“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.” 

 

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.”  

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.” 

 

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.

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. 

 

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]  

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.

By: Travis Watts, Director of Investor Development

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.

“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.

By: Lennon Lee, Investor Relations Associate

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

 

By: Travis Watts, Director of Investor Development

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. 

 

travis@ashcroftcapital.com

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. 

 

travis@ashcroftcapital.com

“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.  

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.” 

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.”  

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.” 

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.” 

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.

 

By: Ben Nelson, Investor Relations Regional Manager

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. 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

By: Travis Watts, Director of Investor Development

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. 

 

 

travis@ashcroftcapital.com

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.  

 

travis@ashcroftcapital.com

 

“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.

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

By: Ryan Wynkoop, Investor Relations Manager

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

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.  

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?  

 

 

travis@ashcroftcapital.com

“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.

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 

 

“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.

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

 

By: Evan Polaski, Investor Relations Managing Director

Accessing Investments Using Risk Adjusted Returns

As an investor, you are looking to achieve the highest possible return on your invested capital, and risk plays a significant factor in any investment decision.  

Is a deal projecting a 20% return always better than one projecting a 13% return? Not necessarily. Continue reading to learn about ways to compare the risk of private real estate objectively and subjectively. 

A standard risk metric in private real estate is standard deviation. When operators share only their average returns as a metric, without specific deal-by-deal return information, you are missing crucial information you need to gauge the standard deviation of their track record. For example, if a group sold 20 deals with an average 20%-year return, but half those deals yielded only a 5%-per-year return, and the other half yielded 35% annually, you would not be so confident about what you could expect of their performance.  

Alternatively, if an operator showed an average 20%-year return with 18 of the 20 deals having an overall 18–22% year return, even though you should not rely on past performance as an indicator of future performance, as an investor you could feel more confident in the operator’s track record.  

When assessing an investment, understanding risk is imperative. Standard deviation of returns is a solid metric to use alongside the operator’s overall track record. 

More subjectively, there are other ways you can assess risk with private real estate markets. These are fairly simple to understand, but certainly take a little more work in practice. The three main categories can be lumped into assets, markets, and the operator. 

 

Starting at the Operator Level 

What is the operator’s experience?  

From the founders to the department heads, there should be a deep bench of experience throughout the company. Assessing their combined experience through multiple market cycles in the industry can help investors evaluate risks. Operators with longer track records tend to be more experienced with their assumptions than newer operators simply because they have been exposed to more market cycles and know how macroeconomic trends can affect rent growth and occupancy rates at different income levels. 

Track record is key. However, an operator’s track record can also be affected by how they manage their deals in both good and not-so-great market conditions. Therefore, performance in relation to market conditions is another risk factor to consider. Usually, operators who have been around for longer will have more of this information available for assessment purposes. 

What is the structure of the investment?  

Typically, private real estate is accessed through a single asset investment or a fund investment. Diversification is a proven strategy employed to mitigate risk in an investment portfolio. A real estate fund is similar in that several assets are accessible through a single investment. When you have a single investment that holds multiple assets, you are gaining diversification in your investment and thereby mitigating your risk.  

How are the assets managed?  

Operators that own every aspect of the operations, such as overseeing the business plan and owning the property management and construction management companies, provide firsthand insights across every aspect of the business. Through this vertical integration, an operator can create significant value for their investors and are generally able to control their own costs significantly better than those who outsource aspects of asset management. 

 

At the Market Level 

There is a saying in real estate: location, location, location. This has held true because the broader markets and submarkets of each asset can sometimes override the efforts of the operator.  

What drives market demand?  

When looking at a market, many factors can come into play. But ultimately, market selection can be reduced to demand. This demand focus should be driven by the tenants, that is, the ability of an operator to keep the property full and continue to see rent growth. Typically, when tenant demand is high, investor demand will be high. Thankfully, demographic demands typically don’t shift quickly, and outside of the COVID-19 pandemic, historically shifts often occur over years, if not decades.  

How often are changing demographics monitored?  

If the operator has a “set it and forget it” approach to market selection, your investment could be subjected to unneeded risks. Stalwart markets like Dallas, Phoenix, and Atlanta are always changing. Usually, operators that consistently—at least annually, if not semi-annually—take an objective view of the markets and identify those that show the best trends for new investments are considering demographic changes and risks. 

 

At the Asset Level 

Finally, the asset can introduce a lot of risk. Having in-demand amenities, or a business plan to add those amenities, can certainly affect tenant interest and desire to lease your property. 

What is the operator’s due diligence process? 

To mitigate your investment risk, your chosen operator should maintain a thorough due diligence checklist for the assets. This list should extend beyond the property lines into the immediate surroundings as well:  

• Condition of roofs 
• Condition of every unit 
• For renovations, how many cabinets, door handles, and closet pulls 
• Condition of pool equipment 
• Zoning reports 

The list goes on and on, including many factors outside of physical conditions. Competitive rents, new unit availability, the income and employment base at the property, and the nature of immediate surroundings are all factors you should consider when assessing the risks associated with a particular asset.  

Although there is no universal way to calculate risks in private real estate, understanding where the risks lie between investment options together with projected returns and an operator’s track record should match your personal goal to make the ultimate investment decisions. 

 

Track record speaks volumes.

Ashcroft Capital has a proven track record of success in the real estate investment industry, having acquired over $2.7 billion in assets and managing a portfolio of more than 13,000 units. 

We have a strong reputation in the real estate investment industry with more than 3,000 investors, of which 65% are repeat investors. This level of trust and loyalty reflects our performance and commitment to delivering value to our investors. We manage 37 communities across Texas, Florida, and Georgia, and our performance is demonstrated through our 32% Net Operating Income (NOI) growth, 25.7% Annual Cash on Cash Return, and 22.7% Limited Partner (LP) Internal Rate of Return.   

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

For more information on risk adjusted returns, join Director of Investor Education Travis Watts on The Passive Income Lifestyle for an additional conversation on this fundamental topic.

evan@ashcroftcapital.com

By: Travis Watts, Director of Investor Development

 

Learn How to Maximize Your Success by Understanding Investor Preferences 

After speaking with thousands of investors throughout the years, I put together a “Top 10” list of what they really want and how they choose the best operators. While this list is not all-inclusive, it highlights the most important categories that I found that investors often ask about. Whether you’re a curious Limited Partner (LP) wanting to explore real estate private investments or a visionary General Partner (GP) aiming to attract investors, these ten points can act as your compass:  

1. Reliable Track Record: Investors like working with experienced and trustworthy people who have successfully managed similar projects before. Being able to show that you’ve delivered good results and managed risks well is crucial to attracting investors.
2. Honest Communication: Being open and honest in your communication is important. When you keep investors in the loop, and share both good and bad news, it builds trust.
3. Good Returns with Balanced Risk: Smart investors look for investments that provide healthy returns when compared to the level of risk. Making sure that potential profit balances with risk is key. The ability to showcase how your underwriting and projections are conservative can go a long way. 
4. Clear Investment Plan: Investors want to understand your plan. They need to know the type of property, where it is, what you’ll do with it, and how you’ll make money from it. A clear and simple plan shows you’ve thought things through.
5. Doing Your Homework: Investors want to know you’ve done your research. They like to see that you know the market and have done your due diligence. A well-designed investment overview or “slide deck” can showcase these findings.
6. Shared Goals: If a GP is investing their own money alongside investors, it shows everyone is in this together. This makes investors feel more confident and connected. This is a unique element to private placement investing that can boost confidence. 
7. Preparing for Problems: Investors feel better when they know you’ve thought about what could go wrong. What is your plan to handle the unknown? Aside from outlining the risks in the PPM (private placement memorandum) how else can you explain and showcase your plan for risks?
8. Clear Exit Plan: Having a well-thought-out plan for how to make money and give investors their money back reassures them. You can use past examples or explain how and when you plan to exit the deal. 
9. Transparent Fees: Investors want to know about fees. Being clear about what fees there are and how they affect returns helps build trust. While this does not need to be front and center on the investment overview, it should be easily explained and accessible. To simplify it, you may choose to show “net” projected returns vs “gross” returns. 
10. Playing by the Rules: Investors want to make sure you’re doing things legally. Operating within the law and following regulations is important. What compliance measures have been taken? Some operators may have an in-house compliance staff, while others may use reputable law and accounting firms to oversee their business. It is important that investors know these steps have been taken.  

Providing What Investors Want

At the end of the day, investors are looking to work with people who are professional, honest, know what they’re doing, and have a clear plan for making money while managing risks. This is what we do at Ashcroft Capital, and it’s why I have been an investor for years. I joined the team in 2019 to support this mission, and to help educate people like you. Want to learn more? We have created hundreds of videos to further your education and make commercial real estate investing simple.

If you would like to learn more about investing in multifamily properties, please visit https://info.ashcroftcapital.com/fund or schedule a call with one of our investor relations team members today. 

 

travis@ashcroftcapital.com

“He handed me a VHS tape of the five-minute animated preview of what was to be Family Guy. I brought it home, put it in, and I thought the show was going nowhere. So that’s how I got into investing–I didn’t think Family Guy was going to last.”  

 

When it comes to the art of both comedy and real estate investment, television and film writer and producer Mark Hentemann is no joke. Whether he’s creating a popular animated series, writing for hit movies like The Naked Gun, or spying his next investment opportunity, Mark combines intuition and passion (and a little bit of luck) to build on each success. 

But Mark will be the first to admit he did not start at the top of entertainment or investing. His path in both fields is intertwined; he uses one to balance the other, giving Mark and his family a reliable source of income in an unpredictable world.  

 

A Budding Writer and Investor  

Mark’s story starts in Northern Ohio, just outside of Cleveland. “I went to college and majored in organizational communication, and I don’t even know what that was supposed to be,” he says of finding his footing in early life. “I liked drawing cartoons and I liked writing, so I spent a lot of my time at school doing that. I started a humor publication at Miami of Ohio, and that got me hired after graduation at American Greetings, a greeting card company.” 

It was the late 1990s, and the company had just started a new department: alternative humor. “It was kind of hilarious because nobody knew what that was supposed to be. These were the days when everything was alternative, and no 20-something was buying greeting cards from American Greetings–so they were trying to capture that market.” 

“Nobody bought them. We had a rack of cards in our department (like you’d see in CVS or Rite Aid) with our sales figures on it. It was almost a badge of honor if your card got a 0.0 because only grandmas were shopping for cards anyway.” 

“I had never taken an art class in my life and I didn’t fancy myself as a writer, but I got to do this stuff, and I was getting paid for it,” remembers Mark. But he knew the job wasn’t forever, and soon he decided to look for an agent to break into the entertainment business. Countless phone calls and one lucky submission to the William Morris mailroom later, he got a call from a novice agent who loved his material.  

It wasn’t long before his agent would call Mark again.

“I didn’t tell you this, but I forwarded your cards to David Letterman. They want to meet you. How soon can you get up to New York?”

Mark arrived the next day, flying on miles loaned to him by his mother, and landed his dream job writing for The Late Show with David Letterman.  

Creating the Iconic  

Between writing quips for “The Top 10” and bits for the opening monologue, Mark would grab lunch with his colleagues. “The writers would eat at this place that we all called ‘The Soup Nazi’ down the street. It was this lunatic soup guy in New York. Then one of the writers on staff went on to write for Seinfeld. And that, of course, became one of the most well-known episodes of the show.” 

After “The Late Night Wars,” Mark and his agent agreed that moving to the West Coast was the best next step for Mark’s career. “She got me an interview at Fox, because they were the only studio and network doing animation at the time. I pitched them a show, drew some pictures and the characters, and they liked it. They bought it in the room,” Mark recalls.   

“They also said, ‘Hey, you should meet this other young guy who’s just starting an animated show for us. His name is Seth MacFarlane.’”  

Upon meeting Seth, the two clicked, and Mark was invited to write for the newly created series: Family Guy. Mark could not have anticipated how successful the show would become, so he resolved to find a second source of income. “I didn’t know anything about LA,” he says. “I thought I was going to be broke and unemployed, and I needed some way to survive.” 

That’s when Mark got his next big idea. “I’ll buy a duplex, and I’ll rent out half of it,” he said to himself, starting his long and fruitful relationship with real estate. His first tenant was a writer and voice actor for the series. “He made fun of me for being a landlord and I threatened to evict him on a weekly basis.” 

 

Timing and Tenacity in Real Estate  

Mark bought this first duplex in 1999 and fell in love with investing in real estate. “It went well–I fixed it up and I really enjoyed the physicality of real estate. Because as a writer, you spend most of your time in your own head. So I enjoyed taking breaks from writing to do real estate stuff.” 

Looking back, Mark says he credits a number of factors with his early investment success.

“In the 90s, LA had a massive earthquake, riots, and then the tech bubble of the early 2000s. I think as a result, a lot of the values were beaten down when I got there. I got to ride the snapback of the economy. I was buying everything I could, pumping all of my money into real estate.”

Mark also grew passionate about helping others replicate his model. “I had become an annoying evangelist to all of my writer friends, saying ‘Do yourself a favor and invest in real estate!’” Eventually, his friends suggested that Mark find a property they could invest in together.  

“At first it was like, ‘Hey, I found this deal, who wants to go in on it?’” says Mark. “There would be three or four writers and we’d all pitch money in, and then I’d go fix it up, operate it, and do all the work. And then it evolved into syndications.”  

 

Moving On to Syndications 

When Mark was hired to run the full production of Family Guy, he quickly learned he would need to adjust his investment strategy. “It was a big job, a busy job. That’s when syndications came on my radar.” 

“There wasn’t really much back in the early 2000s,” explains Mark.

“I was putting together these investments with friends. I became known as the comedy guy who runs real estate deals on the side. Then I got to know Ashcroft through Bigger Pockets and started investing with them.”

Since then, Mark has continued working on his own syndication company, Quantum Capital, as well as investing passively in markets unfamiliar to him. Now an experienced operator himself, Mark knows how to take market cycles in stride, even using downturns to a strategic advantage. 

During the 2008 crash, Mark had ten properties and admits being a little nervous. “The mood of the market was scary,” he remembers. “But the reality was that there was incredible opportunity. The Fed dropped interest rates to historic lows, so I decided to refi everything I had. I bought a lot during that time, too.”  

 

Syndication Offers Safety Net to Chase Dreams

Thanks to Mark’s keen investment strategy, his family has a greater sense of financial freedom and peace of mind. Mark even has his children invest in Ashcroft, ensuring they won’t experience the anxiety that Mark has dealt with across his career. “For me, the big highlight of the proceeds is being able to step into a volatile industry. Growing up I never knew anybody who had made it in the entertainment business. It just seemed like it was not survivable. Discovering real estate investments gave me the confidence to stay in this field and not be anxious all the time.”  

Even now, as entertainment writers are on strike, Mark remains confident. “We’ve been on strike going on four months–and your income stops. I’ve got a family of five of us right now, and I’m the only breadwinner. I’m so lucky that I invested in real estate and continue to invest both passively with other operators and on my own.” 

Mark’s parting words ring true not just for the entertainment industry, but for everyone searching for financial stability in our current economy. “You never know what’s going to happen,” he says. “I think a lot of jobs are not as stable as they used to be. So, you’ve got to be an entrepreneur in some way.”  

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

By: Ben Nelson, Investor Relations Regional Manager

Famous industrialist Andrew Carnegie once said, “Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined.”[1]

Although the exact figure will never be verified, it is safe to assume most people of wealth have had success with real estate along their financial path. Most people will own a home and watch that property appreciate over decades. For others, they will create wealth through buying and managing one or more rental properties.

In the 1930s, a real estate attorney named Larry Wien pioneered a way for investors to aggregate their capital to purchase larger properties in vehicles known as syndications.[2] The syndication structure allows investors to own a fraction of the interest in a property they would otherwise be unable to afford on their own and opens a new world of exciting investment opportunities. 

But nothing is 100% guaranteed, and making any investment comes with risk. However, the amount of risk you take can be mitigated by doing research on who is managing your capital. When it comes to multifamily syndications, I speak with investors who have fallen on both ends of the spectrum. Some syndicators develop strong relationships, make calculated decisions, and earn trust over time. Some cut corners, mismanage assets, and fail to do what they say they are going to do. How does one distinguish one from another?  

You can start by asking the right questions. Here are three key questions you should ask each and every multifamily syndicator before making investment decisions. 

 

Does your team have experience navigating both up and down markets? 

In a perfect world, your asset manager would always outperform the markets when conditions are favorable, and they would not lose money when conditions are unfavorable. They would essentially deliver high alpha, a rearview financial metric that measures excess returns, and low beta, which measures the correlation of risk relative to asset class or indices. Although it’s not impossible, achieving this is rare and typically short-lived. Most investors find they have to choose.

Do you want outperformance, protection, or something in between? Working with investors during the Great Recession of 2008–2009, finding investments and managers that could outperform during the rough times became more valuable, even if it meant sacrificing returns when times improved. How a firm could handle a storm proved far more valuable than how it did when the sun was shining. 

Ashcroft Capital started buying multifamily properties in 2015, so one could assume we have operated only in low-stress markets where the economics favored real estate investments. That couldn’t be further from the truth. Ashcroft’s acquisition team has over 70 years of experience in navigating markets with low and high volatility. Rising interest rates and fear-inducing headlines are not causes for panic but opportunities to use our experience to our advantage.

Overall deal flow is down significantly in 2023, but our team has still managed to purchase over $260 million of multifamily properties with strong growth potential in highly desirable markets. In each of these transactions, sellers came directly to us for our ability to execute. 

 

Do you have a well-defined strategy with a track record of success? 

When investing with syndicators or asset managers over a long period of time, you will find there are good years and bad years. No one is perfect, and it’s common to experience pleasant surprises along with occasional disappointments. The key is long-term consistency.

It is human nature for a syndicator to become tempted to focus on a different sector or asset class they believe has more short-term growth potential, even if they lack the necessary experience in that area. This is known as style drift, and although it is sometimes necessary given a rapidly changing global economy, it must always be scrutinized carefully.  

With Ashcroft Capital, you know what you are getting: intense acquisition due diligence, conservative return projections, well-executed property improvements, and a consistent track record of timely dispositions. We’re not experimenting with buying storage units or car washes. We buy multifamily properties with a minimum of 200 units in Sunbelt markets that show the potential to generate healthy upside for our partners. Our strategy has remained steady, and our investors have seen the benefit of this repeatable and well-defined strategy. Going full cycle on 26 assets and generating a net 25.6% annual cash-on-cash return for our investors is no accident.*

 

Who operates your properties, and how well? 

Anyone who has ever hired a property manager knows how important that decision will be to maximize investment returns. A skilled property manager will maintain the property in a timely fashion, keep the owner well-informed, and encourage a sense of community that keeps tenants coming back time and time again.

However, all too often property managers are spread too thin and must focus on multiple properties at one time. This can lead to tenant dissatisfaction, low occupancy, high expenses, and a small bottom line. Many property managers will operate at a level to maintain their position and little else.  

In Ashcroft’s earliest days, we used a third-party property manager on our deals and quickly decided to make sweeping changes. Rather than move from one manager to the next, we decided to create Birchstone Residential. Today, Birchstone employs over 300 people and manages all of Ashcroft’s properties exclusively.

By being vertically integrated, we have complete control over what happens on our properties and when. Aside from control, vertical integration offers many other benefits, such as increased transparency of daily operations, the ability to pivot quickly, lower expenses, and an established and repeatable road map to growth.   

 

Ashcroft Value Add Funds

These are important questions to ask, but there are many others to consider, such as “What percentage of your investors invest with you multiple times? Will you share any referrals of existing investors?” For Ashcroft, the answers to those questions are, respectively, over 65%, and yes, we absolutely will. We are comfortable with our strategy and proud of our success, but we also love the relationships we’ve built with our limited partners.

So many of our investors decided to place their capital in each of our deals regardless of the market environment, and it is one of the biggest reasons we are excited about our Ashcroft Value Add Funds. If you’d like to learn more about our current offering and the terms of properties we purchased, reach out to us at investorrelations@ashcroftcapital.com to speak with one of our IR team members. 

bnelson@ashcroftcapital.com

Sources:

1. “Andrew Carnegie Quotes” AZ Quotes 2023, https://www.azquotes.com/quote/856550.
2. “About ESRT” Empire State Realty Trust 2023, https://investors.esrtreit.com/about-esrt/about-esrt/default.aspx.

*Past performance is no guarantee of future results and should not be relied upon as an indicator of the Partnership’s future performance or success. An investment in the Partnership is highly speculative and entails a high degree of risk, including the risk of loss of a Limited Partner’s entire investment. There can be no assurance that the Partnership will achieve its investment objectives or that the Limited Partners will receive a return of their capital.

By: Travis Watts, Director of Investor Development

Time—our most precious resource—often gets overlooked in the hustle and bustle of life. In the race for wealth and success, we tend to forget that time is the true currency that we trade. Have you ever paused to consider what your time is really worth? Even if you’ve done this exercise before, the value of your time could have changed since then.

 

The Unspoken Value of Time

Time is arguably the most valuable asset we possess, yet it’s frequently squandered on non-essential pursuits. We find ourselves fixated on money and trivial matters, ignoring the true essence of what our time can enable us to achieve.

 

A Journey to Better Decision-Making

Today, I’m excited to take you through a simple yet impactful exercise. This will empower you to make wiser choices in both your life and investments. Let’s break down the process into three straightforward steps:

 

Step 1: Calculate Your Active Income

Begin by tallying your income from all active sources. This serves as the foundation for understanding the value you place on your time.

 

Step 2: Estimate Weekly Working Hours

Next, estimate the average number of hours you dedicate to work each week. This lays the groundwork for the assessment of your hourly rate.

 

Step 3: Calculate Your Hourly Rate

With these two figures in hand, the calculation becomes straightforward. Divide your annual income by the number of weeks in a year, and then divide the result by your average weekly working hours. The outcome is your hourly rate.

 

Bringing It to Life: An Example

Bob earns an annual income of $200,000. He puts in an average of 50 hours of work per week.

Following the formula: $200,000 / 52 weeks / 50 hours = $76.92 per hour.

This signifies the value he places on each hour of his time.

 

Applying Your Time Value to Everyday Decisions

Now, equipped with your time value, you can view life through a new lens. I’ll use Bob’s example to illustrate the following points:

• Is waiting an hour in line at a restaurant worth $76?
• Is cooking a two-hour dinner worth $152?
• Is grabbing coffee for an hour after work worth his time?

 

Evolving Perspectives with Income Growth

When I was young, I embraced a do-it-yourself approach to almost everything in my life. However, as my income grew over the years, so did my time value. Certain activities that used to make sense no longer did:

• Driving extra miles out of my way for minor fuel savings.
• Clipping coupons for groceries.
• Enduring long lines for small purchases.
• Spending hours online to find the best price.

 

The Time Value in Investments

This notion of understanding time value heavily influenced my real estate investment strategy after years of grinding it out on my own. Initially, I was a DIY enthusiast for single-family homes. But as my time value appreciated, my perspective shifted.

For example, investing three hours of my time seemed more sensible than hiring a painter for $300 to paint a living room, when I valued my time at $50. The realization that my time was more valuable years later led me to transition into passive income investments as a Limited Partner. I then had the freedom to pursue active ventures that I enjoyed more than being a landlord and working manual labor in the oil and gas industry.

 

Elevating Your Life

The liberation of my time was ultimately the goal. This newfound freedom allowed me to expand my lifestyle in numerous ways. In fact, it was this decision that led me to find my wife and eventually create a family of our own. When I was working the Rat Race, I lacked the availability to build meaningful relationships.

 

In Conclusion:

I hope this simple concept encourages an introspective journey for you. What is the worth of your time, and how do you aspire to spend it? Embracing a life enriched with choices is truly the essence of success.

 

To Your Success,

Travis Watts

 

Please take a couple of minutes to watch the video below.

To learn more or schedule a time to talk to Travis, visit https://www.ashcroftcapital.com/travis/.

Watch more episodes here.

If you are interested in reviewing our current offering, please visit https://info.ashcroftcapital.com/fund. We look forward to the opportunity to work with you and align our investment interests. 

 

travis@ashcroftcapital.com

By: Travis Watts, Director of Investor Development

In recent years, artificial intelligence (AI) has emerged as a powerful force, revolutionizing many industries. One sector witnessing a significant transformation is the multifamily sector. 

“We understand the immense potential of AI in transforming the business landscape. Whether it’s optimizing day-to-day operations or shaping high-level strategic decisions, AI technology has the power to revolutionize our work processes.”  Traci Wilhelm, Managing Director of Asset Management at Ashcroft Capital 

Let’s explore a few ways in which AI is changing the multifamily sector: 

 

Improved Tenant Experiences 

Artificial intelligence is revolutionizing the way property managers interact with tenants. AI-powered chatbots and virtual assistants can provide instant responses to tenant queries, schedule maintenance requests, and offer personalized recommendations.

These intelligent systems not only save time and resources, but also enhance tenant satisfaction by providing prompt and efficient services. 

Below is the website for one of our Ashcroft Capital properties, “Halston Shiloh Valley”. Notice the Chatbot to the right of the screen. 

Source: https://www.halstonshilohvalley.com/ 

AI-driven tenant screening processes are being implemented to identify the most qualified candidates for rental properties. AI algorithms can analyze vast amounts of data to assess creditworthiness, employment history, and rental backgrounds, enabling property managers to make informed decisions quickly and accurately. 

Source: https://www.realpage.com/apartment-marketing/resident-screening/ai-screening/ 

 

Enhanced Operational Efficiency 

AI-powered systems are streamlining various operational aspects of multifamily properties. For instance, predictive maintenance algorithms leverage historical data and sensor inputs to anticipate maintenance needs. This proactive approach minimizes downtime, reduces costs associated with emergency repairs, and extends the lifespan of equipment. 

In addition, AI-enabled energy management systems can optimize energy consumption within a multifamily property. These systems analyze real-time data from smart meters, weather forecasts, and occupancy patterns to adjust heating, cooling, and lighting settings automatically.

By identifying inefficiencies and implementing energy-saving measures, property owners can significantly reduce utility costs and environmental impact. 

Smart thermostats at “LIV at Winter Park” (Ashcroft Capital Property)  

Additionally, at Ashcroft Capital, we are testing an AI collection program, which has not yet been launched portfolio-wide. The goal is to have more consistent follow-up and free up our on-site team to take care of other tasks. 

 

Smart Security Solutions 

AI is also revolutionizing security measures in the multifamily sector. Intelligent surveillance systems equipped with facial recognition and anomaly detection capabilities enhance the safety of residents and property.

These systems can identify suspicious activities, alert security personnel, and provide real-time updates on potential security threats. 

Furthermore, access control systems powered by AI offer advanced features such as biometric identification and virtual keys.

These technologies not only enhance security, but also provide convenience to tenants, eliminating the need for physical keys or access cards. 

 

Data-Driven Decision Making 

The multifamily sector generates a vast amount of data. Using AI software that taps into the information stored in property management software enables property managers to leverage the data and make better-informed decisions.

AI algorithms can analyze market trends, rental demand, and pricing data to optimize rental rates and maximize property revenue.

Predictive analytics tools can forecast occupancy rates, identify leasing patterns, and enable property managers to adjust their strategies accordingly. 

Moreover, AI-driven data analytics platforms help property managers gain insights into tenant preferences, allowing them to personalize amenities, services, and marketing campaigns.

This targeted approach enhances tenant satisfaction, increases retention rates, and attracts new tenants. 

We currently use “AIRM” revenue software at Ashcroft Capital  

Source: https://www.realpage.com/asset-optimization/revenue-management 

As of 2023 AI is still a new technology, much like the internet in the 1990s.

As AI continues to evolve, its impact on the multifamily sector is only expected to grow, making it an essential tool for success in the increasingly competitive real estate market. 

As a company, we are leveraging cutting-edge AI technology for operational and analytical purposes and will continue to access and adopt advanced technology for optimal performance. – Traci Wilhelm, Managing Director of Asset Management at Ashcroft Capital 

To learn more or schedule a time to talk to Travis, visit https://www.ashcroftcapital.com/travis/

If you are interested in reviewing our current offering, please visit https://info.ashcroftcapital.com/fund. We look forward to the opportunity to work with you and align our investment interests. 

 

travis@ashcroftcapital.com

By: Danielle Jackson, Investor Relations, Senior Manager

The U.S. has a housing shortage of 3.8 million homes per recent data from Freddie Mac. The shortage of supply has caused home values to hold steady, or in some cases increase, even in the midst of a rising interest rate environment.  This combination makes homeownership out of reach for many Americans. These continued elevated housing prices have impacted the demand, and in many cases, the need to rent, suggesting it may be a good time to consider investing in the multifamily housing market.

If you invest or are looking to invest in multifamily real estate, you can leverage opportunities in this market in many ways. As you consider investing, it’s essential to understand the options available. Are you looking to be an independent investor and actively manage properties, or are you looking to earn passive income with a real estate syndicator?  

“According to a recent survey measured by the Fannie Mae Home Purchase Sentiment Index (HPSI), consumer sentiment toward home purchasing continues to decline, with only 16 percent of respondents believing it is a suitable time to buy a home,” says Danielle Jackson[1] Investor Relations, Senior Manager at Ashcroft Capital.  

Read on to gain more insight into the benefits of investing in multifamily real estate, the differences between managing an investment asset and participating in a real estate syndication, and the best practices for property managers, property management, and renovation management.  

Roles of Property Managers  

Experienced and knowledgeable property managers are essential to the successful execution of a multifamily investment property. A property manager[2] is responsible for the routine management and oversight of all units, including daily repairs, regular maintenance, and the property’s safety and security.

Property managers can either be employees of the property owner or work for a third-party company that the property owner contracts. Along with managing the property’s daily operations, a property manager plays an integral role in maintaining the property’s value and running a profitable community by ensuring strong occupancy and collections.   

Types of Real Estate Managers  

A property manager isn’t a one-size-fits-all role. Different types of real estate managers are responsible for different tasks. Below are some of the most common types of real estate managers:  

– Multifamily property managers: Oversee daily operations for apartment or condominium high-rise developments.  

– Commercial property managers: Oversee daily operations for retail, office space, and industrial properties.  

– Single-family home property managers: Oversee the management for single-family homes, working with the property’s owners or landlords. This type of property manager often works with multiple landlords.  

– Short-term rental or vacation property manager: Oversee short-term rental or vacation properties, including handling reservations, maintaining furnishings and supplies, cleaning, and repairs.  

Property Manager Responsibilities  

A property manager’s responsibilities can largely vary based on the property’s business plan, needs, and the job responsibilities set by the property owner. Common duties of a property manager[3] include:  

– Managing the property’s finances, such as collecting rent and resident deposits, tracking income and expenses, and collecting materials for taxes   

– Marketing the property  

– Resident communications  

– Serving as the face of the property  

– Vetting tenants, including running credit checks, background checks, and any additional requirements as set by the property owner, and processing evictions  

– Managing lease and rental agreements and ensuring lease compliance  

– Overseeing maintenance and housekeeping of the property’s common areas, such as fitness facilities, the lobby, and outdoor spaces, weather-related maintenance, such as landscaping and snow removal, and overseeing third-party repair vendors, such as plumbers, electricians, or contractors 

RE Syndicator vs. Independent Investing and Property Management  

Multifamily investors that participate through a real estate syndicator, like Ashcroft, can benefit from the our established financial, construction, and maintenance processes. If you are considering independently investing and managing your asset, there are many factors to consider[4]:  

– Property underwriting and evaluating the property  

– Establishing relationships and knowing how to successfully source contractors  

– Managing rising repair costs and ongoing supply chain issues  

Management of the Budget  

Despite inflation and supply chain shortages, at Ashcroft Capital we pride ourselves on maintaining our value-add strategies.   

“In terms of cost and expenses with regard to inflation, we are doing our best to keep the cost of our construction projects steady. Our underwriting conservatively assumes these costs, which gives us room for these costs to grow over time, but still be within our budget. The same holds true for our expenses,” says Travis Watts, Director of Investor Education[5]. “[We’re] as proactive as possible to keep the costs and impacts as low as possible so that we can continue to deliver competitive returns for our investors.”  

Managing NOI, Rental Rates, and Occupancy Rates  

As an investor, understanding a property’s net operating income (NOI) growth is essential, as it determines the profitability of the property. Knowledgeable property management, vertical integration, and implementation of strategic technology lend to a property’s NOI growth, competitive rental rates, effective collection practices, and high occupancy rates.  

Maintaining Quality Employees  

When investing in multifamily real estate, quality employees are essential for the property’s success and, therefore, the investment. The wrong property management team can be detrimental to the profitability of the property. Signs that the wrong property management is in place include:  

– Minimal marketing initiatives  

– High level of vacancies  

– Issues collecting rent  

– Communication issues with residents  

– Poorly maintained facilities  

New Technology  

Incorporating new technology in property management operations can help maximize NOI, allowing property managers to focus more on invaluable face-to-face interaction. At Ashcroft, we’ve implemented new technology, including:  

– AI lead follow-up technology to automatically follow up with leads  

– Fraudulent application detection software  

– Purchase order program  

– Online reputation audit to showcase our properties in the best light online  

Managing Renovations   

When independently investing in real estate, the renovations will be your responsibility. So, the question becomes, how hands-on do you want to be with your investment? Completing the labor yourself is an intensive process requiring time, skill, and focus.  

When outsourcing construction on a multifamily property, there can be significant issues that impact your cash flow and time investment. These factors include[6]:  

– Supply chain disruptions  

– Increasing material costs  

– Lack of skilled labor  

Suppose you want to pursue investing in multifamily real estate through a real estate syndicator, like Ashcroft. In that case, it is essential to be sure the investment firm has a well-defined business plan and capital improvement strategy that improves curb appeal, enhances property value, and increases overall ROI. Factors to investigate include[7]:  

– Going into depth with too-good-to-be-true promises  

– Successful track record in executing the capital improvement strategy with extensive knowledge of the projected repair costs  

– Resident engagement strategy, because unhappy tenants can will ultimately impact the ROI  

Vertical Integration  

Vertical integration is one of the most important factors in delivering NOI growth and high occupancy rates. Ashcroft is a vertically integrated multifamily operator, which means we have an in-house team for each facet of our business plan. A vertically integrated team may include property management, construction teams, design teams, and supply depots. All these elements help with transparency, controlling costs, and expediting repairs and improvements.  

“One of the critical elements for maintaining and driving consistent NOI growth, high occupancy rates, and overall tenant satisfaction is being a vertically integrated multifamily operator,” says Ryan Wynkoop, Investor Relations Manager[8] at Ashcroft Capital. “Ashcroft has an in-house robust, comprehensive property management and construction management team.”  

In-house Property Management and Construction  

Ashcroft’s in-house vertical integration strategy includes our own property management and construction teams. Our property management teams oversee the marketing, leasing, learning and development, special projects, and maintenance. We also have in-house interior design, renovation, and construction teams. As a result, we can control the quality, costs, and speed of our property initiatives.  

Our proven five-step property improvement strategy includes:  

– Upgrading the units  

– Improving the leasing center and amenities such as the fitness center, pool area, and other shared spaces  

– Repainting the property  

– Cleaning and updating the landscaping  

– Installing energy efficient appliances  

“[Our team] have been highly motivated to drive down costs on our portfolio and guarantee our projects run smoothly so that we don’t experience any issues with shortages,” says Watts. “Buying in bulk has helped us to take advantage of economies of scale, which allows us to reduce costs. And because we purchase such large quantities at once, this also keeps costs down and hedges against inflation. When we purchase our supplies, we buy directly from the manufacturers. The supplies are then stored in a warehouse that we control, and we organize the supplies into ‘kits.’ These kits are fitted with our value-add design in mind.”  

Purchase Order Program   

Investors considering investing in multifamily real estate with Ashcroft benefit from our unique offerings, such as our purchase order program. This program helps to manage, automate and control property expenses, helping to prevent any unnecessary maintenance expenditures.  

“We’ve rolled out a purchase order program[9]. [The new] technology is great because our maintenance teams will have a catalog to order from. We’ll know exactly what they’re paying for every part because that’s the only way they can buy them. All of our vendors that agree to be in this catalog agree to the pricing. It’s a great way to control those expenses,” says Wilhelm. “This program ensures that all maintenance expenses stay within the budget, reducing any unnecessary spending. All of these programs are intended to try to tighten that expense growth as much as they can, fighting the inflation that everyone is seeing.”  

Ashcroft Practices and Results  

We have a strong reputation in the real estate investment industry, with more than 3,000 investors, of which 65% are repeat investors. This level of trust and loyalty reflects our performance and commitment to delivering value to our investors. We manage 37 communities across Texas, Florida, and Georgia, and our performance is demonstrated through our 32% Net Operating Income (NOI) growth, 25.7% Annual Cash on Cash Return, and 22.7% Limited Partner (LP) Internal Rate of Return.  

Ashcroft investors may benefit from the expertise, diversification, and value-add strategy that Ashcroft Capital provides, leading to stronger returns and a more resilient investment portfolio.   

If you are interested in reviewing our current offering, please visit https://info.ashcroftcapital.com/fund, or schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com. We look forward to the opportunity to work with you and align our investment interests.  

danielle@ashcroftcapital.com

Sources:  

1 Jackson, Danielle. “Focusing on Amenities and Management to Increase Multifamily Value.” Ashcroft Capital. March 7, 2023. https://ashcroftcapital.com/focusing-on-amenities-and-management-to-increase-multifamily-value/  

2 Brown, Jefreda. Courage, Ariel. “Property Management: Definition, Roles, Types, and Duties.” Investopedia.com. April 12, 2023. https://www.investopedia.com/terms/p/property-management.asp  

3 Beck, Rae Hartley. “What does a property manager do?” Bankrate. October 20, 2022.https://www.bankrate.com/real-estate/property-manager/#how-to-hire  

4 Many U.S. Construction Contractors are Turning Down Work Because They Don’t Have Enough Workers, U.S. Chamber of Commerce, 2021. The Top 10 Risk Factors In Flipping Houses (And What To Do About Them), Forbes, 2018   

5 Watts, Travis.” How We Maintain Our Value-Add Strategy Despite Inflation And Supply Chain Shortages.” Ashcroft Capital. December 22, 2022.  

https://ashcroftcapital.com/how-we-maintain-our-value-add-strategy-despite-inflation-and-supply-chain-shortages/  

6 Construction Project delays up to 100% due to Covid, nPlan 2022. 2022 Construction Industry Forecast, Wells Fargo, 2022. 2022 U.S. Construction Costs Trends, Many U.S. Construction Contractors are Turning Down Work Because They Don’t Have Enough Workers, U.S. Chamber of Commerce, 2021.   

7 ‘A complete nightmare’: Luxury Jersey City building beset by flooding, inoperable elevators, tenants say, New York Post, 2022. . Indiana Real Estate Developer and Property Manager Admits Ponzi Scheme to Defraud Investors of Millions of Dollars, Department of Justice, 2022. Wolf of Main Street, Bloomberg, 2022.   

8 Wynkoop, Ryan. “The Importance of Vertical Integration” Ashcroft Capital. March 21, 2023. https://ashcroftcapital.com/the-importance-of-vertical-integration/  

9 Polaski, Evan. “Conversations | Q4 2022 Review and Q1 2023 Outlook With Traci Wilhelm.” Ashcroft Capital. March 17, 2023. https://ashcroftcapital.com/conversations-q4-2022-review-and-q1-2023-outlook-with-traci-wilhelm/  

By: Ben Nelson, Investor Relations Regional Manager

How do syndicators choose the right deal for you?

Real estate investing can offer lucrative opportunities to those willing to take risks, but careful research is necessary for repeated success. So how do real estate investment firms conduct their due diligence?

Real estate investors (“REIs”) often overlook certain aspects of deal research, the evaluation process for choosing deals, and strategies to handle situations when a suitable deal cannot be found.  

 

Factors that determine potential profits

When conducting deal research, REIs consider various factors contributing to a potential investment’s profitability and success including cash flow, leverage, equity, appreciation, and risk.    

Cash flow is a vital consideration for REIs, as it refers to the income generated by a property after deducting expenses. Positive cash flow can promote steady income and the potential for reinvestment or passive income streams.

Leverage is another significant component of deal research. REIs analyze the potential to borrow funds or use alternative sources of capital to finance the investment. By leveraging their capital with debt, investors can maximize their returns and increase profitability. 

Equity refers to the ownership value that an investor has in a property. As the property appreciates over time, investors’ equity grows, providing them with potential opportunities for refinancing or selling at a higher price. 

Appreciation is a key factor in long-term wealth creation. REIs carefully assess market trends, location advantages, and potential growth factors that can drive property value appreciation. This appreciation can result in significant returns when the property is sold. 

Risk assessment plays a crucial role in deal research. REIs evaluate the potential risks associated with a property, such as market volatility, tenant turnover, or potential repairs and maintenance costs. Understanding the inherent risks and balancing those against potential returns allows REIs to make informed investment decisions.  

By considering these factors and conducting thorough research, REIs can identify and evaluate investment opportunities that align with their investment goals and risk tolerance, leading to successful real estate investments.  

Proper deal research requires a thorough analysis of multiple factors to determine the viability and profitability of each multifamily real estate investment opportunity. Ashcroft Capital conducts deal research involving these key steps:  

  

Market Research 

Before pursuing a specific deal, it is crucial to conduct comprehensive market research.

This research involves evaluating a particular market’s economic strength and growth potential, studying demographic trends, and analyzing supply and demand dynamics.

Understanding market conditions helps deal sponsors identify promising locations for potential investments. 

  

Assessing Potential Repairs 

Evaluating the condition of a property and estimating the cost of repairs is essential in forecasting a deal’s potential profitability.

This includes, but is not limited to, conducting property inspections, obtaining contractor estimates, and considering the potential return on investment for necessary 

repairs or renovations. 

  

Calculating Long-Term Expenses 

In addition to immediate repairs, it is important to calculate long-term property ownership expenses, including project maintenance costs, property management fees, insurance, and property taxes.

Accurately gauging these expenses creates a comprehensive understanding of the property’s cash flow potential. 

  

Determining Net Operating Income (NOI) 

NOI is a key metric in real estate investing, representing the property’s revenue minus operating expenses.

It is one the most frequently used metrics as calculating NOI is crucial for assessing an investment’s profitability and potential returns. 

  

Calculating Cap Rates 

Cap rates, short for capitalization rates, measure a property’s potential return on investment. The cap rate is calculated by dividing the property’s NOI by the purchase price.

Comparing cap rates across different properties and markets helps sponsors make informed decisions. 

  

Researching Comparisons 

To better understand the competitiveness of a potential deal, sponsors research comparable properties in the surrounding area.

Analyzing recent sales data, rental rates, and market trends enables investors to determine the viability of the deal and its potential for growth and appreciation. 

  

Purchase Price Negotiations 

Once a suitable property is identified, negotiating the purchase price is vital to the deal-making process. Conducting thorough research on comparable properties, property conditions, and projected returns allows sponsors to operate from a strong negotiating position. 

  

Determining Investment Goals 

At the outset of their deal research, sponsors establish clear investment goals by defining the minimum desired return on investment, risk tolerance, preferred investment strategy (such as cash flow, appreciation, or both), and ideal time horizon. These goals serve as guideposts in the deal evaluation process. 

  

Securing Financing 

Part of the deal research process involves identifying and securing suitable financing options for the investment.

These options could include traditional bank loans, private lending, or partnerships with other investors. Proper financial planning and analysis are required to ensure the investment is financially viable. 

  

Conducting Due Diligence 

Once a deal is chosen, conducting due diligence is imperative to fully understand the property’s legal, financial, and operational elements.

This process often involves a comprehensive evaluation of property documentation, including leases, financial statements, environmental reports, and any relevant permits or licenses.

Also, sponsors must check for risks, violations, potential lawsuits, and unpaid penalties to assess a property’s potential. 

  

Renter Demographics 

Researching renter demographics can be invaluable towards understanding the target market for potential properties.

Analyzing population growth, migration patterns, income levels, employment opportunities, and lifestyle preferences helps sponsors to identify properties that align with the target demographic. 

Becoming a seasoned real estate investor is a long and careful process, but conducting effective deal research to find the right property doesn’t have to be a daunting task. 

  

Ashcroft Capital’s Deal Research Strategy 

Ashcroft Capital employs a meticulous deal research strategy that has produced exceptional risk-adjusted returns to their investors.

The investment strategy centers around identifying properties with “good bones” and the potential for substantial improvement. This includes evaluating the strength of the location, risk tolerance, and return potential opportunities within a specific market. 

Ashcroft Capital seeks Core+ properties in strong submarkets with moderate risks and the potential for value-add opportunities.

These properties typically have high occupancy rates and steady cash flows but may benefit from strategic improvements or management. These are often infill property locations that are usually around 20-25 years old. 

Ashcroft Capital’s rigorous due diligence process is comprised of more than 100 steps to exhaustively evaluate potential multifamily real estate deals.

This inspection includes third-party reports and property inspections and a full review of all titles and zoning, a 38-point on-site evaluation and inspection (including a walk-through of each unit, review of maintenance logs, and staff interviews), a 24-point financial analysis including on-site lease audits, review of all financial statements, occupancy histories, and cash flow audits.

This highly detailed approach ensures that each property fits within their investment criteria and exhibits the characteristics for substantial returns. 

They also consider existing relationships with buyer(s) when evaluating potential deals. A strong network and established relationships in the industry can provide valuable insights and opportunities for advantageous transactions. 

Ashcroft Capital actively researches various markets, focusing on emerging locations that offer attractive investment opportunities. While specific markets may evolve over time, they prioritize areas demonstrating economic growth, diverse employment sectors, and favorable demographic trends. 

 

Ashcroft Capital Value-Add Funds

Ashcroft Capital has identified two exceptional investment opportunities, Halston Lakeside and Elliott Cocoplum, as the second and third assets in the Ashcroft Value-Add Fund III (AVAF3) portfolio.

These properties offer a unique combination of regional and economic benefits, making them attractive for investors seeking to capitalize on high-growth markets, quality construction, and a robust business plan.

By investing in the current fund, investors can capitalize on the strong market fundamentals, attractive location benefits, and significant value-add potential of these properties while enjoying the stability and security of a well-structured investment managed by an experienced real estate investment firm. 

Real estate funds like our current fund differ from syndications by investing in multiple properties rather than a single deal.

The fund is structured so that investments are allocated across multiple properties thereby mitigating concentration risks and creating diversified sources of return. 

Our current fund is an open private placement fund for accredited investors interested in diversifying their portfolios into multifamily real estate.  The fund will own multifamily properties with an anticipated fund life of 5-7 years. 

This current fund offers limited partners Class A and Class B share types, with a minimum investment of $25,000. An investment in Class A shares earns 9% annual fixed distributions but does not participate in the upside of dispositions. Class B shares earn a 7% preferred return and participate in the profitability of property sales. 

To learn more about investing in multifamily real estate, visit https://info.ashcroftcapital.com/fund or schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com. 

bnelson@ashcroftcapital.com

By: Travis Watts, Director of Investor Development

If we don’t have our health, what use is our wealth? 

I want to share with you three different health hacks or tips that you can apply in your life that may have a positive impact for you. 

Please always consult with your doctor before making health changes. 

1 – Intermittent Fasting  

What this refers to is having your last meal of the day between 5:00 and 7:00 PM depending on when you go to sleep, and then not having any food in your system until lunch the next day. What this does is allow your body to rest, repair itself, and cuts down on the amount of calories that you consume. 

2 – Drink Celery Juice  

You will need a juicer to properly make celery juice, not a blender. It is suggested to drink a minimum of 16 ounces, 30 minutes before eating. If you are going to have breakfast, this is 30 minutes before breakfast. If you’re doing intermittent fasting, this would be 30 minutes before lunch. Drinking celery juice can help with inflammation, bloating, skin, and energy.  

3- Exercise 

Keep it simple. Do pushups, situps, dumbbells, and occasional cardio. In the mornings and evenings you can go for a jog, a quick run, or a sprint depending on what you are trying to accomplish. If you’re not in an area with walking trails or accessibility, you don’t have a home gym or a treadmill or a stationary bike, you could consider things like burpees, jumping jacks, or running in place. 

Your greatest wealth is your health. Watch the full episode below for further details on these health tips. 

To learn more or schedule a time to talk to Travis, visit https://www.ashcroftcapital.com/travis/

By: Evan Polaski, Investor Relations Managing Director

To learn more or schedule a time to talk to Evan, visit https://ashcroftcapital.com/evan/

Evan Polaski:

Hi, I’m Evan Polaski, managing director of investor relations with Ashcroft Capital. Today, I’m back with Scott Lebenhart, our chief investment officer. Scott, why don’t you give us a quick intro of yourselves for our new viewers?

Scott Lebenhart: 

Great. Hey, Evan. Scott Lebenhart. I’m the chief investment officer here at Ashcroft. I’ve been working at Ashcroft since 2018. Prior to that, I was at a private equity company called DRA Advisors for over 11 years. And here at Ashcroft, I’ve bought over 14,000 units and over $2 billion worth of assets. And, as Evan knows, and the return viewers know, Evan and I like to get together on a quarterly basis and talk through what we’re seeing in the market. 

Evan Polaski: 

Yeah, I appreciate that. And let’s jump right in. So looking back to Q2, how has the market continued to evolve since it hit the brakes toward the end of 2022? 

Scott Lebenhart: 

Yeah. I mean, In my opinion, and based on what I’ve been seeing, Q2 was fairly similar to Q1. It’s been really slow, especially on the transaction front. Continued uncertainty around the Fed and what they’re going to do with interest rates has really halted everything right now. It’s really halted lenders, the buyers willing to execute, and sellers do not necessarily know what market pricing is. In Q2, the CPI measurements, unemployment numbers, employment indicators, and other economic indicators sent a lot of mixed signals. And so people couldn’t guess and say, “Hey, what’s the Fed going to do next? When are they going to start to pause their increases? When are they going to stabilize? When are they going to start to come down?” 

And with interest rates remaining high and no real insight as to when those rates are going to start to come down, it’s just continued to be a stalemate through the second quarter. There were a minimal number of deals that went under contract or were awarded, we did see a handful of those actually fall out of contract and come back to market, or the seller decided to hold, just given all the volatility on the capital market side. So it was good to see some deals at the end of Q1 get under contract and get awarded. But in this market, we continue to track those deals, and unfortunately some of them did not go through. So Q2 was a lot of the same at the beginning of the year, and just not a lot. 

Evan Polaski: 

Yeah. And we’re seeing that obviously in our transaction volume. But speaking specifically to Ashcroft, how many deals did we see come across our desk that we ultimately underwrote? And then, of those, how many LOIs did we submit? 

Scott Lebenhart: 

Yeah, I mean, so I looked back at our numbers. We looked at about 125 deals that came across our desk, but in terms of what we actually underwrote, that number was closer to 60 deals. So 50% or so of the deals that we came across us, we actually spent time putting pen to paper on. Two reasons for that percentage, where it’s typically much higher.We’re being highly selective. If it’s not in the market or the submarket that we want to be in, or if it’s not the quality of the asset that we’re looking for right now, no need to spend our time on it. 

And then, secondly, is if the price on the property is unreasonable, and we know that the seller really has no driving motivation to sell, we’re interested in spending time on deals that the seller is more likely to transact than not. So you get a pie in the sky price on some deals, and you just push it aside and say, “Hey, I’ll wait until the seller gets a little more realistic to look at it.” 

Evan Polaski: 

Yeah, a deal that’s worth buying. But we just know, from all of our experience that their whisper price or official asking price is just too far off to even waste time plugging numbers into a spreadsheet. 

Scott Lebenhart: 

Exactly. 

Evan Polaski: 

And then did we actually submit any LOIs for those 60 that we were underwriting? 

Scott Lebenhart: 

Yeah. So we submitted LOIs on around 12 deals over the past quarter, and a lot of those deals were more on the off-market transactions. We spent a lot of time trying to drum up deals off-market in nature, but some of those LOIs we spent more discovery on, “Hey, seller, here’s our price.” Then, getting the feedback, and sellers saying, “Oh no, I’m looking for 20% higher than that,” or something on it. But we still wanted to show that we are active, and we are looking for deals. We did get two fantastic deals under contract through the relationships that we have in the market, but it’s been really tough to mitigate that bid–ask spread that’s out there right now. 

Evan Polaski: 

Yeah. And just as a reminder, for one of those deals that you just mentioned, by the time this actually comes out and our viewers are watching this, we’ll likely have closed it. So one closed in August, and then the others are coming toward the tail end of August as well. So I appreciate that. It sounds like what you said—more of the same as it is felt broadly in the economy as well. But now, as we’re fast forwarding to the next three months, six months, probably even to Q1 of ‘24, where do you see that market heading since we’ve been flat? Is it continuing to tighten? Is it going to start loosening? What are your thoughts? 

Scott Lebenhart: 

So I am starting to be a little more optimistic, and part of that is based on the debt market. I’m starting to see signs of us beginning to come out of this period of the cycle where virtually nothing gets done. We’re seeing lenders starting to become more aggressive, and we’re also seeing more money pursuing making loans. With interest rates so high, we’re seeing groups looking to issue debt, as opposed to invest in equity into deals, based on where the treasuries and interest rates are right now, some of these mega-billion dollar funds are saying, “Hey, I could get my risk-adjusted return by issuing debt at 7 or 8% as opposed to actually owning the real estate of the deal. 

And so we’ve been seeing a large amount of groups create funds targeting debt and creating preferred equity positions as part of it. And I view this as a good part of the cycle, as money starts to funnel back into the space. And as we see more lenders come into the market and create this liquidity, I believe we’re going to start to see spreads coming down. Competition is always good for the market. In our capitalist society, people want to win deals, and they start to be willing to pay more, or in a lender’s case, reduce their spread on it. And I do believe that this will help to narrow some of that gap that we were talking about in Q1 and Q2 between the bid–ask spread between buyers and sellers. 

So don’t get me wrong. I’m not saying that it’s going to be a flip of a switch and happen overnight, but this is the first sign where we’re out looking for refinances, new acquisition financing, and we’re seeing a lot more lenders come to the table. And a handful of them are willing to be a lot more aggressive in order to get the deal done. So we’re starting to see a break, which I’m excited about. 

Evan Polaski: 

Yeah, and as we’ve discussed in the past, the lenders have to price-in their own risk. I won’t say inflating, but they’re adjusting their rates to account for their own risk, and then we would have to do the same on our risk. That’s where the big bid–ask spread is coming because we’re hitting it on both sides. 

Scott Lebenhart: 

Right. 

Evan Polaski: 

So a big chunk of that is thelender starts to narrow their risk or their thoughts on risk, and there’s more demand out there. Then clearly that starts to ease up one side of the equation on the pricing that we’re ultimately looking at. We’re hopefully starting to see a slight relaxation in the market coming down the road, how’s your team evolving? I know we focus a lot on specific assets, a lot of outreach. Does that remain the same? Is it continuing to shift? 

Scott Lebenhart: 

Yeah, it continues to modify slightly based on what we’re seeing in the market. As I mentioned about Q2, the majority of deals that we spent the most time on were the off-market deals. We’ve now transitioned to where we monitor the market deals. It’s a good indication if those deals do actually trade, where people are willing to pay, and buyers are willing to sell. It’s something we are always going to pay attention to. If the right deal comes along and we have the right relationship with the seller, and it’s in the right market, absolutely, we will pursue those. But we view most of the opportunities right now through an off-market approach. 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, and we’re really taking a targeted approach. 

Not to give away our secret sauce, but we are conducting targeted research on deals that we believe sellers would be willing to transact on; if they bought them five years ago, pre-pandemic, we believe, based on our research, that they have debt coming due within the next year or two—or perhaps even shorter term—or it’s invested in a fund that’s likely going to be into its liquidation mode shortly. So we’re doing a good amount of research behind the assets themselves. We’re finding the assets first; then we’re finding reasons why someone may be looking to sell in the near term. And that’s how we’re really targeting our deals. And given that, we all know, and I speak about this all the time, how real estate is a relationship business; we’re really utilizing our relationships with that in order to gain knowledge about properties that may be coming to market soon or are willing to sell soon and working to drum up deals that way. So we are heavily researching and trying to find a diamond in the rough right now. 

Evan Polaski: 

OK, yeah. And that sounds like it might be the only way. Because as you noted, you saw 125 deals come across your desk. I know some of those are on-market, and some of those are off-market. I’m sure, back in ‘21 (and I know I didn’t ask you to pull these numbers), you probably saw that in a month of just on-market deals. 

Scott Lebenhart: 

It could have been a week or something. 

Evan Polaski: 

Yeah. 

Scott Lebenhart: 

Some weeks were crazy. 

Evan Polaski: 

Yeah, so you’ve got to find them somehow. But the big topic that I’ve been hearing lately in my conversations, in my team’s conversations, is what’s happening with this mortgage doom coming, as all these short-term loans that were taken out in ‘20 and ‘21 start to come due. Do you foresee a lot of distressed deals coming down the pipe in the near future? 

Scott Lebenhart: 

So, I’ll admit, earlier in the year, and you probably have me on record saying it, so I’ll admit it, I was not expecting much distress to hit the market, as much as everyone was expecting, because I believe, when we’re doing this conversation that we’d be talking about interest rates starting to come down at that point and help to alleviate some of the pressures on certain deals with debt maturities, or rate cap issues, or just a light at the end of the tunnel for some of these. That has not happened. And so I will be the first to admit that I do believe that I was wrong and that there is more distress coming than I originally thought. That being said, I do not expect a flood of distress to hit the market all at once. I think these are deals that are going to trickle out over time. And I believe they’re also going to be extremely relationship driven in terms of who gets what deal. 

I think lenders as a whole are not interested in taking deals back, being owners of deals, and therefore having to sell them. I think, even based on our direct conversations with certain lenders, they’re going to be willing to work with good borrowers; by “good borrowers,” I mean those working to execute a business plan. Perhaps they’re unable to buy an interest rate cap required because of liquidity issues or something like that, where the asset itself is doing fine, but because of the capital markets, there’s some level of distress with it.  

If lenders do ultimately take deals back and foreclose on a deal or force a sale, at that point, the lender’s going to be driving that sale and selecting the buyer on it. I think they’re going to be . . . . Because we saw this back in 2009, 2010, as lenders were trying to get rid of some of their loans that they had on their books, they would sell to groups that they worked with—groups that are institutional in nature and have strong balance sheets that they have a high certainty to close. They’re not looking to lend this to the highest bidder out there. They’re looking for someone who’s going to ultimately transact on it and perhaps even structure a deal where that lender will stay in the deal with the new borrower and try to find a way to recoup some of their losses if there were any. 

And we’ve also discussed the amount of money moving onto the debt side. There’s a lot of preferred lenders out there looking to help bridge the gap on some of these deals. There are groups raising money purely for rescue capital on these deals. And so there will be deals that are distressed and do get forced to market and that lenders do foreclose on. But again, I think we’ve already seen it in the market with some of these larger institutions that are well capitalized. So they’ve gone ahead and said, “Hey, my floating rates are extraordinary right now. I got millions of dollars of rate cap purchases.” We’ve seen them go and refinance with the agencies. They would go and take 20, 30, $50 million on a portfolio and pay down the debt in equity in order to just readjust their capital stack to market conditions. So again, there’s going to be the outliers where there is distress coming to the market. But as a whole, I’m really not seeing the flood. 

But what we’re doing is we’re not waiting around for the deals to be distressed to hit the market and come to the market. Through our research, like we just discussed, we’re targeting deals that may perhaps be in a distressed situation, as opposed to ultimately being a distressed deal. And what we’re doing is having conversations with those owners and trying to come up with a creative solution for them, where maybe we step in and buy part of the deal, fresh equity into the deal, take over the management, take over the control of the deal, and leave that owner in for some type of upside if we’re able to wait this out. But everyone’s in the sense right now where fundamentals in multifamily are still relatively strong. The distress is caused by the capital markets and the majority of situations, not at the performance of the properties. And so an owner’s first instinct is going to be find a way to kick the can down the road. And I tend to think that that’s going to be more predominantly in the market than a tremendous number of distressed deals. 

Evan Polaski: 

Yeah. No, and I think that aligns with things that I’ve seen personally. As you said, there’s rescue capital; there’s a lot of capital waiting in the wings; and, even thinking back to my experience in 2009, it’s what deals got reworked? Were they the ones where there was actually an opportunity to see a light at the end of the tunnel, versus a bad operator with the bad deal, where it’s just like, “We just need to take this and get it off our books as fast as possible”? So with that, I personally align with you, but I appreciate those insights. 

Scott Lebenhart: 

And I’d also say, thankfully or hopefully everyone listening is in the multifamily space or industrial space. But from our conversations with the lenders, their main concern are the office assets right now. Those are the ones where, unfortunately, they are going to have to take back, where there will be foreclosures on lender-controlled deals. They do not want to take multifamily assets back right now. They view them as cash-flowing assets that perform well and that are distressed because of the capital market. So every time we bring up multifamily to an investor as a potential issue, they say, “We’re not worried about multifamily right now. We’re focused on our office loans.” 

Evan Polaski: 

Yeah, yeah. Everybody needs a place to live, so the core level of the business plan is pretty well insulated in that regard. Well I really appreciate all your time, Scott. As always, it’s great to hear your insights this quarter, and we certainly look forward to doing this again next quarter. 

Scott Lebenhart: 

Hopefully, we’ll be talking about more deals next time. 

Evan Polaski: 

As long as they’re the right deals, yes. 

Scott Lebenhart: 

Exactly. Exactly. 

Evan Polaski: 

I appreciate all you do for us and appreciate your time. Thanks so much. 

Scott Lebenhart: 

Thanks, Evan. 

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

evan@ashcroftcapital.com

By: Ben Nelson, Investor Relations Regional Manager

There is no shortage in 2023 of would-be financial experts offering advice on where you should and shouldn’t invest your capital. Countless unlicensed message-board “advisors” and people with “inside connection” spread misinformation that permeates investor communities. If unchecked, perception morphs into reality, and incomplete (or biased) information becomes hard to distinguish from the truth. We commonly refer to such widely held but false ideas as myths.  

In my role at Ashcroft Capital, it is my job and pleasure to speak with and educate investors every day. Although most people don’t believe everything they read, I have heard several doozies in 2023 that left me scratching my head. An investor often cannot even remember when or where they heard these myths or if there is any validity to them, but they concern them all the same. Rather than rehashing common misconceptions about real estate investment, I want to focus on three larger concerns I have heard during my more recent conversations. 

  

1. “Real estate cannot make money in a rising rate environment.” 

Coming out of a historically low-interest rate environment, especially at the pace at which the US Federal Reserve has hiked rates over the past 18 months [1], real estate investors are not in a comfortable position. Rising interest rates result in lower property prices, elevated borrowing costs, and a generally more restrictive market. But before you think there is no money to be made in real estate, there are two things you should consider: First, the borrowing rates that allowed for such a free-moving market in the post-pandemic were a statistical anomaly and not the norm. “30 Year Mortgage Rates in the United States averaged 7.74%from 1971 until 2023, reaching an all time high of 18.63% in October of 1981 and a record low of 2.65% in January of 2021.” [2]

With current mortgage rates at 7.77% [3], we are on par with the average rate over the past 52 years. Over the past five decades, countless trillions of dollars of wealth have been created through investments in real estate. Second, change has remained the only constant over the history of real estate investing (or any other industry). Real estate moves in cycles, and every market provides opportunities for the most prepared and savvy investors to reap the rewards.  

  

2. “The recent construction boom has caused an oversupply of multifamily housing.” 

Although it is true that in some markets the housing supply has reached or even exceeded current demand, this blanket statement couldn’t be further from the truth. In June 2023 Fannie Mae’s chief economist, Doug Duncan, stated, “Housing’s performance is a testimony to the strength of demographic-related demand in the face of baby boomers aging in place and Gen-Xers locking in historically low rates, both of which have helped keep housing supply at historically low levels . . . Homebuilders continue to add to that supply, but years of meager homebuilding over the past business cycle means the imbalance will likely continue for some time.” [4]

The data points vary by source, but the shortage is believed to be somewhere between three and seven million homes. As Nadia Evangelou, NAR senior economist and director of real estate research, recently explained, “Middle-income buyers face the largest shortage of homes among all income groups, making it even harder for them to build wealth through homeownership.” [5] To further dispel the oversupply myth, data shows that rental occupancy has hovered between 94% and 95% since the first quarter of 2020, despite the fact that multifamily construction reached a 50-year high nationwide in 2022. [6, 7] However, to make money in this environment, you must choose your markets carefully. The markets with the highest development, job growth, and migration should also have the highest absorption rate. 

  

3. “Rents cannot continue to grow, forcing you to rely on appreciation that isn’t coming.” 

At various times in our economic history, real estate appreciation has seemed to be more of a certainty than an area of concern. When cap rates are low and loan-to-value rates are high, you hear about everyone making money, and it almost seems too easy. I disagree. Markets often move irrationally, and a good investment idea can become old news in an instant in this information age. Rental rates have grown substantially since 2020, largely fueled by a spike in inflation, a growing US population, and an overall housing shortage. However, these growth rates were never sustainable, and time-tested market economics eventually balance the scales.

According to Zillow’s rental report for July 2023, rent increases have slowed down overall, but growth is still slightly higher than pre-pandemic rates (8). The chart below from the St. Louis Federal Reserve shows how rental rates have outpaced CPI inflation data over the past 40 years. Although the gap between inflation and rent growth has definitely narrowed in 2023, the data points showing long-term consistent growth are promising. Will appreciation in real estate be more challenging in the near term? Most likely, yes. But to say it will go away entirely is more fiction than prediction.  

 

Honorable mention: “I know property values have gone down, but I am going to wait for the bottom.”  

Although this isn’t necessarily a myth about real estate investing, it is a misconception about investing in general. Timing any market is nearly impossible, and those who are able to usually do so once or twice in their lifetimes. In a widely referenced USA Today article from 2018, Ken Fisher stated, “Time in the market beats timing the market.” [8] Hundreds of studies have proven that the greatest determining factor in wealth creation is investing consistently over long periods of time. The truth is that you will likely never sell at the top or buy at the bottom, but if you are patient and persistent, you can generate excellent long-term returns. Don’t let the goal of perfect timing deter you from excellent timing. 

  

Busting Through 

When life hands you lemons, make lemonade. A rising rate environment creates new challenges, but it does not eliminate opportunities. Ashcroft Capital’s acquisition team has over 80 years of combined experience navigating different real estate cycles, and they are confident in their ability to execute on highly accretive properties in any environment. Simply put, if our target properties are going on sale, we’re buyers.

Ashcroft Capital will continue to implement its proven value-add strategy to the benefit of our limited partners, even if markets act differently in the next five years than the previous five. In our current offering, the Ashcroft Value Add Fund III, we have made significant purchases in hot markets where rental properties are in high demand. Combined with our track record of growing net operating income, we feel that these myths don’t have a leg to stand on. 

If you are interested in reviewing our current offering, please visit https://info.ashcroftcapital.com/fund, or schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com. We look forward to the opportunity to work with you and align our investment interests.  

bnelson@ashcroftcapital.com

Sources:

1. “Board of Governors of the Federal Reserve System: Policy Tools” Board of Governors of the Federal Reserve System, 26 July, 2023, https://www.federalreserve.gov/monetarypolicy/openmarket.htm. 
2. “United States 30-Year Mortgage Rate” Trading Economics, 2023, https://tradingeconomics.com/united-states/30-year-mortgage-rate#:~:text=30%20Year%20Mortgage%20Rate%20in,percent%20in%20January%20of%202021. 
3. Odion-Esene, Brai & Jennings, Chris, “Compare Current Mortgage Rates” Forbes, 29 August 2023, https://www.forbes.com/advisor/mortgages/mortgage-rates-08-23-23/. 
4. Tayeb, Zahra, “The US housing market is defying doomsayers thanks to a supply crunch, Fannie Mae says” Markets Insider, 4 July, 2023, https://markets.businessinsider.com/news/stocks/us-housing-market-home-prices-supply-crunch-demand-fannie-mae-2023-7. 
5. “Middle-Income Buyers Face the Most Severe Housing Shortage” National Association of Realtors, 8 June, 2023, https://www.nar.realtor/newsroom/in-the-news/middle-income-buyers-face-the-most-severe-housing-shortage. 
6. U.S. Census Bureau, “Rental Vacancy Rate in the United States” FRED, Federal Reserve Bank of St. Louis, 29 August, 2023, https://fred.stlouisfed.org/series/RRVRUSQ156N. 
7. Helhoski, Anna, “Rental Market Trends in the U.S. — Rent Growth Finally Slows” nerdwallet, 11 August 2023, https://www.nerdwallet.com/article/finance/rental-market-trends. 
8. Fisher, Ken, “You don’t need perfect timing, just time, to earn big returns in the stock market’ USA Today, 16 September 2018, https://www.usatoday.com/story/money/columnist/2018/09/16/stock-market-2018-avoid-timing-returns/1303307002/.