fulfillment and financial rewards beyond the traditional 9-5. Many widely known investors. such as Carl Icahn, Jack Bogle, George Soros, and Peter Lynch, have active income sources aside from their investments and Investors are actively engaging in their careers well into their 80s and 90s. 

6. Worst-Case Scenario – Reentry into the Workforce

The thought of branching out into the unknown can seem intimidating, but what is the worst-case scenario if your business or investments don’t end up supporting your lifestyle? There is always the option to return to the workforce, and guess what? That’s what everyone else is doing anyway. Here’s a quick example for perspective.

Boxing legend Mike Tyson earned nearly $400 million dollars during his career, then filed for bankruptcy in 2003. Since then, he “returned to work” and has been featured in films, commercials, and TV shows. He’s launched multiple businesses and even returned to the boxing ring in 2020. He has now reclaimed multi-millionaire status, albeit not at a $400-million-dollar level…yet. 

 

Conclusion: Forging Your Path to Financial Freedom 

The decision to leave your W2 job represents a profound juncture in one’s financial journey. It’s a decision that entails both risk and opportunity and demands planning and balance. While the path is not without its uncertainties, it can often unlock unparalleled growth and self-actualization. Ultimately, the decision to depart from the familiar shores of traditional employment is a testament to one’s courage, preparation, and unwavering commitment to charting a course towards new adventures and experiences. To your success. 

 

Want to explore more content like this? 

Tune into new episodes of The Passive Income Lifestyle on YouTube

Talk to Travis

 

Sources:

  1. Shepard, Daniel. “Average Cost of Health Insurance (2024).” ValuePenguin. December 15, 2023. https://www.valuepenguin.com/average-cost-of-health-insurance.
  2. Mishra, Neena. “Why Investors Should Focus on High Cash Flow Stocks & ETFs.” yahoo!finance. August 29, 2023. https://finance.yahoo.com/news/why-investors-focus-high-cash-162900708.html.
  3. Rodgers, Josh. “How Mike Tyson Earned $400M, Filed For Bankruptcy, And Recovered.” AFROTECH. April 19, 2023. https://afrotech.com/mike-tyson-bankruptcy.
  4. Nelson, Allie. “Pigeons, Tigers, and Bears—Oh Mike! All About Mike Tyson’s Net Worth in 2024.” Parade. January 11, 2024. https://parade.com/celebrities/mike-tyson-net-worth.
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Ashcroft Welcomes a Proven Real Estate Entrepreneur to the Investor Relations Team

February 23, 2024

Investor Feature - Lennon Lee

“Multifamily real estate deals are a financial product I love––that’s why my family and I are personally heavily invested.” 

Lennon Lee has been raising capital for multifamily projects and looking after investors for nearly a decade. He’s just joined the Investor Relations team at Ashcroft to “help investors better navigate deals and strategy.” Lennon observes, “times like these can be challenging and even scary for investors, so I will be on top of their questions and concerns. Investor education is something that I’m very passionate about.” 

Lennon Lee Real Estate 

Real Estate is a Family Tradition  

Due to ongoing political unrest in their native Venezuela, Lennon and his family relocated multiple times between their South American residence and the United States.  

“We always had some single family properties in Venezuela. My mom told me her grandfather always said that the goal was to live off the rent. He owned some retail shops in the small town where we’re from. So, my mom and dad always knew they wanted to take whatever little bit of money they had and park it somewhere, somehow in real estate.”  

Lennon remembers visiting the U.S. frequently with his family. “We like this country a lot, and we understand exactly what it means for us in terms of safety––personal, fiscal, and judicial. Investing here was a way for us to protect capital.” 

“My parents were always hard workers,” he remembers. “And as a family, we asked how we could protect what we have and try to make it grow. That was the thought process when I came to Miami and my family put me in charge of managing the portfolio.”  

Lennon Lee Real Estate Family

After completing his graduate degree, Lennon says, “I really didn’t want to do the nine-to-five, so I decided to go the real estate route and became a realtor. I started educating myself through books and countless hours listening to podcasts. That’s how I heard about Joe. I knew he was doing exactly what I wanted to do.” This inspired Lennon to contact Joe Fairless and further his real estate career. 

“I started working with Joe as a student of his program. Then I began investing as an LP on a few deals. That ultimately led me to start my own private equity company,” he says. “I also started a podcast in Spanish called Se Habla Real Estate, educating investors on multifamily and real estate in general.”  

Lennon says he was eager to put all this experience to work in his new position at Ashcroft, where he plans to level up his knowledge and make a positive impact on even more investors.  

“I wanted to bring my experience and expertise to a company with a bigger structure and a larger base of investors to further develop my career as an investor relations manager.” 

Lennon Lee Joe Fairless Real Estate 

Bringing Multifamily Deals to New Audiences 

His unique experience as an immigrant investor led to Lennon’s love affair with multifamily projects and syndications. Sharing his story has inspired countless new investors to embark on their own real estate investment journey. 

“For us in Latin America, if you want to protect your capital, there’s no security in our countries, generally speaking. The main idea when an investor like us comes to this country and wants to invest in real estate is capital preservation––making sure your money is placed in a safe haven,” Lennon explains. “What that typically looks like for us is buying a few condos or a house in South Florida and renting them. But after spending a few years here and managing our properties, I started to understand how difficult it was to do it all myself. Even our small portfolio started taking a lot of my time,” he recalls.  

“Eventually I saw there were other avenues that were more attractive not just in terms of capital preservation, but maximizing capital. I wanted to see how we could achieve cash flow by putting our money somewhere where we don’t depend on the market to see the property value go up, but we can actually control it.”  

Lennon found the answer in commercial real estate. “In commercial real estate, you might have the exact same property that I have, but at the end of the day, it’s a business. If I manage my business better (reduce expenses, optimize operations), my property is going to be more valuable, and I will increase my income. That, to me, was an eye opener.” 

 

Reasons to Believe in Multifamily Real Estate Investing 

Lennon’s commercial real estate endeavors led him to the multifamily asset class. “It caught my attention because it was easy to understand. Everyone needs a roof over their head. Then, there’s steady immigration, Millennials and Gen Z starting to create households, and Boomers retiring and downsizing. So at the macro level, it’s an asset class that I think is going to be very strong long term. And the passive [income] component is just so attractive.” 

For Lennon, what really matters is working with the right partner––especially since he advises his parents and sister on their financial future.

“It’s a matter of building trust and understanding the track record. If the team has proven they’re able to execute, then they’re probably going to do a better job than you will on your own.”  

When it comes to his own future, Lennon is confident that his investment strategy can lead to “total financial freedom,” allowing him to pursue other passions like travel, high-stakes poker, advising entrepreneurs, and starting a family of his own.  

If you would like to learn more about investing in multifamily assets or our current offering, Lennon would love to connect with you.

Schedule a Call

Lennon is just one of our 3,000+ investors. Hear what passive income has meant to over 100 of our investors.

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The Multifamily Market in 2024: What to Expect

February 21, 2024

By: Travis Watts, Director of Investor Development

A Year of Stability Amid Challenges 

The multifamily market in 2023 has shown resilience and adaptability in a sea of economic uncertainties. With an unemployment rate that remained impressively low at 3.9%, and rental growth predictions between 2.5% and 3.7%, the sector has shown remarkable resilience.[1] 

However, it’s not all smooth sailing. A noticeable dip in new construction raised eyebrows, signaling a potential future shortage of housing.  

 

Economic Tailwinds and Multifamily Market Stability 

As we progress into 2024, the multifamily market appears poised for a year of dynamic growth and opportunity. Despite the challenges of recent years, including economic fluctuations and interest rate hikes, strategic market shifts set the stage for a promising year ahead. 

In 2024, the multifamily market is expected to benefit from a combination of economic recovery and strategic adjustments. With the unemployment rate maintaining a low profile and a positive outlook on rent growth, investors and property owners could anticipate a stable and potentially lucrative landscape. This stability is further bolstered by a nuanced understanding of the Federal Reserve’s monetary policies, which is centered on market stability. 

2024 Multifamily Market Outlook

 

Interest Rates and Investment Dynamics 

The Federal Reserve took a firm stance against inflation with rate hikes in 2022, aiming to stabilize the economy. This monetary policy shift directly impacted the multifamily market, affecting property values and investment decisions. While higher interest rates pressured valuations, there’s a silver lining: the anticipation of rate normalization could favor investors in the long run.[2] 

  

Navigating Supply and Demand Dynamics 

One of the critical factors influencing the multifamily market in 2024 will be the balance of supply and demand. While new construction has slowed in response to economic pressures, the demand for rental units continues to climb, especially in high-growth regions like the Sun Belt.[3] This imbalance presents both challenges and opportunities, as developers and investors race to meet the demand without oversaturating the market.  

The upcoming year is expected to bring a flood of new units to the market, a result of the development boom in 2021. However, this surge coincides with less favorable economic conditions, making the competition fiercer. The expected drop in construction by summer 2024 highlights a crucial supply challenge, especially with a significant number of multifamily loans maturing in the near term.[4] 

 

Rental Market Trends: A Mixed Bag 

Demographic shifts towards the southern and Sun Belt regions are reshaping demand, creating hotspots for multifamily investments. As the gap between owning and renting widens, renting becomes an increasingly attractive option, supporting the rental market’s strength.  

Rent averages nationally have steadied at around $1700, a figure influenced by the Fed’s interventions which have tempered rent growth.[5] Despite this stabilization, experts like CoStar are optimistic, forecasting a rebound in rent growth and occupancy rates into 2024, thanks to economic recovery and a tight supply of new units.[6]  

Average Rent Growth

Strategies for Success: Value-Add Multifamily Investments 

Success in the multifamily market in 2024 will require a blend of adaptability and innovation. Investors who are quick to identify the shift towards value-add projects and sustainable building practices could position themselves well to capitalize on the evolving landscape. 

By revitalizing older properties, investors may unlock potential rent increases, aligning with the broader trend of positive rent growth over time. Focusing on Class B apartments targets the substantial middle-income demographic, offering a blend of affordability and quality. Additionally, a focus on tenant needs and preferences, such as the demand for flexible living spaces and amenities, will be key to maintaining high occupancy rates and driving rental growth. 

  

The Role of Technology and Data Analytics 

Technology and data analytics will play an increasingly important role in shaping the multifamily market in 2024. From optimizing property management to enhancing tenant engagement, the integration of tech-driven solutions will be a critical factor in differentiating competitive offerings. Moreover, data analytics will provide invaluable insights into market trends, tenant behavior, and investment opportunities, enabling more informed decision-making.  

Ashcroft Capital’s property management group, Birchstone Residential has already implemented and is benefiting from these new technology solutions.  

  • AI led follow-up tool (6:52) 
  • Fraudulent application software (8:23) 
  • Purchase order program (18:35) 
  • Online reputation auditor (21:10) 

 

Conclusion: A Year of Opportunity Awaits the Multifamily Market 

Looking ahead, the multifamily market is poised for a transformative phase. With interest rates expected to ease and strategic investments in growing markets, the outlook is bright for those who adapt and plan ahead.  

As the sector continues to evolve, adapting to economic shifts and capitalizing on emerging trends will be key to achieving sustained success in the multifamily market. Whether you’re an investor, developer, or property manager, the multifamily market in 2024 promises a landscape rich with potential for growth, innovation, and long-term success.  

 

Want to take a deeper dive?  

Tune into new episodes of Multifamily Market Report on YouTube

Talk to Travis

 

Sources:

  1. Munger, Paula. “2024 Apartment Housing Outlook.” National Apartment Association. December 4, 2023. https://www.naahq.org/2024-apartment-housing-outlook.
  2. Caldwell, Preston. “When Will the Fed Start Cutting Interest Rates?” Morningstar. January 29, 2024. https://www.morningstar.com/markets/when-will-fed-start-cutting-interest-rates.
  3. “U.S. Population Trends Return to Pre-Pandemic Norms as More States Gain Population.” United States Census Bureau. https://www.census.gov/newsroom/press-releases/2023/population-trends-return-to-pre-pandemic-norms.html.
  4. “United States Multifamily Capital Markets Report.” Newmark. 3Q 2023. https://www.nmrk.com/insights/market-report/united-states-multifamily-capital-markets-report.
  5. “Multifamily Rents Remain Flat in January, Reports Yardi Matrix.” Yardi. February 14, 2024. https://www.yardi.com/news/press-releases/multifamily-rents-remain-flat-in-january-reports-yardi-matrix.
  6. Munger, Paula. “2024 Apartment Housing Outlook.” National Apartment Association. December 4, 2023. https://www.naahq.org/2024-apartment-housing-outlook.
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The FIRE Movement: Financial Independence Through Real Estate

February 16, 2024

 

By: Travis Watts, Director of Investor Development

The FIRE Movement

The FIRE Movement, an acronym for Financial Independence Retire Early, has gained significant traction since its inception, particularly after the 2008 financial crisis. Primarily centered around stocks, this movement advocates for aggressive savings coupled with low-cost index fund investing to amass a nest egg substantial enough to sustain a person’s lifestyle indefinitely.[1]  

However, beyond the realm of stocks, there lies a compelling avenue within the real estate sector that aligns seamlessly with the principles of the FIRE Movement. 

 

Understanding the FIRE Movement with Stocks 

A core staple of the FIRE Movement revolves around building a robust portfolio through diligent saving and disciplined investment. Participants typically channel a significant portion of their income – often 50% or more – into low-cost index funds (stocks) over a span of 10 to 20 years. Upon reaching a predetermined financial milestone, typically a one to two-million-dollar portfolio, individuals then sell off 4% a year from their investments to sustain their lifestyle.  

The Simple Math  

4% of $1,000,000 = $40,000 per year 

4% of $2,000,000 = $80,000 per year  

The idea behind the “4% Rule” is that historically the stock market has averaged around 8-9% a year in equity growth, thereby, withdrawing 4% a year creates a buffer to account for inflation while also facilitating continued portfolio growth.[2]

 

Extending the FIRE Strategy to Real Estate

In parallel with the principles of the FIRE Movement, real estate offers a compelling alternative investment avenue. Considering the innate cash flow potential that real estate can provide, investors can adopt a strategy where they use passive income as the “withdrawal rate”, rather than selling off the portfolio. Private real estate investments are inherently illiquid, so selling off a percentage of a portfolio is usually not applicable. Instead, collected rent and revenue can provide monthly income and any equity gains (when a property sells at a profit) allows the portfolio to grow over time, and could provide a buffer for inflation similar to that of the 4% Rule’s methodology.

 

Realizing the Benefits of Real Estate Investment

The allure of real estate investment lies not only in the potential for diversified income streams, but it also offers a myriad of tax advantages, it is not highly correlated to stocks, it offers relatively low volatility and since the year 2000, private real estate has outperformed US Equities on an annualized basis.

 

Crafting a Personalized Path to Financial Independence

While the FIRE Movement underscores the pursuit of financial independence and early retirement, its implementation remains inherently flexible. Investors can tailor their approach based on individual preferences and risk appetite. For many investors, the addition of real estate can simply be a way to diversify a portfolio while unlocking new avenues for income generation.

Bob’s Case Study

Let’s examine a quick case study for example purposes:

  • Bob has $100,000 to invest.
  • Bob earns $125,000 a year at this job ($100,000 after taxes).
  • Bob maintains a 50% savings rate (after taxes)
  • Bob lives on $50,000 every year.
  • Bob allocates $50,000 toward his investments every year.

Simply saving this amount of income could amass a portfolio worth around $600,000 in a 10-year timeframe without factoring in any investment returns. But if we factor in an 8% annualized rate of return for these 10 years, Bob’s portfolio would be close to $1,000,000. This calculation does not include equity gains, this is purely generated from cash flow, so the portfolio could amount to much more.

At this point, FIRE begins to unfold. Bob can choose to live on his cashflow; roughly $80,000 a year assuming an 8% yield, or he may choose to take some time off, retire a spouse, switch careers, or embrace charity. The point is, Bob has options.

 

Summary: The FIRE Movement

In recap, that is what the FIRE movement is all about. It’s about having more options. Many choose to continue working after reaching “FI” and opt-out of the “RE” retirement component because they enjoy their career or see a need for contribution. That is the beauty of it, it’s completely in your hands to modify your lifestyle the way you see fit. Something to think about for the week.  

 

Want to take a deeper dive?  

Tune into weekly episodes on YouTube

Talk to Travis

 

Sources:

  1. Kerr, Alexandra. “Financial Independence, Retire Early (FIRE) Explained: How It Works.” Investopedia. January 31, 2024. https://www.investopedia.com/terms/f/financial-independence-retire-early-fire.asp
  2. Suknanan, Jasmin. “What is the 4% rule and how can it help you save for retirement?” CNBC. November 30, 2022. https://www.cnbc.com/select/what-is-the-4-percent-retirement-savings-rule.
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High Net Worth Investor Focuses on What Matters Most

February 8, 2024

Investor Feature - Scott Rasband

“I was tired of watching my net worth go up and down with the stock market, and I had the realization that I should monetize it––have my money pay me.” 

Forty-eight year old Scott Rasband is planning his next trip to Costa Rica with his wife and four kids rather than obsessing over his finances. Savvy career choices and a new real estate investment strategy have positioned Scott for early-morning surf lessons instead of waking up to market reports.  

After 15 years of working his way to the top of the medical device industry, Scott Rasband had an epiphany.

“I realized that being in senior leadership was where I thought I wanted to go, but it was actually endless traveling, and your time is not your own. I had to ask myself what I really wanted to do with my life.”  

 

Cooking Up a Better Way to Live  

That’s when he transitioned into owning a Chick-fil-A franchise. “I started all over with a Chick-fil-A eight years ago, and it’s been the best decision I’ve ever made. The money’s still great, and what I love about it most is that I get to employ a hundred people, have influence over their lives, and serve them and the community.” 

After seeing his net worth rise to about $4 million (and sometimes fall along with the market), Scott decided he needed to develop an investment strategy that would better protect his net worth––as well as pay dividends.  

 

Learning How to Monetize Net Worth 

“You have friends doing real estate and people are talking about it,” says Scott of his introduction to real estate investment. “I thought I would dabble there a little bit and started learning about all the benefits––especially the tax advantages. I went into single family real estate. I got a duplex in a great area in Utah that I got for a steal, and it’s got a ton of equity in it. I purchased a townhome that I got off-market. I flipped an office building. I got another single family property and flipped it in six months. I made $130,000 on that.”  

But soon, Scott realized that his new lucrative financial strategy was taking up a lot of his time.

“I did well, and I made some money, but I don’t need to be pulling up carpet. Every decision for me now is about how much of my time it’s going to take.”  

He continued to educate himself through networking and podcasts like Wealth Without Wall Street, Left Field Investors, and Money Ripples to learn all about passive investing. Then, he got in touch with Ashcroft’s Travis Watts. “We set up a call and, sure enough, he was right there talking to me,” says Scott. “I showed him my spreadsheet and my goals, and I was able to really pick his brain on the different things he’s doing.”  

 

The Perks of Passive Income 

This led Scott to his new approach to real estate investing. “My strategy has been to do one to four deals every year for the next 10 years where my principal balance (the golden goose) stays the same, and it just pays me monthly,” summarizes Scott.   

“I’m in five deals right now; I’ve just started this transition last year. I’m still learning, and it’s been interesting. I’m trying to diversify, so I’m in different types of funds. The Ashcroft fund I’m in is an A share, and it’s nearly a guaranteed monthly payment of 9% no matter what. I’m in a single apartment complex in Austin, Texas, a mobile home park in Kentucky, and I’m in a fund that does a bunch of mobile homes and self storage. So, that’s four different categories. I want to watch how they perform and how they pay.”  

“Of the five deals I’m in, Ashcroft is the one that’s gone exactly as they said it would.” 

Now that Scott has a firm footing in real estate syndication, he has more confidence that his hard-earned money is working hard for him. “I feel like the stock market is a game. This is more consistent, to me,” he explains. “I’ve decided I’m going to take portions of my net worth and have it pay me. My goal is to get to $30,000 a month passive. It’s almost just simple math. How many deals do I need to be in to generate this much income spread over time?”  

Consistency of income is a top priority for Scott and his family. “That’s where these types of deals come in,” he says. “What I love about this versus the stock market is, with stocks your balance can fluctuate up or down (you might be drawing on principle), but with these deals (if they go right), your principle should increase 1.5x or 2x. And you’re still getting paid along the way. Then when you exit, you can recycle that money into new deals.” 

At the end of the day, this helps Scott rest easier about his financial future. “I have more peace of mind,” says Scott.

“I don’t wake up checking stocks every day and wondering if I should sell this or sell that. With the gambling, gaming nature of stocks nowadays, personally, if I’m trading, I can’t leave it alone. It’s been really peaceful to let that go and have this consistent plan of what I want to accomplish and just follow the plan. It’s just easy; I don’t really have to do anything!”  

“Another advantage is that I’ve set up an LLC for all these passive investments to go into and that money for me is not touchable. I’m not living off of it. It’s just growing. So, any distribution goes into this account. When it hits a new $50,000 or a new $100,000, it goes into another deal. If anything exits, that stays in the account until I’m ready to fully live off of it.”  

According to Scott, one of the key advantages of investing with a syndicator like Aschroft is “the K1s and write-offs.” He goes on to explain, “You see these returns of 12%, to 15%, to 20%, and you’re literally not paying taxes on that money because of cost segregation. So those returns are much higher than you think. Whereas if I’m in the stock market and I sell, I’m paying capital gains tax. Or, if I flip a house and I sell it, that’s all taxed. The K1’s have been nice and helpful––and they’re piling up.”   

 

Where Syndication Leads Next  

Scott isn’t ready to retire yet, but he’s happy to reap the financial and emotional benefits of his investment strategy when the time comes. “As much as I love my employees, I love my Chick-fil-A, and I love my business, I look forward to the day of zero liability. So, I think being a limited partner is a great strategy for that,” he muses.  

“I already live my dream life. My family, my business are amazing. I get to do anything I want to do whenever I want to, while having a positive influence over people. In the end, I’ll probably be in 30 or 40 deals and surfing in Costa Rica.”  

Scott is just one of our 3,000+ investors. Hear what passive income has meant to over 100 of our investors.

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Interest Rate Cuts: Potential Effects on the 2024 Multifamily Market

February 5, 2024

By: Lennon Lee, Investor Relations Associate

Interest Rate Cuts and 2024 Multifamily Market

As we look ahead to 2024, the multifamily market stands poised for growth. The potential alignment of stabilizing interest rates and demand for rental properties from the next generation of renters may increase transaction volumes and could create exciting opportunities for multifamily investors.  

 

How Interest Rate Cuts Could Impact the Multifamily Market in 2024

In 2024, stabilized interest rates or potential interest rate cuts could create a more favorable environment for multifamily investors. A rate cut in 2024 would mark the first decrease since the onset of the COVID-19 pandemic, during which the Federal Reserve lowered rates to nearly zero to strengthen the economy.[1] 

The Federal Reserve wields significant influence over the housing market by using monetary policy tools to shape interest rates and credit conditions. As we explore the potential impact of interest rate cuts on the multifamily market, we will investigate how they could affect financing opportunities, transaction volume, and property valuations.  

 

Effects of Interest Rate Cuts on Transaction Volume and Financing Opportunities

Multifamily real estate has experienced prolonged investor price discovery due to significant interest rate volatility in the past year and a half. Uncertainty surrounding interest rates causes buyers and sellers to have divergent expectations, resulting in a wider bid-ask spread.  

The bid-ask spread represents the gap between the highest price a buyer is willing to pay for an asset and the lowest price a seller is willing to accept. However, as interest rates begin to stabilize, more participants may enter the market, which could narrow the spread and cause increased transaction volume in 2024. 

Stabilization of interest rates helps buyers and sellers find common ground on asset values, making it easier to facilitate transactions. More transactions could mean increased liquidity in the multifamily market. An increase in liquidity may then benefit sellers, who could find interested buyers more easily, and buyers, who could find more attractive investment opportunities. It creates a win-win situation, fostering a more active multifamily market. 

Stabilized or lower interest rates may also create improved financing opportunities for multifamily projects. Lower interest rates reduce the cost of borrowing, making it more attractive for investors to pursue multifamily ventures. Investors can potentially secure more favorable loan terms when financing costs decrease, resulting in increased profitability and improved cash flow. This increased access to affordable financing could then further stimulate the market, spurring the growth of multifamily investments. 

 

Potential Impact on Property Valuations

Freddie Mac’s recently released 2024 Multifamily Market Outlook provides valuable insights supporting the observations made regarding interest rate cuts. The report highlights that although the multifamily market may face strain from high levels of new supply and higher interest rates, it remains a favorable asset class given the expensive for-sale housing market and ongoing demographic trends.[2]  

Although interest rates are expected to remain elevated in 2024, some stability is anticipated, which could lead to increased multifamily lending volume for the year. As interest rates stabilize, it is likely that cap rates and property values will stabilize as well. 

Cap Rates

Cap rates, which measure the rate of return (as well as risk profile) on an investment property, are commonly influenced by interest rates. When interest rates rise, cap rates tend to follow suit. Conversely, when interest rates fall or stabilize, cap rates also tend to stabilize. This stability in cap rates creates a healthier investing environment by giving buyers and sellers a better sense of property values. 

Stabilizing cap rates have a similar effect to stabilizing interest rates – they may facilitate price discovery as buyers and sellers can more readily agree on asset values, facilitating more potential transaction volume within the multifamily market. This agreement on asset values ensures that sellers get fair market prices for their multifamily properties, while buyers can invest with confidence, knowing that they are not overpaying. 

Supply and Demand

Despite short-term challenges such as supply constraints, the overall housing shortage should continue to support the long-term growth of the multifamily market. The supply-demand imbalance in the housing market has the potential to create a strong demand for rental units, driving rental rates higher. That demand would be further amplified by an expensive for-sale housing market, which makes homeownership less attainable for many individuals and families. 

Moreover, the next generation of renters entering prime renter age will contribute to the demand for multifamily properties. As Millennials and Generation Z reach the age where they start forming households, the need for rental units will continue to grow. These demographic shifts may help to provide a more stable market for multifamily investors, ensuring sustained demand for rental properties in the coming years. 

 

A Critical Year for Multifamily Investors to Watch Interest Rates Behavior  

Stabilized interest rates or potential interest rate cuts in 2024 could significantly impact the multifamily market. These changes can potentially enhance financing options, stimulate transaction volume, and stabilize property valuations. Increased transaction volume and improved financing opportunities can provide a more favorable investing environment, attracting buyers and sellers to the multifamily market. 

The stability that comes with interest rate cuts could allow investors to make better informed decisions based on more predictable cap rates and property values. Monitoring upcoming developments in interest rates will be crucial for multifamily investors looking to capitalize on the favorable environment that interest rate cuts may create.  

As we look ahead to 2024, the multifamily market stands poised for growth. By staying informed and adapting to the changing market conditions, investors can position themselves for success in the multifamily market of the future. 

If you would like to learn more about the multifamily market or investing in our current offerings, schedule a call with our Investor Relations team today.

lennon@ashcroftcapital.com

Sources:

  1. The Fed is expected to cut interest rates in 2024.Here’s how investors can prepare. cnbc.com™. (n.d.). Retrieved January 17, 2024 from https://www.cnbc.com/2024/01/03/the-fed-could-cut-interest-rates-in-2024-how-investors-can-prepare.html
  2. 2024 Multifamily Outlook. freddiemac.com™. (n.d.). Retrieved January 17, 2024 from https://mf.freddiemac.com/docs/2024_multifamily_outlook.pdf
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Your Time, Your Money: The Path to Financial Freedom

January 23, 2024

 

By: Travis Watts, Director of Investor Development

The Path to Financial Freedom

Building Wealth and Financial Freedom 

Financial freedom typically refers to building wealth that allows for sufficient savings, investments, and liquid assets to support the lifestyle we choose. It involves accumulating savings that allow for retirement or the pursuit of a desired career without the constraint of a fixed annual income. Essentially, financial freedom is achieved when our finances are actively working in our favor, instead of us working for our finances.  

The two most common routes to building wealth:  

  1. Trade your time for money 
  2. Invest your money to make more money 

Which holds the best return? Well, for me, it began with trading my time for money.  

 

Working Hard for the Money 

At 15, my first job was a paper route, earning $40 weekly for 4 hours of work—a decent $10 per hour at the time. Then, the entrepreneurial bug bit, and I hustled cleaning cars for $100 a day, making about $25 an hour.   

In my early 20s, the oil and gas industries were my next highest and best opportunity, hustling 100-hour workweeks for $20 an hour. To my surprise, the bonuses and overtime pushed me into a six-figure income, and this is where I began to question my time value.   

 

Investing in Financial Freedom 

A pivotal moment arrived when I began to study investing. It was time for my money to do some heavy lifting on its own.   

Initially, my real estate investments yielded roughly $30,000 a year, then $50,000, gradually scaling to $100,000+ annually. Eventually, my passive income surpassed my active income, granting me new choices…  

The fact was, I wasn’t rich, I was just twenty-something with a six-figure income—but the passive income made the situation unique.  

  1. It was tax-friendly 
  2. It didn’t enslave me to an exhausting schedule 
  3. Diversification kept it more secure and predictable  

 

Why Passive Income 

This simple realization steered me towards teaching others about passive income. Why? Because it unlocked the opportunity to switch to a more fulfilling career in the world of finance, which was my true interest and passion.   

Shifting from a grueling 100-hour workweek to a balanced 40-hour week reunited me with family, friends, and led me to my wife, and our shared love for travel. I finally had a personal life again as the golden handcuffs of high-paying and unfulfilling work had held me captive in my own life for years.   

Then came the urge to give back. Earned income was the only means I had to give before becoming an investor, but teaching others was how I wanted to give back, and this required time. Passive income unlocked this opportunity, and it became a reality.   

 

What Financial Freedom Could Mean for You 

Did you know 60% of Americans live paycheck to paycheck?  

I was part of that statistic for many years. It’s been a pain point of mine that passive income investing is not widely taught and, consequently, millions of people are opted-out from the opportunity. Not because they can’t participate, but because they simply do not have the tools and knowledge.   

A large part of my mission is to help spread this knowledge for others aspiring to take the path less traveled.  

Two roads diverged in a wood, and I took the one less traveled by, and that has made all the difference.” – Robert Frost 

Money becomes a game once you can cover your basic living needs. Any additional income becomes an opportunity to:   

  • Try new careers 
  • Retire early or retire a spouse 
  • Launch a business that betters lives 
  • Attain financial peace and lessen stress around finances  
  • Elevate your lifestyle  

Financial freedom can unlock a new world of opportunities. I encourage you to ponder on this for the week ahead; it might unveil new avenues. 

If you would like to learn more about building wealth or investing in our current offerings, you can schedule a call with our Investor Relations Team or check out the “Passive Income Lifestyle” YouTube series. 

Author - Travis Watts

travis@ashcroftcapital.com

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Business Mogul Mom Applies Entrepreneurial Spirit to Real Estate

January 19, 2024

Investor Feature - Real Estate - Lucy Zhao

“It’s such a fun journey. You get to know so many new people—and you can also make money!” 

Dedicated mother of two, Lucy Zhao, has taken on the textile, fashion, and home goods industries, and now she’s adding real estate to that list. Originally from Shanghai, China, Lucy worked as a human resources manager for various international corporations for nearly a decade, “but my entrepreneurial spirit was restless,” she says.  

Inspired by her love of children, Lucy created a manufacturing business for baby bedding, cribs, and children’s clothing. Her suppliers, facilities, and employee base remained in China, while she focused on raising her kids in Montreal, Canada, where she immigrated in 2006. “When the business was stable and I didn’t need to spend so much time on it,” explains Lucy, “I created another business in Canada.” 

Lucy Zhao Entrepreneur

 

Becoming a Successful Serial Entrepreneur 

With her business still running in China, Lucy embarked on a new venture in Canada. “I have a fashion rental business. We rent dresses and luxury bags to clients all across the nation.” Still, Lucy was far from finished watching the market for new opportunities and building businesses to seize them. 

During the pandemic, Lucy had another entrepreneurial insight.

“Everybody stayed at home, worked out at home, studied at home. I saw that people liked shopping from home, so I created a business for household products. We designed products that people use a lot for exercising, cooking, and more. We sell on Amazon and Wayfair.”  

To better run the business, Lucy acquired an investor visa and relocated to the U.S. She arrived in Austin, Texas in August 2022, following the lead of another (famous) entrepreneur: Elon Musk. “I saw that Elon Musk moved his business to Austin, and he must have done a lot of research!” she laughs. As Lucy thought more deeply about the move, she realized that even more opportunities lie ahead.  

“Texas is just so big,” says Lucy. “It has the same population as all of Canada. So, I decided that if I move to Texas, I need to invest in real estate and oil and gas.” However, smart business plays weren’t the only thing on Lucy’s mind. “After I came to Austin, I realized that I need to walk out of the house to network, to communicate with people, because I find people here are so social. That’s very different from the lifestyle I had in Canada––and the weather is so good!” 

Lucy set out to connect with like-minded peers at meetups to begin absorbing knowledge on real estate investing. 

“When you create a new business, you invest a lot of money (and I only use my own money). When I compare investing in my own business with investing in real estate, multifamily deals are less risky, less time-consuming, and offer more networking, with the potential for a better return in the long run.”   

Lucy Zhao Family

 

An Education in Syndication 

Across 2023, Lucy built an impressive network of friends and investors; she even started a meetup of her own. “I’ve never made more friends in my whole life. And last year I invested in 21 deals––19 as an LP and two as a GP. This year, I will invest more as a GP and I will partner with many people that I invested with last year.

“We share investment information on good deals–like Ashcroft–and refer other investors. New investors sometimes want to hear from people they have come to trust before making a decision to invest in a deal with a stranger.”  

It was Lucy’s eager networking that led her to Ashcroft. “I received the webinar information and signed on to learn about Ashcroft. Before I invested, I asked my other investors about their experiences. I think at least two of them told me that their return is good–as long as there’s no capital call and no pending distribution, they are happy.”  

Lucy also speaks highly of the relationship she has with the Ashcroft team. “Ben is so nice,” she says. “The person who is in charge of the investor relationship is very important. And he’s a good representation of the company. Communication is one of the most important things to an investor, and I think they’re doing very good work in communication.” 

Lucy Zhao Conference

 

Scaling Real Estate Investments for the Future 

After discovering that real estate investment scratches the entrepreneurial itch, Lucy founded “Yes! Texas Investments,” to manage, scale, and collaborate on her portfolio. “It’s just like doing a new business venture,” she says.  

While her three other businesses continue to thrive under the management of trusted employees, Lucy is excited to focus on her investments in 2024.

“I plan to continue investing with Ashcroft if any new deals come up that I like. I also want to do more active investing this year, partner with other more experienced syndicators, and find more good deals.”

Lucy is just one of our 3,000+ investors. Hear what passive income has meant to over 100 of our investors.

Lucy Zhao Family Dinner

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Retirement Is Not an Age, It’s a Number

January 17, 2024

By: Travis Watts, Director of Investor Development

Breaking Free from Age-Based Retirement Planning

In my early twenties, I had a realization that challenged the traditional narrative of what retirement means. The common path in America is to obtain an education, a job, and channel earnings into retirement accounts, then tap into social security in your 60’s. This left me questioning if there was another approach. I remember thinking to myself, why wait until your 60’s to retire? Why link retirement to age when it could be thought of as a number?   

For example: 

  • Age 59.5 = access to retirement funds without penalty   
  • Age 62 = social security benefits   
  • Age 64 = average age of retirement in the US 

Shifting away from this way of thinking led me to a profound understanding that retirement is a reachable financial number at any point in life. I began thinking of how to emulate the financial stability of the average 65-year-old retiree. In 2009, real estate became my unexpected entry into this journey, as it offered immediate passive income, tax-advantages, and equity upside potential.   

Amidst the financial messaging that championed stock investments, retirement accounts, and obtaining second jobs, I noticed an absence of discussions around sustainable, lifelong income. My quest began with studying retirement data, analyzing figures such as the average savings and investment portfolios and monthly income of 65-year-old retirees, which then revealed the milestones that would be needed to achieve this outcome. I began with reverse engineering the goal – starting from the end and working backward.   

The First Step was Maintaining a Low Overhead

Despite earning less than $30,000 per year in my early twenties, I made the decision to invest in a modest two-bedroom townhome in 2009, leveraging nearly all my savings that had accumulated since the age of 15. Getting a roommate enabled me to split the expenses and kept my overhead low as I began the investment journey.  

 

Highest and Best Income

Recognizing that a low income wouldn’t suffice long-term in this pursuit, I began vigorously seeking better-paying job opportunities. After hundreds of applications in a competitive market (this was during the Great Recession), I landed a labor-intensive role in the oil and gas industry, which offered significant earnings through hard work and long hours.  

 

Saving and Investing Aggressively was Pivotal

I deviated from the conventional advice of saving 10-15% of my income and instead redirected 40-50% of my earnings towards investments.This led to a real estate portfolio surpassing $1 million by my late twenties. One crucial aspect I had to consider was generating passive income equivalent to social security and healthcare costs of a 65-year-old.   

2023 Data Suggests: 

The average social security payment in the US = $1,705.79 a month, according to the Social Security Administration 

The average healthcare cost of a retired couple in the US = $950 a month, according to a report from RBC Wealth Management 

Investing into income-generating real estate helped create a steady monthly income, providing financial stability for retirement. At minimum I would need $2,655.79 just for the two items above. The remainder of my investment portfolio would need to support my day-to-day lifestyle expenses.  

Simple Math (for example purposes): 

$1,200,000 invested with 8% annualized yield = $96,000 per year ($8,000 monthly)  

We’re all different when it comes to lifestyle preference and knowing how much is enough. This depends on you, your lifestyle costs, and your investment strategy. Looking at retirement as an income number helped me visualize the approach. Then came the most difficult part of the strategy…   

 

Paying Off My Mortgage

This was a seemingly daunting task. However, since only 19% of Americans at age 65 have a mortgage according to U.S. Census Bureau, I figured it was best to be in the majority of this statistic if I wanted to truly replicate the outcome. Admittedly, this took a lot of perseverance and several years of aggressive paydown, but inevitably it led to debt-free homeownership before my mid-thirties.  

 

The Outcome

Call it what you will, retirement, early retirement, financial independence, or having a work-optional lifestyle, the outcome was having peace of mind over my finances. To me, retirement isn’t about stopping work; it is about pursuing meaningful endeavors, contributing positively to others’ and expanding your lifestyle along the way.   

“Passive income can allow you to do more of what you enjoy, and less of what you don’t.” 

Sharing my journey with you is simply to showcase that achieving retirement can be within reach, regardless of one’s background or starting point. I was not brought up having wealth or education when it comes to investing, and I’m no different than anyone else. I simply set a goal and relentlessly pursued it. Retirement is about setting goals, taking action, and persisting toward your desired outcome.  

Regardless of your current path or age, remember, retirement can be a number. So, what’s yours?   

  • Begin with your goals 
  • Take action 
  • And here’s to your success 

If you would like to learn more about how our current offerings could align with your retirement goals, schedule a call with our Investor Relations Team. 

Author - Travis Watts

travis@ashcroftcapital.com

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Former Star Athlete Turns Bad News into a “Grand Slam” Career

January 5, 2024

Investor Feature - Ryan McKenna - Real Estate

“I wanted to build a business to help others, because it really changed my life for the better and gave me the freedom and flexibility to live a lifestyle by design.” 

Ryan McKenna is a longtime Ashcroft investor, as well as the operator of his own real estate investment firm (founded in 2018 in Glenview, Illinois). Looking at his wife, two daughters, and the fulfilling life they lead, Ryan says, “today, I feel like I am thriving, very happy, and built the lifestyle that I’ve always wanted.”  

However, getting there wasn’t exactly a straight line drive.  

Ryan McKenna Family Sailing

When Life Throws a Curveball  

Ryan played baseball at Arizona State University, achieving a dream he had trained for since he was 12 years old. “I had aspirations to go on play in the major leagues,” explains Ryan, “but that was cut short by a serious medical issue.” 

Ryan was diagnosed with ITP. “It’s a blood platelet disorder that is very similar to leukemia or lupus,” he describes. “That pretty much changed the trajectory of what I thought my life was going to look like––play at the next level, make a lot of money, and then invest it. That was always my goal. I come from an entrepreneurial family, so I’ve always wanted to run my own business, become an investor, and live off of the investment returns.”  

Luckily, Ryan was able to turn his discipline and dedication for baseball into a plan for a very different life than he imagined.

“I was sitting in a hospital bed in the early 2000s rethinking my future, because I was really no longer going to be able to play baseball from what the doctors had told me. It was a very scary time when you pour everything into one path and suddenly need a Plan B. That’s when I was introduced to Rich Dad Poor Dad by Robert Kiyosaki, which later became a blueprint for my business and investment strategies.”

Coincidentally, an ASU teammate’s father was an apartment syndicator and helped Ryan learn about multifamily investing. 

“I knew that sports was out of the question and I was going to have to make it in the business world,” remembers Ryan. “That’s when I doubled down on learning about real estate investment and business in general. I wanted to build a company. Everything I trained for––all the discipline, the motivation, the late nights that I put into my baseball dream––I transformed that into what I was going to do in the next phase of my life.” 

Ryan McKenna Baseball

From Bases to Business

Ryan took various entrepreneurial roles and began learning from the mentors he saw running companies and building businesses. That led him to pursue an MBA at the University of Notre Dame. “It was very important to me personally and from a business perspective, because I was coming back to the Midwest from Arizona and knew my roots were here and this is where I was going to build from.”  

According to Ryan, one of the best aspects of the program was collaborating with classmates to test out thoughts and ideas in real-world business scenarios. “I had a good platform to springboard off of. And leading up to that, I was making investments in multifamily syndication with firms like Ashcroft; so, it was great to see that work for me personally, but also bring that to other people who didn’t know that this type of investment was out there.”  

Ryan McKenna Family Ski

The Pros of Real Estate Investing  

Reflecting on his time at Notre Dame, Ryan elaborates, “that’s what really inspired me to launch the business. I did want to help others and to continue growing and investing in this space, because I did a lot of research and I just haven’t found anything I feel personally is better than multifamily syndications from a passive investment perspective, when you factor in the tax efficient income potential for the upside.” 

“The number of investors who come back multiple times says something about this type of investment that I think is very unique and still way under the radar.” 

Ryan’s personal success, his clients’ gratitude, and his results with Ashcroft have all contributed to his confidence in real estate syndication as an investment vehicle.

“If the next best comparison is the stock market,” says Ryan, “in my opinion, it’s pretty far off. What’s so appealing about it is you can do it passively while you are working full-time. If you’re a busy working professional, you can find the right people through building relationships in this space and then execute on a real estate investment strategy that would be really hard to do on your own.” 

And as a bonus, “It’s fun to see your investment portfolio grow and expand,” he says. “This is a therapeutic type of investment! You can invest passively and get all the same benefits as you were actively investing. 

Ryan McKenna Family Beach

Teaming Up with Ashcroft  

Ryan met Joe Fairless through a former mentor several years ago. ”You know his name within the industry,” remarks Ryan. “They’ve set the bar very high.” Now a co-syndicator with Ashcroft, Ryan built on his first deal and is up to 12 investments with the Ashcroft team.

“We’ve done very well together. I’ve been very happy, and Joe has continued to be a great friend and partner. He’s got a wealth of knowledge and he’s put together what I think is the gold standard for multi-family syndication in this new era of investing.”  

Ryan credits Ashcroft as a real starting point for getting into the syndication business, and it seems he’s been batting 1000 ever since. “It started out small,” he remembers, “and we’ve done over 100 syndications with our investors. I’ve personally invested in over 100 deals in the past. So we’ve done it on the co-general partner side, the active side of the syndication business, and also on the passive side.” 

Ryan McKenna Family

A Playbook for the Future 

Although the market remains in an uncertain place, Ryan is optimistic about the future of this type of investment. “It is tough, from a macro-environment-level with high interest rates, particularly for properties that were purchased a couple of years ago where it’s taking a hit on the cash flow. We’ve had some deals where we’ve had to pause distributions or reduce them, and that’s not fun. But it’s also part of what could happen. We’re going to go through different cycles. I think you really need to look at this from a long-term perspective.” 

“That’s why I think it’s important to diversify. It’s also important to not be afraid of what’s happening right now because it’s providing some tremendous opportunities. The way I look at this is if you invested a few years ago and some of those deals are a bit harder because of the challenging environment right now, every new investment you make in a deal right now, is coming at a discount relative to what it would have sold for a year ago––you’re just dollar costs averaging down your positions.” 

Importantly, Ryan points out that timing the market perfectly is impossible, but investing with someone you trust in good times and bad is crucial.

“I think if you have an approach where you’re consistently investing with people that you know, like, and trust for the long term (and they’ve got a great track record), you’re going to end up doing well despite some downturns we might go through.” 

“Having a strong operator behind the deal is very important because they can weather this storm, and I have full confidence that we’re going to get through this and we’ll be fine. There will be some bumps and bruises along the way––it’s part of investing, that there’s risk in it. I do think we’re going to go on another run after we kind of flush out whatever needs to get flushed out here.”

Ryan is just one of our 3,000+ investors. Hear what passive income has meant to over 100 of our investors.

 

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Multifamily: The “Golden Child” of Commercial Real Estate

January 3, 2024

By: Ben Nelson, Investor Relations Regional Manager

Multifamily The Golden Child of Commercial Real Estate

The Unwavering Appeal of Multifamily Real Estate in a Shifting Economy 

Multifamily real estate is often considered the “golden child” of commercial real estate (CRE) due to its resilience, consistent demand, and ability to generate steady cash flow, especially during economic downturns. The sector’s adaptability to changing market trends and demographic shifts further enhances its appeal in the commercial real estate landscape. 

Robust performance, marked by low default rates and quick recovery post-recession, is poised to continue. Additionally, transaction volumes are expected to pick up significantly by mid-2024, outpacing other CRE types.

As the economy rebounds from the challenges of recent years, the multifamily sector is primed for a significant upturn in transaction volume. This expected surge in multifamily transactions reflects broader economic trends and investor confidence, distinguishing it from other commercial real estate (CRE) segments.[1] 

 

Multifamily’s Superior Performance and Swift Recovery Post-Recession 

This sector has consistently outperformed other CRE segments in the aftermath of recessions, with its resilience primarily attributable to the inelastic nature of its demand. Housing, unlike commercial or retail spaces, is not a discretionary expenditure; it is a fundamental human need.  

Consequently, even during economic downturns, the demand for housing remains relatively stable. This stability is reflected in the sustained occupancy rates and rental incomes associated with multifamily properties, even during challenging economic periods. 

Moreover, this sector often benefits from countercyclical trends. In times of economic hardship, individuals and families tend to downsize or opt for more affordable housing solutions, which often include rental apartments.

As more people make the shift to renting over owning, the demand for multifamily units tends to remain robust, thereby supporting the sector’s overall performance.  

Demand is not the only factor impacted during times of economic uncertainty.

The sector’s unique relationship with inflation and rent growth offers a hedge against economic volatility, further enhancing its appeal in challenging times. 

This enduring demand, coupled with the sector’s historically lesser impact from economic downturns compared to other real estate sectors, positions multifamily investments as a wise choice for investors seeking to navigate through uncertain economic landscapes.[2] 

Let’s look specifically at Class B Multifamily properties. The resilience and performance of Class B multifamily properties, an asset class historically offering a balance of quality and affordability, has demonstrated strong stability in challenging economic times.  

The appeal of Class B multifamily properties lies in their ability to maintain consistent demand, lower vacancy rates, and have smaller rent fluctuations compared to Class A and C properties. These trends highlight the strategic value of investing in Class B multifamily properties during recessions, offering investors a blend of lower risk and reliable returns and providing a hedge against economic volatility.[3] 

 

An Asset Class That is Durable, Practical, and Adaptable  

The durability of the multifamily sector is underscored by its impressive track record during economic downturns, particularly during the Great Recession, where it reported less than a 1% default rate nationwide. This low default rate is a testament to the sector’s inherent stability and lends itself to the practicality of investing in the asset class.[4]

Multifamily properties typically offer more stable cash flows compared to other CRE segments. This is attributed to their shorter lease terms which allow for regular adjustments to market conditions. This flexibility ensures that rental income remains aligned with current market rates, providing a buffer against economic fluctuations. 

Furthermore, the sector has shown adaptability in responding to changing consumer preferences and demographic trends, such as the increasing preference for renting among millennials and the shift towards urban living. As home prices and interest rates remain at elevated levels, many potential homebuyers are opting for the simpler and more affordable path of renting.[5] 

 

Expected Increase in Multifamily Transaction Volume by Mid-2024 

Multifamily real estate is anticipated to experience a surge in transaction volume by mid-2024. This optimism stems from the sector’s enduring appeal and foundational role in the real estate landscape. Multifamily is projected to outpace other CRE segments for several reasons.  

  1. The fundamental need for housing ensures a steady demand for multifamily properties. Unlike commercial spaces that may lose relevance or undergo significant shifts in utility during economic changes, housing remains a perpetual necessity.  
  2. The demographic trends, particularly the growing urbanization and the increasing preference for flexible living arrangements, further bolster the demand for multifamily units.  
  3. The multifamily sector often benefits from a more favorable financing environment. Lenders view multifamily investments as lower risk due to the consistent cash flow and historically lower default rates. This perception encourages lending even in periods of economic uncertainty, facilitating transaction fluidity in the multifamily market.[6] 

 

A Critical View of the Fed’s Interest Rate Hikes 

In the current economic landscape, the Federal Reserve’s interest rate policies are under scrutiny, particularly their impact on various sectors, including housing. Some experts have taken a critical view arguing that the Fed’s interest rate hikes are unnecessary and potentially harmful. Emphasis is put on the housing market’s challenges, such as shortages in single-family homes and high mortgage rates, which cannot be resolved through higher rates.  

Three key challenges:  

  • The current nationwide shortage of single-family homes 
  • The impact of homeowners with a low mortgage rate “golden handcuffs”  
  • The inadequacy of the Owner’s Equivalent Rent measure in accurately reflecting rental price changes 

There is potential that lower mortgage rates, not higher ones, could help ease these issues, implying a misalignment between the Fed’s policies and the actual needs of the housing market. 

Critiques have been made regarding the Owner’s Equivalent Rent measure, arguing that it fails to accurately capture real changes in rental prices. This inaccuracy potentially misguides monetary policy. Beyond housing, this problem extends to broader economic factors such as labor and automobile markets, food shortages, and external geopolitical events like wars affecting energy prices.  

These ideas present a compelling argument that the Federal Reserve’s current approach may not effectively address the multifaceted issues within the housing sector, inviting a reevaluation of monetary policy strategies to better align with the diverse needs and realities of this dynamic sector.[7] 

 

Investor Confidence Fuels Multifamily Market’s Upward Trajectory 

The future of the multifamily market will hinge on a combination of economic indicators and investor sentiment, currently on a trajectory for growth and resilience. 

The anticipated increase in transaction volume by mid-2024, its robust performance in the face of economic adversity, and its adaptability to changing market dynamics position it as a key player in the CRE landscape.  

Despite concerns over rising interest rates and the potential for a moderate recession, investor interest in multifamily assets remains strong. The multifamily market is expected to not only withstand potential challenges, but thrive, offering promising opportunities for investors and developers alike. 

As such, multifamily real estate continues to be seen as the golden child of the CRE industry, offering both durability and opportunity in times of uncertainty and beyond. 

bnelson@ashcroftcapital.com

Sources:

    1. “Midyear Pulse Check: U.S. Multifamily Market.” CBRE. September 14, 2023. https://www.cbre.com/insights/briefs/midyear-pulse-check-us-multifamily-market
    2. Agarwal, Swapnil. “Multifamily Investing In A Recession-Prone Environment.” Forbes. November 4, 2023. https://www.forbes.com/sites/forbesbusinesscouncil/2022/11/04/multifamily-investing-in-a-recession-prone-environment/?sh=27796b956e1b
    3. “Class B Multifamily Performed Best During Past Downturn.” CBRE. March 25, 2020. https://www.cbre.ca/insights/articles/class-b-multifamily-performed-best-during-past-downturn
    4. “How Multifamily Outperformed Other Real Estate Sectors in Past Recessions.” ArborCrowd. May 20, 2020. https://www.arborcrowd.com/real-estate-investing-learning-center/multifamily-outperforms-in-recessions
    5. Mekouar, Dora. “Young Compete Against Old in Hottest US Rental Market in a Decade.” VOA News. November 08, 2021. https://www.voanews.com/a/young-compete-against-old-in-crowded-us-rental-market-/6301836.html
    6. “2024 Multifamily Outlook.” Freddie Mac. 2023. https://mf.freddiemac.com/docs/2024_multifamily_outlook.pdf
    7. Ritholtz, Barry. “The Fed is Finished*.” The Big Picture. November 1, 2023. https://ritholtz.com/2023/11/the-fed-is-finished
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How Ashcroft Capital Continues to Evolve its Multifamily Acquisitions

December 27, 2023

By: Travis Watts, Director of Investor Development

How Ashcroft Capital Continues to Evolve its Multifamily Acquisitions

2023 Multifamily Acquisitions Snapshot 

The multifamily real estate market has remained strong over the past year, with rent growth and high occupancy rates. The U.S. has also faced increasing expenses, higher insurance costs, property taxes, and wages, all of which can be attributed to inflation. As a result, we’ve evolved our multifamily acquisition strategies to benefit our investors. 

Why is deal research important? 

Thorough deal research requires a multi-step analysis to ensure a viable and profitable real estate investment outcome. Ashcroft Capital’s comprehensive guide to deal research provides a thorough analysis that factors in market research, expenses, investment goals, among other vital aspects of the due diligence process. 

How do we choose deals? 

Real estate investing can be incredibly lucrative, but comes with risk. Diligent research is essential for investing success. At Ashcroft Capital, we conduct thorough due diligence when identifying investment opportunities. 

Several factors determine a profitable and successful multifamily acquisitions strategy: 

  • Cash flow: Positive cash flow can promote steady income and allows investors the opportunity to invest their capital or create multiple passive income streams. 
  • Leverage: Leveraging properties with debt (a mortgage) allows investors to maximize their returns and increase profitability. Borrowing funds or using alternative sources of capital to finance the investment is an essential factor. 
  • Equity: As a property appreciates after renovations, investors’ equity grows, which provides opportunities for refinancing or selling at a higher price.  
  • Appreciation: Additionally, market trends, location advantages, and potential growth factors can drive property value appreciation resulting in further profit potential when the property sells. 
  • Risk: Market volatility, tenant turnover, or repairs and maintenance costs, are balanced against potential returns to make the most informed investment decisions.   

What changed with 2023 multifamily acquisitions? 

2022 was a strong year for the multifamily real estate market. 2022 had record-high occupancy and rental growth. The high apartment demand, combined with inflation, helped justify rental rate increases in addition to value-add business plans. 

As we moved into 2023, the multifamily real estate market faced more challenges. These challenges required acquisitions strategies to evolve. Some of these challenges include: 

  • Interest rates: Rates have remained high, without concrete insight into when they will come down. Higher interest rates result in higher financing costs, impacting multifamily real estate  valuations. The continued uncertainty with what the Fed will do with interest rates halted activity in the multifamily acquisitions market Additionally, it has halted lenders.  In turn, this left many sellers unclear on market pricing. 
  • Inflation and potential recession: In Q4 of 2023, we continue to see higher interest rates due to the Feds’ efforts to lower inflation. Despite the high interest rates, the multifamily real estate market has historically been a top real estate investment during recessions because of high demand and the need for affordable housing solutions during tough economic times. 
  • Difficulty refinancing: Refinancing has also become more complex because of the higher interest rates. Refinancing in today’s environment likely means obtaining a higher interest rate on a loan, which has caused property owners to wait to refinance. 

How have Ashcroft’s multifamily acquisitions strategies evolved? 

At Ashcroft Capital, we continue to evolve our real estate investing process to adjust with the market. The goal is create a healthy risk-adjusted return. We identify suitable properties that have the potential for further improvement. Factors that go into selecting the right property include: 

  • Location strength: We research hundreds of markets, focusing on both emerging locations and return potential opportunities. We prioritize areas demonstrating economic growth, diverse employment sectors, and favorable demographic trends. We also seek value-add and core-plus properties in strong submarkets with high occupancy rates. 
  • Due diligence: We have a rigorous 144 step due diligence process to evaluate multifamily real estate deals and ensure each property fits within our investment criteria. 
  • Relationships: We have spent years developing relationships with brokers and sellers, and this aids in the process of evaluating potential deals. Our strong network provides valuable insights and off-market opportunities. 

“If the right deal comes along and we have the right relationship with the seller, and it’s in the right market we will absolutely pursue those,” says Scott Lebenhart, CIO at Ashcroft Capital. 

“We’re doing a tremendous amount of research on potential opportunities. We’re trying to find the right deals, meaning we’re looking at very specific submarkets, specific vintages, specific demand drivers, specific average household incomes.”   

We were highly selective with the deals that presented themselves this year. If the property wasn’t in one of our desired markets or submarkets, or if the asset doesn’t adhere to Ashcroft’s quality standards, we won’t spend our time on it. 

Additionally, if the property has an unreasonable price, that tells us that the seller isn’t motivated to sell. We choose to spend our resources on deals that we know will be a success. If a sale price is unrealistic given current market conditions, we will strategically decide to wait until the seller has a more realistic offer price. 

 

In Conclusion – Ashcroft Capital’s Evolving Strategies

Our multifamily acquisitions strategies continue to evolve as we navigate through the current economic landscape. We’ve applied these updated strategies to choose our most recent acquisitions, Midtown 501, Elliot Cocoplum, and Halston Lakeside. We adjusted our acquisitions strategy to leverage strong markets, established industry relationships, and acquired fixed-rate loans for our recent acquisitions. These factors, in turn, provide our investors long-term capital preservation and growth potential in an ever-changing environment. 

 

Author - Travis Watts

travis@ashcroftcapital.com

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The Path to Fulfillment: Unlocking Your Core Values

December 20, 2023

By: Travis Watts, Director of Investor Development

Redefining Wealth Through the Power of Core Values 

What does the term “wealth” mean to you? For me, wealth spans far beyond money – I’ve always viewed lifestyle as the main goal of obtaining wealth. Imagine walking through a neighborhood and coming across a beautiful home. It’s stunning, perhaps it’s worth millions. If you had an opportunity to buy it for half the cost, would you buy it? This question can tap into what truly matters to you. 

The other day, my wife made a great point. We were looking at houses and found an amazing house as described above. I presented the hypothetical thought of buying at such a discount. While the thought was tempting to my wife, it turned out, she valued freedom more.

In other words, the house, even if we could buy it at a steep discount, would still require ongoing maintenance, higher property taxes, higher insurance costs, and a multitude of cleaning, which my wife does not value. So, for her, the house would take away something more meaningful, her freedom.

If she valued “status” over freedom, things may be different. Lucky me! This got me thinking—our core values are what guide us, pushing us toward things or pulling us away. Knowing these values is like having a compass in life. 

In money matters, knowing yourself is key. Before diving into investments, I’ve always started with understanding myself—who I am, what I want in life, and what drives me. 

 

Understanding the Core Values that Drive You 

So, how do you figure out your guiding values? It starts with a simple five-minute self-reflection, which I’ll share with you in a couple of minutes. This exercise is a fun way to uncover what matters most to you. It can help sort out what drives you, what your goals are, and equally important, it reveals what’s not important to you.  

I’ve done this exercise many times over the years, and my top core values have long been freedom, growth, independence, wealth, and knowledge. They’re like my personal DNA, shaping who I am. 

 

Let’s Dive a Step Deeper into These Core Values: 

Freedom is huge for me – having a love for travel and creating financial independence have guided my career choices and shaped how I live. 

Growth – Always striving to learn and improve through mentors, podcasts, and books has allowed me to help others and has guided me toward the role of Director of Investor Development. 

Independence – Has allowed me to make choices based on personal preferences and values without as much external pressure or influence. 

Wealth – Has always been about lifestyle for me. An improved quality of life by affording access to more options, flexibility, and resources, while having a greater means to serve others.  

Knowledge is like fuel for me. I’m always thirsty for learning new things and sharing openly with others through podcasts, events, and articles like this.  

Living in accordance with your core values fosters authenticity. It allows you to stay true to yourself, leading to a more genuine and fulfilling life. When values align, relationships thrive. But when they clash, it can create tension. 

 

Discover Your Treasure Map to True Wealth 

Imagine a top value for you is adventure. You love to get away and travel, but your spouse values security and stability and prefers to be a homebody. You bet there will be some tension in the relationship. That’s not to suggest that the relationship cannot work, but it will require an understanding of your partner’s values, which can aid in finding common ground.  

So, my advice? I encourage you to take a few minutes and uncover your core values. It’s your personal treasure map to true wealth. Below are examples of personal values. Rank your top 5 in order of importance and feel free to do this exercise with your partner or a family member. These are what guide your choices, shape your behavior, and define the path you take, contributing significantly to your overall well-being and happiness.

Want to learn more? Check out The Passive Income Lifestyle Series on Ashcroft Capital’s YouTube page.  

Author - Travis Watts

travis@ashcroftcapital.com

 

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The Leaps of Faith That Led One Investor to Ashcroft—and His Purpose

December 15, 2023

Ashcroft Capital Investor Feature - David Lucas

“It’s created time, energy, and space to design my life. It’s allowed me to direct the play, write the script. And I do it every day.” 

David Lucas, a Long Island native, lives and works in Columbus, Ohio as a neuromodulation technique practitioner for his own business, Resonate NMT. A long and winding road brought him there and David sees his investment journey as a series of leaps guided by one principle. 

“I am very focused and passionate about service, about community, about helping people,” he says.   

It all began in New York City where David was working as a digital advertising consultant and producer. He then suddenly lost his job. “After being laid off, I was shaken and depressed,” he recalls.

“I had read Jack Kerouac’s On the Road as a young man, and in 2011, I decided that I was going to go out and fulfill that fantasy. I rented a car for eight weeks with unlimited mileage, and I went out to see the whole country.” 

 

Overcoming Roadblocks 

Upon his return to the city, David developed some unfortunate health concerns. “I developed food sensitivities, wrestled with anxiety. I was confused. I was frustrated. I was angry. And I couldn’t eat anything. Everything made me so incredibly fatigued, I had to lay down. For the next 10 years, I was laser focused on reverse engineering this.” 

David says he saw every type of doctor, with no relief. “I was physically, mentally, emotionally broken.” Yet in spite of his condition, David was able to gather the strength to plan for his future career and financial stability. “After the shock of losing my job, I realized that there’s no guarantee. There’s no job security in corporate America. I could be in a position where it happens again when I’m much older. What would be a backup plan at that point in my life?”  

It was then that David made up his mind to start his own business and find the right place to invest the nest egg he had built over his career. “I wasn’t going to have access to a 401k, and I couldn’t just keep all my money in a checking and saving account.” Serendipitously, the answer to both was real estate investment.  

“I was studying investing to do something with my money,” David explains. I purchased a bunch of books on investing in the stock market. One of the books compared investing in the stock market to investing in real estate, and that caught my attention. Then the vision just appeared to me: I’m going to provide housing for families.”

Making the Leap 

With his business established, David soon made his first acquisition. “I purchased a 16-unit property straight away, with no experience at all,” he recalls. “I continued to acquire more and more fourplexes, duplexes, single family homes, and nearly doubled in size in about five years. So that’s really what led me into investing.”  

By this time, David had moved to Columbus to be closer to his properties and leave the big city (and all the struggles it represented) behind. Along the way, he discovered The Best Ever podcast. “It was 2018 and I was ready to take another leap. I wanted to do something that required less energy and time than my current business model providing housing in C-class neighborhoods to lower income families.” 

David became excited about the investment vehicles he learned about on the podcast, but that’s not what convinced him to work with Ashcroft. “What really inspired me and made me comfortable and confident enough to do this was Joe,” says David.  

“I hadn’t met him, but I felt like he was in my living room for 1000 episodes. My sixth sense told me that this guy is very honest, very authentic.”  

Trusting his new financial savvy, David took his first leap with Ashcroft with a multifamily residence in Midtown Dallas.

“We had a really successful exit, faster than we all originally expected. I just continued after that and started investing in the Value Fund. That’s how I transitioned from my own company, which I still own and operate, to syndication and passive investment.” 

 

A Chance Encounter Pays Off 

Real estate syndication may have given David some time back, but he was still searching for an answer to his health problems. In a lucky twist of fate, he was taking a course in Arizona in 2020 when he crossed paths with someone who offered a path to healing.  

David underwent a session of neuromodulation therapy (NMT), and says it was life-changing. “That was it. I was able to eat anything I want, anywhere I want, anytime I want. About a month later, I was so inspired and impressed by this transformation that I felt it was my purpose to go to study NMT and find the other people like me out there, struggling with something and stuck.” 

It was time for another leap. David opened his own practice, Resonate NMT. “I work with about 10 clients per week. I spend the rest of my time providing housing to lower income families in Class C neighborhoods and managing that process.” 

Paying It Forward 

Renewed health and a passive income stream have enabled David to work less and pursue his passions. “It’s allowed me to spend more time with my girlfriend and her son. I spend more time e-biking and hiking, and I’m able to meditate twice a day and do yoga once a day. It’s allowed me to feed the homeless.” 

More than anything, David is “excited about making a lot more money and doing good with that money.” For those looking to make a leap of their own, David has some words of wisdom.

“My advice would be to be courageous, but also do the research. Understand what you’re getting into, but you’ve also got to get your hands dirty. You’ve got to try it.” 

David is just one of our 3,000+ investors. Hear what passive income has meant to over 100 of our investors.

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Discover the Stability of Multifamily Real Estate in Election Years

November 30, 2023

By: Ben Nelson, Investor Relations Regional Manager

The real estate election effect

Elections usually bring economic uncertainty, and navigating the real estate market during an election period is no exception. Presidential elections can precipitate regulatory changes that affect all industries, and the 2024 election is already bringing up questions about how the election will impact the multifamily market.

While this time brings greater unpredictability, it’s reassuring that these questions arise every election year. Let’s go deeper and learn more about commercial real estate, and more specifically the multifamily market during election periods. 

Past real estate trends and expectations for 2024 

The past several decades have proven that real estate values drop during election years because consumer and investor uncertainty rises with the unknown changes on the horizon. 

As we approach 2024 the current high mortgage rates and global economy will likely be top of mind. According to the National Association of Realtors (NAR), “The real estate market is facing a turbulent economy and sagging office sector, exacerbated by inflation, slowing GDP growth, high interest rates, bank stress, and rising geopolitical concerns involving Russia, China and elsewhere.” 

The NAR also reports nationwide housing shortages and a growing need for affordable housing: “The U.S. continues to face severe housing shortages. Access to affordable housing has huge implications for real estate investors, economic growth, healthy communities and the need for people to live somewhere.” 

 

How the election impacts the economy and commercial real estate 

Commercial real estate is an especially resilient asset class, which is evident from historical markets.  

The multifamily segment of commercial real estate has weathered many recent economic storms, such as the dot-com crash in 2000–2001, the Great Recession of 2008–2010, and the COVID-19 pandemic recession in 2020. Coldwell Banker Richard Ellis (CBRE) research shows that class B apartment rents fell only by $125 per month during the 2008 recession because many Americans needed affordable housing, and they had a quick recovery.

“Once rents bottomed out, the rent decline was short-lived. It took less than two years to get back to prerecession rent pricing levels,” says Ashcroft Capital’s Director of Investor Education Travis Watts. 

Inflation 

Inflation comes with obvious downsides, such as higher costs of everyday essentials and the tightening of consumer spending. However, multifamily housing tends to fare well during periods of inflation. Inflation causes the price of construction materials to rise, making single-family homes more expensive and creating a higher demand for apartment living. 

Interest rates 

The Federal Open Market Committee (FOMC) anticipates rates softening at the beginning of 2024.

The National Association for Industrial and Office Parks states, “Recent recessions have shown multifamily to be uniquely resilient to macroeconomic volatility. It has historically been the best-performing property type during recessions, with demand remaining relatively strong and rents recovering faster than other property types.” 

Job market 

The year 2023 saw job growth remain robust and housing demand remain consistent, resulting in a healthy apartment demand and rent growth.

The NAR reports, “Younger generations are choosing their lifestyle first and their job second—a reversal from previous generations. Also, young professionals are showing a preference for entrepreneurship and remote or contract work.”

These factors are pushing the age of the average first-time homebuyer higher. 

Public perception 

During an election period consumer stress and anxiety levels often increase. A new president’s proposed policies can impact finances, causing many investors to pause commercial property investment until new policies have been forecasted.  

 

Multifamily investing in an election year 

Cost to rent vs. cost to own 

Throughout 2023 renting has proven more cost-effective than owning, lowering the monthly financial burden for millions. In times of economic uncertainty, leasing is an attractive option for many because of elevated housing prices and prohibitive mortgage rates. Further, renters enjoy avoiding some of the downfalls of home ownership, such as paying real estate taxes, maintenance costs, insurance costs, and the list goes on.  

Rental growth 

While multifamily rents are expected to grow modestly compared to their post-pandemic ascension, renting should remain far more cost-effective than owning for the foreseeable future. Yardi Matrix reports that US job growth remains robust, and housing demand is steady. Combined with a rising population, these factors should result in steady apartment demand and progressive rent growth. 

 

Assisting Investors to Safeguard Against Inflation

At Ashcroft, our proven strategies have helped our investors hedge against inflation through programs such as our purchase order program to help control property and maintenance expenses. With our in-house property management and construction teams, we can control the costs, quality, and speed of completion for our value-add property initiatives. Buying directly from the manufacturers also allows us to reduce costs, ultimately hedging inflation. 

Effective budget management 

Despite inflationary pressure, we remain committed to maintaining stability in construction and renovation expenses. Our underwriting team adopts a conservative approach to anticipating these costs, affording us flexibility for any potential growth within our budget constraints.

Our proactive measures in cost management enable us to deliver competitive returns. Through our proven strategy, we can keep apartment unit renovations at approximately 30–35% below wholesale pricing. This translates into a substantial value-add advantage that we extend to our investors. 

 

Ashcroft Can Help You Invest in Multifamily Real Estate During an Election Year 

As a multifamily investment company, our industry knowledge offers long-term benefits to our investors. We offer our investors a comprehensive investment process, funding expertise, historical industry knowledge, and understanding of navigating different market cycles.

Our multifamily investing strategy is focused on making the right deals at the right time with conservative underwriting to protect our investors’ commercial investment capital and allow for future growth. This proven strategy benefits our investors long-term and helps minimize risk. 

We remain committed to maintaining open communication and transparency with our current and new investors during election and nonelection periods. 

bnelson@ashcroftcapital.com

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Q3 and Q4 2023: A Pivotal Moment for the Multifamily Market

November 21, 2023

By: Ryan Wynkoop, Investor Relations Manager

Q4 2023 Multifamily Market Report

As Leaves Turn, So Does the Market: A Fall Overview 

As we step into the fall of 2023, noticeable shifts in the multifamily sector were identified in our Q4 Real Estate Market Report. Traditionally, autumn marks a slowdown in apartment leasing, and this year is no exception. But the story doesn’t end there.  

What’s adding a twist this year is the Federal Reserve’s aggressive stance on interest rates. In an unprecedented move, rates have been hiked eleven times over a brief period. This rapid shift has caught many in the market off guard, triggering a ripple effect that is reshaping the multifamily landscape. 

This unexpected surge caught buyers and operators by surprise, setting the stage for a potentially significant increase in deal volume over the next 12 to 18 months due to distressed property listings. 

 

The Long View: Housing Shortage and Market Resilience 

Despite a potential short-term oversupply, a long-term housing shortage persists in the US. This ongoing issue, coupled with demographic trends, indicates sustained demand for multifamily housing.  

On the sales front, there’s been a significant drop in annual deal volume, a 63% decline from the previous year, per MSCI.[1] Yet, investors remain optimistic about the multifamily asset class, viewing it as a stable investment even amid market fluctuations. 

 

The Fed’s Bold Move and Its Ripple Effects 

The Federal Reserve, in its quest to tame inflation, has taken bold steps, raising rates more than twice the earlier estimates. This aggressive approach has affected buyers and operators and will likely increase the volume of distressed property listings in the coming 12 to 18 months.    

Such a significant market shift was not widely anticipated and is now a critical factor influencing future market dynamics. Well positioned funds, operators, and investors may find significant opportunity in the market as a result. 

 

The Reality of Rents and the Economy 

In the realm of rent inflation, while a cooldown is underway, rents are normalizing.  

This trend is evident in the Consumer Price Index data, which is now reflecting a slowdown in housing costs. Interestingly, this change is a response to the data accumulated from the rent spike in 2022.  

More than half the nearly $400 billion in commercial real estate loans due to mature in 2023 remains outstanding, according to MSCI Real Assets.  

Combined with the nearly $500 billion set to mature in each of the next two years, “more than $1.2 trillion in commercial mortgages will be coming due in a challenging capital markets environment,” the MSCI Real Assets team wrote in the latest US Capital Trends report.[2] 

Despite challenges, the multifamily market has shown resilience. Year-over-year, rents have increased modestly by about 1.5%. The employment market remains robust, adding 3.1 million jobs in the last year, keeping the unemployment rate at a relatively low 3.8%.[3]  

However, the influx of new inventory is changing the dynamics, shifting from a renter’s market to a more competitive environment for property owners. 

 

The Dilemma of Refinancing and Selling 

In today’s economic climate, multifamily loan maturity presents a dilemma: to refinance or repay? For multifamily property owners, this poses a tricky situation.  

With interest rates soaring, refinancing options have become less attractive, especially when a property’s cash flow isn’t sufficient to support higher interest payments.  

This challenge is further compounded by the fact that selling properties isn’t as lucrative as it used to be. The rising cost of debt combined with uncertain economic conditions means potential buyers are less willing to pay a premium.  

This scenario is a stark contrast to the market dynamics a few years back. 

 

Ashcroft Capital’s Defensive Play 

In response to these market changes, Ashcroft Capital is adopting a defensive stance. Our strategy focuses on refinancing properties with adequate equity and acquiring new properties with low leverage.  

We’re also emphasizing fixed-rate debt to shield against rising rates and underwriting for a potential market softening in the future. The goal of this conservative approach is to preserve investor equity and navigate the market’s evolving landscape. 

 

Conclusion: Steady Amid the Storm 

As 2023 progresses, the multifamily market continues to navigate these challenges.  

Although the Federal Reserve’s monetary tightening cycle is nearing its end, the multifamily sector demonstrates steady growth and resilience. The strong labor market and moderating inflation growth are positive indicators for the market’s future.  

Looking ahead, the multifamily market is poised for continued growth, buoyed by the ongoing housing shortage and the increasing cost gap between owning and renting. 

Explore the complete Q4 Real Estate Market Report for further details on these trending topics. 

ryan@ashcroftcapital.com

Sources:

  1. “Commercial Market Snapshot Q3 2023” Old Republic Title, September 6 2023. https://www.oldrepublictitle.com/blog/commercial-snapshot-q3-2023/#:~:text=Compared%20to%20a%20year%20ago,pre-pandemic%20or%20above%20levels.
  2. Stribling, Dees. “Wall Of Multifamily Maturities Dead Ahead: $4B In October Alone.” BISNOW. June 28, 2023. https://www.bisnow.com/national/news/multifamily/wall-of-multifamily-maturities-dead-ahead-more-than-4b-in-october-alone-119584
  3. “Apartment List National Rent Report” Apartment List. October 30, 2023. https://www.apartmentlist.com/research/national-rent-data
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Reverse Market Crash? What It Means for Investors

November 15, 2023

By: Travis Watts, Director of Investor Development

The Overlooked Phenomenon: 

The potential of a reverse market crash is an important concept that few industry professionals are discussing. It’s important to understand the implications for individuals across different socioeconomic classes, and most importantly, what it means for you as investors. 

 

Understanding Market Cycles:  

To begin, it’s crucial to acknowledge the historical patterns of market cycles. We can categorize these in five stages as shown below:  

  1. Accumulation 
  2. Uptrend 
  3. Distribution 
  4. Downtrend/Recession 
  5. Bottoming 

After bottoming, we revert to stage 1… accumulation.  

Different Stages of a Market Cycle for Investors

Presently, we find ourselves in stage 4 – a downtrend on the precipice of a potential recession. 

 

Will We Have a Recession?  

Deutsche Bank conducted a recent analysis of the past 34 recessions in the U.S. and identified four warning signs that historically predict recessions:  

  1. A rapid rise in interest rates (The Fed funds rate has increased roughly 5.2 percentage points over the past 20 months)
  2. An inflation spike (Inflation soared to a four-decade high above 9% in June of 2022)
  3. An inverted yield curve (U.S. Treasuries have been stuck in inversion since July 2022)
  4. An oil price shock (Oil prices have soared roughly 33% since June to over $95 per barrel)

Alarmingly, all four of these red flags are currently present in the country, something to consider. 

 

Lessons from Past Recessions:  

Reflecting on past recessions, such as the Dot Com Crash in 2000, the Great Recession in 2008, and the 2020 COVID-19 Recession, we observe a similar pattern of markets soaring rapidly leading up to a sudden drop in the market.  

As we approach the end of the Fed’s tightening cycle, the question is…will we witness a reverse market crash?  

 

The Concept of a Reverse Market Crash:  

Simply put, a reverse market crash is characterized by a sudden rise in asset prices that leads to the rich getting richer and the poor getting poorer. How?  

Rising interest rates negatively impact the valuations of real estate, stocks, and private companies as higher rates slow growth and increase borrowing costs. Over the past 20 months, we have seen these declines begin to unfold. In a reverse market crash, the Federal Reserve cuts rates, which reinflates asset prices.  

But is this really a good thing? 

 

Implications for Different Socioeconomic Classes:  

The potential benefits of a reverse market crash are not evenly distributed across the classes: 

The Poor

They statistically own very few assets. In this case, there would likely be little to no improvement in their financial situation. Making matters worse, soaring asset prices often lead to higher rents and consumer goods increasing in price, making daily life more difficult and widening the gap between the rich and the poor.  

The Middle Class

Many Americans are currently struggling with rising housing costs. If a middle-class renter can’t afford a house today with an 8% mortgage, it might seem as though lower rates would be beneficial, but what happens if housing prices take off again?  

Is it better to buy a $500,000 home today with an 8% mortgage or a $650,000 house with a 5% mortgage? Spoiler alert – it’s roughly the same payment. For middle-class Americans who are already homeowners and also hold investments, there would be some benefit, but much of this benefit would be offset by rising consumer inflation.  

The Wealthy & Investors

Did you know 89% of all U.S. stocks are owned by the wealthiest 10% of American households?  

The bottom line is investors and the wealthy own assets, real estate, stocks and businesses. In the event of a reverse market crash, this would boost their existing portfolios and lower rates make it easier to acquire even more assets.  

Once again, the wealth gap would further increase between the rich and the poor, leaving the middle-class in a squeeze.   

 

Are your investments ready?  

In a reverse market crash, asset prices rise due to interest rates being cut, but the benefits are only felt by a select few. The question is, do you want to be part of the select few? Are you an investor prepared to take action and capitalize on the potential price appreciation?  

At Ashcroft Capital, we are taking action by purchasing institutional-quality multifamily apartments at a discount and improving the properties for residents and investors. Our current investment opportunity is prepared to weather the storm.   

We are ready if interest rates remain high, or if interest rates drop in the coming years, and a reverse market crash unfolds. This strategy will boost the valuation of our properties as debt becomes more affordable for buyers. Are you ready to join us?  

 

Author - Travis Watts

travis@ashcroftcapital.com

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Farm to Finance: An Entrepreneur’s Story

November 5, 2023

“I grew up very poor on my family farm, so scarcity has always been a mental roadblock for me. I had to learn to trust my education, investment research, and due diligence while leaning into the power of compound interest and slowly growing my portfolio.” 

Mark O’Brien is a Los Angeles-based entrepreneur and business consultant, boasting more than 40 startup investments and over 10,000 multifamily units. It’s a long way from his humble beginnings more than 1,000 miles away. 

 

Sowing the Seeds of Success 

“I started my entrepreneurial lifestyle and learned a strong work ethic at a young age while growing up and working on our family farm in a small town in Nebraska.

I sold everything from organic eggs, to cedar tree posts, to lady bales (half-sized, easy-to-lift hay bales),” says Mark of his formative years. But his ambitions didn’t stop there. 

 “This carried over into college where I built niche affiliate marketing websites in the evenings and flipped them for a profit,” explains Mark.

“I have had some amazing jobs and businesses since, including interning for Walt Disney World, working for the Nebraska Cornhusker football team and the Chicago Cubs, operating eCommerce stores with 1,000+ product SKUs, teaching over 500,000 students in my online courses, to most recently scaling my digital marketing agency 1BVP.com to over 500 clients and helping business owners grow via Google Ads, Facebook Ads, and SEO.” 

In spite of Mark’s impressive entrepreneurial record, he claims he wasn’t nearly as decisive when it came to investing in real estate.   

A New Way to Grow Wealth 

Like many investors, Mark began his real estate journey when he found the BiggerPockets Podcast and the book Rich Dad Poor Dad. “I was sold on real estate as my asset class of choice,” says Mark, “but I was in analysis paralysis running the numbers on real estate deal flow from 2013 to 2015.” 

During that time, Mark threw himself into research: “I analyzed every type of deal––NNNs, single-family homes, fourplex developments, turnkey providers, and many more.” Yet, he was inspired to make the leap with Ashcroft only when he heard the words of wisdom of an interviewee on the Best Ever podcast with Joe Fairless.

“Your dentist is a professional with teeth, your lawyer is a professional with legal contracts, you are a professional in your chosen career path. So, why wouldn’t you partner with a professional that invests in real estate full-time?”

According to Mark, “this made real estate syndicates click for me!” 

Impressed by Ashcroft’s communications, educational materials, and approach, Mark was ready to start earning fully passive income.

He elaborates, “Joe Fairless has a deep subject knowledge and I learn something new from every episode of his real estate podcast. His team creates some of the best pitch decks, which include the most extensive research and due diligence all in one place.”  

“Ashcroft is conservative on their projections and has only outperformed for me since day one.”  

 When it comes to entering deals with caution, Mark has no regrets. Thanks to his thorough research, he’s already dodged a few bullets with other potential partners.

“Knock on wood, I have avoided all the deals that went south,” he reflects. “One deal in particular I avoided was a fantastic location apartment syndicate, but it required too much leverage and used an adjustable-rate mortgage. That deal required a future capital call and still isn’t out of hot water with raising rates.”  

 With all he’s learned so far, Mark has at least one lesson to pass on to others. “My advice would be to conservatively underwrite every deal yourself and assume the worst will happen (like Covid, inflation, and wars).” 

Real Estate to the Rescue 

For now, Mark and his wife plan to continue working and allocating as much as possible in real estate funds, in hopes of achieving their unique vision for the future.

“Our main goal is to live 100% off of our real estate income by my wife’s 40th birthday and purchase a farm for our pet rescue. My wife Tiffany and I have already fostered and adopted out 25 dogs and cats!”  

Thanks to real estate investment, Mark and Tiffany will be able to redefine what work means to them. “It enables my wife and I to live a fuller life.

We travel the world, pursue our passions, and make memorable experiences with friends and family,” says Mark. “Though we have a goal to ‘retire’ early, I will always be pursuing my next entrepreneurial venture,” he adds.  

For instance, Mark plans to continue growing his new business that helps entrepreneurs like him connect and learn from one another.

“Entrepreneurship and investing can be a lonely career path. I’ve tested popular peer networks and really enjoyed them, but I recently launched GrowOffline.com to include all the best elements of EO, YPO, Vistage, BNI, and Tiger 21.” 

Grow Offline organizes local accredited investor monthly meetups. “They enable me to get offline and achieve my full potential in business, investing, and my personal life through life-enhancing connections, collaborative learning, and local shared philanthropic experiences. 

Mark is just one of our 3,000+ investors. Hear what passive income has meant to over 100 of our investors.

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Playing Defense: Understanding Financial Risk

November 1, 2023

By: Ben Nelson, Investor Relations Regional Manager

“Progress always involves risks. You can’t steal second base and keep your foot on first.” Frederick B. Wilcox

The Crucial Role of Financial Risk Management

Working to reach a level where you are able to invest is an especially gratifying personal milestone. It can take years for some and decades for others, but it’s something many of us strive towards.  

Achieving this goal takes time, patience, consistency, discipline, intuition, and occasionally, a lucky break.  

The realization of this milestone is exciting, but human psychology intervenes early and often. When acquiring something that takes a great deal of time and hard work, we place an especially high value on protecting it, often avoiding financial risks and thereby superseding the opportunity for growth.  

Inherently, we know that we must employ some elements of risk to our capital or risk the possibility of the erosion of that capital due to inflationary factors. If there is anything that 2023 has taught us, it’s that inflation is very real and can negatively impact our financial situation.  

So, let us discuss risk, truly an ugly four-letter word.  

 

The hard truth is that in any situation, capital is at risk.  

Whether it’s highly volatile options contracts that eventually expire worthless, a savings account above FDIC limits at a troubled institution that experiences a bank run, or cash held under a mattress seized by a thief, capital must always be considered “at risk” and guarded carefully.  

Also, everyone has a different perception of, and appetite for, financial risk. Some people welcome risk, even seek it out, believing they will be able to pick more winners than losers. Others avoid risk whenever possible, content with the status quo of safety, even if it means missing opportunities along the way.  

Most lie somewhere in the middle, pondering the classic and ever-present conundrum: who can generate the highest returns while taking the lowest level of financial risk? Who is the best at playing both offense and defense?  

 

Sorry to spoil the surprise. 

This answer changes every day, and none of us will ever be able to keep up. 

Capital has a predictable tendency to flow to where it is best treated and understanding where your financial risk lies is crucial to making wise investment decisions.  

Working in investor relations, I spend much more time speaking with investors about what could go wrong versus what could go right. Not only do I agree with people who approach investing like this, but I believe it is vital to study risk as thoroughly, or even more thoroughly, than you study the potential rewards from an investment.  

Today, I want to examine three risks that you should be aware of as it relates to real estate investing. There are many more than just these three, so I encourage you to perform additional diligence on this matter. 

 

High Level: General Market Risk 

Our global market is a living breathing organism. Not only does it never sleep, but each sector relies upon and is affected by others; sometimes directly and substantially, and sometimes indirectly and inconsequentially.  

They are always moving and interacting with one another, similar to the functionality of the human body.  

Most examples of market risk deal with factors you cannot control, only monitor and do your best to navigate around. Natural disasters, war-time conflicts, global pandemics, Federal Reserve interest rate shifts, governmental policy changes, and market imbalances/corrections are the first things that come to mind.  

To attempt to avoid these financial risks entirely over your investing lifetime is not only a fools-errand with a minuscule probability of success, but it will likely limit your ability to grow. But what general market risks can deliver is opportunity.  

During the financial crisis of 2008 and 2009, I worked for a financial institution with a storied history and strong balance sheet. When most Wall Street banks started failing and stock prices were taking a nosedive on a daily basis, I walked into my boss’s office trying not to appear in a state of panic.  

He looked at our stock price and said, “There’s no way we’re worth that much per share but we’re being penalized with everyone else.”  

In a highly bold move, I watched as he took his entire savings account and converted it into our company’s stock. “You have to believe in something,” he told me as he hit “buy.”   

Over the next eight months that one transaction would make him over 400% and change his life.  

Now, am I telling you to take risks like this? Absolutely not. The U.S. Government could have shut us down and he would have lost his job and everything he saved in a matter of weeks. But I am telling you that he saw an opportunity from a market risk outside of his control and seized it.   

 

Mid-Level: Financial Risks 

Financial risks are not only easier to forecast but are also easier to prepare for.  A few examples are risks such as liquidity risk and leverage risk.  

Not enough liquidity on your balance sheet? Too much leverage on your assets? You need to pay close attention.  

These are typically not problems in a steady healthy economy and promote economic growth – banks lend, companies spend, rules relax, and progress is made.  

However, in the past year, the treasury yield has inverted, meaning short-term U.S. Treasuries are paying a higher yield than long-term U.S. Treasuries. Talking about treasury yields is not very exciting, understandably, but this kind of action does sound alarm bells for what could be coming around the corner.  

When treasury yields invert, banks find it much more difficult to make loans (i.e., borrow long-term and lend short-term). In fact, even the previous loans they have issued make them nervous.  

For example, has your bank offered to swap you out of that 3% fixed-rate mortgage and put you into an 8% mortgage with a pile of cash from your equity? Mine surely has. Since 1978, each time the yield curve has inverted it has signaled an incoming economic recession.  

The timing has been different for each, but the consistency of this “signal” has been one of the rare truths of our lifetimes. (1) A recession means rising unemployment, tightening lending standards, lower growth, and more often than not, high volatility in equities. For real estate, it can mean declining property values and a lessened ability to transact. 

 

Low Level: Property Risks 

In real estate, property risks are the easiest to control, but that doesn’t imply that they are easy. Types of property risks are vacancy risk, tenant risk, location risk, and repair risk.  

As a syndicator, we always want our properties to have 95% occupancy or higher. But what if a new apartment is built across the street offering an attractive introductory deal to get people to make the switch? Or, what if a major corporation moves its headquarters to another city?  

That’s vacancy risk. Failure to properly screen your tenants and having many people delinquent on rent payments is tenant risk.  

If a wave of gang-related crimes enters a city where your property is located and begins making headlines and driving down demand to live there, that would indicate location risk.  

If you own older Class C apartments and the units need to have all washers and dryers replaced after having major malfunctions, that would be a type of repair risk.  

This list is not exhaustive by any means, but, for the most part, these are risks you can uncover through due diligence. 

 

How Does Ashcroft View Financial Risk? 

We own and manage over $2.8 billion worth of properties, but our most valuable assets are our limited partners.  

Ashcroft Capital’s first and foremost goal is capital preservation. We believe after achieving that we can pay a consistent passive income and generate attractive returns that will keep our investors excited about future offerings.  

We are in a period where market risks are popping up everywhere, and we continue to be pleased with how our assets are performing despite headwinds. Interest rates have risen, and while we have had no control over that, we have done everything in our power to lower expenses, raise revenues, and organically grow net operating income.  

We’ve also been purchasing properties at a much lower loan-to-value ratio to reduce interest charges and improve leverage ratios and reduce financial risk. When people are worried about elevated insurance rates in Florida, we are pleased to tell them how we’ve structured our insurance coverage across our entire portfolio of assets.  

We love the locations of our properties and know we eliminated so many property risks by doing our due diligence on each with a fine-tooth comb. Our overall vacancy rate remains low and our property management continues to be best in class. 

What I am most pleased with is that we have stayed true to what got us to this point. 2023 has been a spectacular year for playing defense against risk, but we’ve also been playing offense and have seizing opportunities.  

In what is a very slow market for multifamily transactions, we’ve still managed to find almost 1,000 doors in three high-growth markets in our current offering, the Ashcroft Value Add Fund III. In the longer term, we think we took advantage of a situation that most chose to or were forced to sit out.  

If you’d like more information on our current offering, please contact investorrelations@ashcroftcapital.com to speak with one of our representatives. 

bnelson@ashcroftcapital.com

Sources:

  1. Ermey, Ryan. “This classic recession indicator just hit its lowest level since 1981—here’s what it means for you.” CNBC. July 7, 2023. https://www.cnbc.com/2023/07/07/yield-curve-inverted-the-lowest-since-1981-what-it-means-for-yo.html 

 

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Former CEO Enjoys Lake Life Thanks to His Own Hard Work and Smart Investments

October 27, 2023

“One thing I learned in my career was that you invest in people. It’s people who drive businesses, and it’s people who get the results.”

Jim Donnelly could never have guessed that a weekend on the lake would lead to a whole new way of thinking about real estate investment. After serving as CEO for a chemical company for 15 years, with 40 years’ experience in the industry, Jim decided to sell his equity position in the company when a foreign investor acquired it. His dedication to the company earned him promotion after promotion, eventually enabling him to winter at his beach house in Florida and to summer at his lakeside home in Ohio.

It was here that a chance encounter with Joe Fairless led to another believer in Ashcroft and real estate syndication. 

“Joe happens to own a home in the same lake community where we live in Ohio,” explains Jim.

“One day we were floating around the lake, drinking a couple beers, and chatting. We got to talking about Joe’s business. He is such a personable, honest, and decent guy that I decided right then after meeting him that I wanted to invest with him.”  


Life after W-2 

It was perfect timing—Jim was searching for ways to diversify his investment portfolio after exiting his company. “Prior to getting involved with Ashcroft, we had purchased a number of properties in the Cincinnati area,” says Jim. “Many were located in kind of a distressed area, but it had plenty of opportunities for growth and improvement and gentrification. We essentially turned the operation of those properties over to our sons, and we just kept the investment while they developed and sold off the properties. So, we were always involved in real estate from that angle. But after I retired, I didn’t want the headache of dealing with the day-to-day operations.” 

Jim already knew he wanted to transition to a passive income model; he just wasn’t sure where to put his money.

“I really preferred something that would provide a little bit of passive income so you don’t have to manage the property yourself. That’s one big reason we got into syndication with Ashcroft. You just own a little piece of it, and it takes the headache away.” 

 

Why Ashcroft Was the Right Fit 

When Jim floated into the hands of Joe Fairless, he knew he had found the right fit. Beyond the diversification and passive income that real estate syndication provides, Jim says he was also attracted by competitive returns. “It was a steady dividend, and really we expected long-term capital appreciation of the money that we invested,” says Jim.  

The Ashcroft model also gave Jim a sense of comfort going into retirement. Jim elaborates on his decision: “As you age and get near retirement, you want less risk and probably a shorter horizon for your investments. That was another reason we got involved. The horizon for the different deals aren’t typically much more than five to seven years. So that was critical from that standpoint, at this point in our life.” 

But above all, Jim says he invested because of the Ashcroft team.

“The overarching reason why we invested was Joe Fairless. Of course, I did some background checks because I didn’t want to just invest in some guy I met in a lake. We invested with Joe because we trusted him after doing a little more due diligence and learning more about him.” 

For Jim, it is important for his financial partners to align with his principles. In fact, after decades of investment experience, Jim’s strongest advice to those interested in investing is “Get comfortable with the company and the leadership of the company. Get comfortable with their ethics and whether they’re good people with good hearts––not just trying to make a buck. I think you find that those guys will let you down. But if you find people who are truly sincere in their efforts to build relationships and build equity, I think you’re better off.” 

Deciding How to Use the Dividends  

Like many retirees, Jim is excited to travel the world in this next phase of life. He credits his investments with providing the peace of mind to make big plans. “When we want to go somewhere, we go. We don’t have to worry about funding the next stop.”  

Yet what excites Jim most about the future of his investments is all he plans to give to his five children and more than a dozen grandchildren! Jim describes his vision: “We would be able to help the kids with their investments as well as help with the grandkids’ college funding. We have provided 529s for all of them, and we pay into them every year a certain dollar amount.” 

“Those are the best things about what’s to come––being able to help family secure their future.”  

 

Jim is just one of our 3,000+ investors. Hear what passive income has meant to over 100 of our investors.

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Cracking the Code: Unlocking the Value of Underwriting in Syndication Investments

October 26, 2023

 

By: Ryan Wynkoop, Investor Relations Manager

Understanding the Underwriting Process is a Valuable Part of Your Due Diligence 

Underwriting plays a pivotal role in syndication investments, and it is crucial for investors to understand and conduct thorough due diligence.  

By definition, underwriting refers to the process of evaluating and assessing the financial risks or potential returns of an investment opportunity.  

Underwriting of syndication investments allows investors to make informed decisions based on a comprehensive analysis of the property’s financial performance. 

 

Financial Metrics That Set You Up for Success 

Through underwriting, investors can assess various financial metrics such as cash flow, net operating income, and return on investment.  

By thoroughly evaluating these factors, investors can determine the viability of the investment and make informed decisions about whether the potential returns align with their investment goals and risk tolerance. 

 

Identify Red Flags Before It’s Too Late 

Additionally, underwriting enables investors to identify potential red flags or risks associated with the investment opportunity. Investors can spot discrepancies, potential vacancies, or operational inefficiencies by analyzing the property’s income and expense statements, rent rolls, and market data.  

These insights allow investors to mitigate risks and adjust their investment strategy . Additionally, they allow investors to align a potential investment with their risk tolerance.   

Underwriting also helps investors to negotiate and structure the syndication deal.  

Armed with a detailed analysis of the investment, investors can confidently negotiate the terms of the deal, ensuring that the investment aligns with their objectives and offers favorable returns.  

Through underwriting, investors can also identify potential value-add opportunities and propose strategies to maximize performance and increase the property’s value over time. 

By conducting due diligence and evaluating the financial aspects of the opportunity, investors can reduce risks, maximize returns, and strategically position themselves for long-term success in the world of syndication investments. 

So, let’s dive deep into the math that makes up investment underwriting.

 

Step 1: Start with the Basics  

The first thing that we need to know is how many units make up a particular property. For this example, let’s consider investing in a 400-unit multifamily syndication. Additionally, we need to know what the current in-place rents are to calculate the gross potential income. 

Unit Count: Begin by noting the number of units in the property, which is 400 units.  

In-Place Average Rents: Typically found in the investment presentation, let’s assume the in-place average rents are $2,000 per unit per month.  

Calculate Gross Potential Income: Multiply the unit count (400) by the average rent ($2,000) to get $800,000. 

In the real estate industry, many aspects operate within a one-year time frame. This might include a one-year lease or analyzing a trailing 12 statement, which reflects the previous 12 months of income and expenses for a property. So, let’s get to an annualized figure. 

Annualize the Income: Multiply this monthly income by 12 to calculate the annual potential income, which equals $9,600,000. 

This assumes every unit was occupied and each tenant paid rent consistently for a full 12-month period, which usually isn’t the case. Therefore, we must determine the vacancy rate specifically for this property. 

 

Step 2: Account for Vacancy  

To calculate the vacancy rate for this specific property, as a reference point, let’s consider the national average, which currently stands at 93% occupancy. This implies that 7% of the units are either not collecting rent or are currently unavailable for renting.  

Adjust for Vacancy: Multiply the annual potential income ($9,600,000) by 0.93 to account for the 7% vacancy rate. This gives us $8,928,000.  

Include Other Income Sources  

Our next step is to determine the other sources of income generated by this property.  

This may include income from pet deposits, application fees, valet trash, and even covered car parking or reimbursed utilities.  

The list of potential income sources is extensive, and multifamily properties typically have more diverse sources of income than merely rent from residents. In this case, let’s assume these sources contribute an extra 5% to the annual income.  

Add Other Income: Multiply $8,928,000 by 1.05 to include the additional income sources, resulting in $9,374,400. This is the total annual income.  

  

Step 3: Expenses and NOI  

Net operating income (NOI) is a critical measure in commercial real estate as it indicates the profitability of a property before considering the impact of factors such as taxes and financing. It serves as the foundation for determining the value of a property and plays a vital role in investment and financing decisions. 

Every property and every market will differ, but let’s assume this deal incurs 40% in expenses. This means that 60% of the total revenue is profit. 

Calculate NOI: Multiply the total income ($9,374,400) by 0.60 to get the Net Operating Income (NOI), which is $5,624,640.  

  

Step 4: Cap Rate and Property Value  

Cap rate and property value are crucial factors in commercial real estate as they provide key insights for investors and buyers.  

The cap rate, or capitalization rate, helps determine the expected return on investment by comparing the net operating income with the property’s value. This information allows investors to assess the profitability and attractiveness of a commercial property.  

On the other hand, property value is essential for determining a property’s worth and guides pricing decisions, financing options, and overall investment strategy.  

Understanding the relationship between cap rate and property value is vital for successful investment decisions in the commercial real estate market. 

The NOI can be divided by the cap rate specific to the deal, which varies according to the market.  

The cap rate is typically available in the investment presentation. For the sake of simplicity, let’s consider a 5% cap rate.   

How to Determine Property Value: Divide the NOI ($5,624,640) by the cap rate (5%) to calculate the property’s value, which equals $112,492,800 in this example.  

How to Determine the Cost Per Unit: Divide the property value ($112,492,800) by the number of units (400) to get $281,232 per unit.   

To determine the value of this property, it is essential to have information regarding the number of units, current rents, and occupancy rate.  

These figures, when multiplied by 12 to annualize them, along with the expense ratio, cap rate, and net operating income (NOI), can be utilized in a straightforward calculation that will provide the property’s value.  

 

How Do You Know if Syndications are Right for You? 

Developing a solid understanding of underwriting is vital for investors considering syndications.  

Although the GP or underwriting/acquisitions team typically handles the detailed analysis, investors can still gain valuable insight by reviewing that analysis in their own due diligence process.  

LPs can make more educated investment decisions by understanding how deals are underwritten and how value is determined in large properties.  

This knowledge enables them to evaluate the profitability and desirability of a commercial property, thus enhancing their overall investment knowledge. 

If you would like to learn more about investing in syndications, visit https://info.ashcroftcapital.com/fund, or schedule a call with our Investor Relations Team. 

  

ryan@ashcroftcapital.com