By: Ryan Wynkoop, Investor Relations Manager

What is the correlation between Cap Rate and ROI?  

Cap Rate and ROI are common terms in real estate deal projections. It is important investors understand how they are determined and how they impact a real estate deal.   

Cap Rate simply stands for Capitalization Rate. This is a valuation calculation used to compare different real estate investments. It is calculated as the ratio between the annual net operating income (NOI) of the property against its current market value. That market value will typically fluctuate based on the current cost of debt, other elements specific to the property type, and the submarket that the property is located in.   

There are multiple ways to calculate the Cap Rate depending on your inputs and what you are trying to determine. You only need two of the three figures to get the third (Cap Rate, NOI, Value).  

Below are the various ways you can calculate the cap rate:    

Cap Rate = NOI / Value  

or  

Value x Cap Rate = NOI 

or 

NOI / Cap Rate = Value 

Now, what is ROI?  

This simply means the return on investment. Cap Rates, NOI, and value all indicate your return on investment. It’s quite obvious that the higher the income and the value, the better the investment. But inversely, a lower Cap Rate actually means a higher value and higher NOI.   

What drives Cap Rates up and down?  

The cost of debt is a major factor because investors often use various amounts of leverage to acquire properties. When interest rates are high, Cap Rates often rise as a result. Also, the strength of a property location can drive Cap Rates lower and values higher because more investors are competing to acquire properties in that space. Their stability as an investment type commands a higher value. In addition, sometimes Cap Rates in specific asset classes—multifamily or industrial, for example—are lower than other asset classes. This is determined by the market and typically indicates both the scarcity of product available and competition for this asset class as an investment.   

How should investors consider Cap Rates and ROI when they are researching an investment? 

The short answer is that it is most advantageous to invest when indications are that Cap Rates will fall and compress, which would lead to higher value. This typically happens in markets that are growing or improving, where there is a lack of supply for the asset class in that market. Cap Rates will also compress when interest rates fall and the cost of debt becomes cheaper. If income remains the same, but interest rates fall and Cap Rates fall as a result, that would command a higher value in the Cap Rate. An investor would have acquired the property at the higher Cap Rate. The value would then improve because of the cheaper cost of capital and better leverage that a takeout buyer could use when they sell it. 

At Ashcroft Capital, we are continually tracking Cap Rates and projecting ROI for our investors based on current market conditions. Interest rates and Cap Rates have risen and are projected to drop significantly in the coming year. This indicates potential value creation for our investors. We are also investing in value-add properties and driving additional NOI growth through improvements. These improvements to the property and submarket also increase the ROI to the investor. 

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.   

ryan@ashcroftcapital.com

The September edition of The Monthly Distribution is now available.

Articles:

Understanding What Investors Crave – 10 Focal Points To Maximize Your Success 

After speaking with thousands of investors throughout the years,  find our “Top 10” list of what investors really want and how they choose the best operators.

Read More

Risk Adjusted Returns: The True Measure for Any Investment

As human beings, we are hardwired to want instant gratification but it is important to weigh the associated risks before jumping in. Continue reading to learn about ways to compare
the risk of private real estate objectively and subjectively.

Read More

State of the Multifamily Market Q3 2023

The United States multifamily real estate market remains strong, with high rent growth and occupancies. However, there are also increasing expenses being seen for property operating costs. Explore the trends that are currently at play.

Read More

Investor Features:

Mark Hentemann

Comedy writer of Family Guy fame builds a strike-proof investment strategy.

Read More

Tim Wagner

Ashcroft investor funds his bucket list with investment returns.

Read More

Additional Insights:

Investor FYI

Our investor relations team answers your multifamily real estate market questions.

Read More

AVAF3 Update

The final two properties in the AVAF3 have closed. Learn more about these properties, catch up on due diligence, and join us for a property tour.

Read More

We invite you to discuss your educational and investment goals with us to ensure you are on the path to success. Let’s work together to develop a plan to help you achieve those goals. You can schedule a call with our Investor Relations Team or email at investorrelations@ashcroftcapital.com.

By: Ryan Wynkoop, Investor Relations Manager

A big focal point for real estate investors looking at deals to invest in is whether that deal has a preferred return. We often get this question from savvy investors, but it is often overlooked and not fully understood. So what are preferred returns in a real estate deal, and why are they important? Let’s take a moment to dive deep into this subject.  

A preferred return, often called a “pref,” in a real estate deal is the priority or preference of a return to the investor before profits are shared and split with the sponsor. This means that, based on what that preferred return is set at, the investor will see that part of the profits before any profits flow down to the rest of the equity capital stack. Typically, preferred returns are in the 8%–10% range, based on the type of investment opportunity and the risk associated with that investment.  

Not all sponsors provide preferred returns, but they are important for many reasons. The preferred return gives an investor the confidence that they are likely to see a certain size return in a deal as an expected baseline. Also, and potentially even more important, the preferred return incentivizes the sponsor to ensure they perform in the deal beyond the preferred return rate to ensure they see a profit in the deal. If a sponsor is offering a preferred return to investors, it is likely they are confident the deal will perform either at or even beyond that measure in some cases. Preferred returns are most often offered to Limited Partner investors in a real estate syndication. These investors are forming the pool of capital needed to make acquisitions of properties or fund the operations and budgets needed to execute the investment strategy. The sponsor is usually also the General Partner in the deal—they are generating a return in the deal after the limited partners see their preferred return rate met—which is often done in a waterfall split of profit sharing between the General Partner and Limited Partners.   

Ashcroft Capital offers preferred returns to our investors for both class A and B of shares in our offerings. For our current offering, the Ashcroft Value-Add Fund III (AVAF3), Class A shares generate a 9% preferred return, while Class B shares generate a 7% preferred return. This is incredibly attractive to our investors, who know Ashcroft is confident in the performance of our acquisitions and at performing at or above our target preferred return rates. We believe it is important to demonstrate to our investors this commitment to execute our value-add strategy and overall property performance, and this is one of the major reasons they look to invest with Ashcroft Capital.  

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.   

ryan@ashcroftcapital.com

Ashcroft Capital’s Q3 Real Estate Market Report is now available. 

Ashcroft Capital is committed to keeping you informed and updated on the many facets of commercial multifamily real estate investments.

According to our data, multifamily market fundamentals remain steady, despite ongoing economic uncertainty. 

Explore the Real Estate Market Report for insight into the four key Q3 trends: 

1. New development: Ramp up could be short-lived 

2. Apartment Rents: Continue to grow at a modest pace 

3. Interest Rates: The ceiling is in sight 

4. Multifamily Markets: The Sunbelt is still shining 

The August edition of The Monthly Distribution is now available.

Articles:

A Comprehensive Guide to Deal Research in Multifamily Real Estate Investing

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

Read More

Transforming the Multifamily Sector: The Impact of Artificial Intelligence

In recent years, artificial intelligence (AI) has emerged as a powerful force, revolutionizing many industries. Explore a few ways in which AI is changing the multifamily sector.

Read More

Property Management Best Practices

As you consider investing, it’s essential to understand the options available. How hands-on do you want to be with your investment? Gain insight into the necessary responsibilities property managers must maintain to be successful.

Read More

Investor Features:

Stacee Evans

Insurance Agent and Mom of Two crosses the finish line of her investment goals by stumbling on multifamily investing.

Read More

Joe Sauers

He started a landscaping business in the ninth grade, saved his pennies, researched real estate options, and built a blossoming portfolio.

Read More

Additional Insights:

Investor FYI

Our investor relations team answers your AVAF3 questions.

Read More

Building Passive Income Webinar Series

Catch up on previous webinars and register for upcoming.

Read More

We invite you to discuss your educational and investment goals with us to ensure you are on the path to success. Let’s work together to develop a plan to help you achieve those goals. You can schedule a call with our Investor Relations Team or email at investorrelations@ashcroftcapital.com.

By: Ryan Wynkoop, Investor Relations Manager

Any investor looking to acquire real estate assets typically not only targets a specific type of property asset but also applies specific criteria to areas where those properties are located. We refer to these areas as submarkets. At Ashcroft Capital, we target suburban submarkets in the southeast region of the U.S. We classify these submarkets as Core+ locations because of their strength as stand-alone areas and their proximity to major employment centers and economically diverse cities.  

Our acquisitions and research teams are led by Ashcroft Capital CEO Frank Roessler and Chief Investment Officer Scott Lebenhart. In any given year, we can analyze 200+ acquisition opportunities in our target submarkets. We apply several criteria when analyzing these acquisition opportunities that are critical to understanding the strength and growth trajectory of a particular location. More specifically, we examine how an asset is positioned against its competition and how it will perform through our value-add process. This is not an all-inclusive list, but we want to share some elements we think are critical to understanding a submarket and its potential for a property.  

• Population Growth 
• Job Growth 
• Economic Growth 
• Economic Diversification 
• Median Household Income 
• Average Rents 
• Amount of For Sale Housing Stock 
• Pricing of For Sale Housing Stock 
• Amount of For Rent Housing Stock 
• Pricing of For Rent Housing Stock 
• Trajectory of Rent Growth 
• Submarket Attractions & Amenities 

Real estate rental growth and value appreciation are more likely when most of the conditions listed above appear in a specific submarket. The southeastern area of the U.S. (where Ashcroft Capital has been investing and continues to pursue) has been performing very well for these reasons; this is why we now have a presence in submarkets surrounding Dallas, Atlanta, Orlando, Jacksonville, Tampa, and Chapel Hill. We continue to track all these trends and use those data points to focus our acquisition efforts and analyze deals in real time. 

Whether you are an existing investor or potential new investor, we appreciate your interest in Ashcroft Capital, and we welcome a conversation with you. Feel free to reach out at your convenience to our Investor Relations team at investorrelations@ashcroftcapital.com to learn more about our current offerings, the Ashcroft Value-Add Fund III (AVAF3), and how the AVAF3 might fit your investment goals.  

ryan@ashcroftcapital.com

The July edition of The Monthly Distribution is now available.

Articles:

Discover the Investing Opportunities of Florida: Gateway Lakes and Cocoplum

Delve into the location details of our two newest properties, Gateway Lakes and Cocoplum and explore the reasons we chose to invest here.

Read More

Multifamily Trends: Looking to Q3 and Beyond

What can you expect from multifamily trends and investment opportunities through the rest of 2023? Gain insight into ways to maximize opportunities in the existing market.

Read More

Negative Leverage – Can You Still Make Money In Commercial Real Estate

Examine multiple case studies that test why negative leverage makes sense for investors like yourself.

Read More

Investor Features:

Daniel and Lindsay Galvan

How were these junior high sweethearts from the Chicago suburbs able to quit their W-2 jobs and live off their passive income?

Read More

Susan Hunter

This mom and Air Force veteran utilized her military training and adaptive mindset to meet new challenges and opportunities.

Read More

Additional Insights:

Investor FYI

Our investor relations team answers your questions

Read More

Healthy Tips

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

Read More

We invite you to discuss your educational and investment goals with us to ensure you are on the path to success. Let’s work together to develop a plan to help you achieve those goals. You can schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com.

By: Evan Polaski, Investor Relations Managing Director

Many investors look to multifamily real estate for passive income and capital preservation. Real estate can offer benefits such as lower volatility, a hedge against inflation, and the opportunity for depreciation.

Assessing which operator to invest your hard-earned capital with can be challenging.

There are eight critical factors you should consider when choosing a syndicator for your real estate investment:

• How well are they known and respected in the marketplace? (1:39)
• Are they buying in high-growth markets? (1:50)
• How are they evaluating properties for success? (2:00)
• What is the plan to generate returns? (2:07)
• Do they have full asset control with property management? (2:21)
• Are they transparent and clear with fees and structures? (2:32)
• How often are you communicated with? (2:44)
• Can they prove consistent execution on their business plan? (2:59)

Join Evan Polaski, Managing Director of Investor Relations, as he outlines the questions you should be asking in his new YouTube series “8 Essentials to Evaluating a Real Estate Investment.”

Subscribe to this YouTube series and receive notifications when new episodes are shared.

evan@ashcroftcapital.com 

By: Travis Watts, Director of Investor Education

It is natural to look to avoid pain points. We all have them, and they can be anything that prevents us from living an optimal lifestyle. From mundane tasks we would rather not do, to ongoing problems that persist every month. Having passive income not only helps monetarily alleviate pain points, but also emotionally. This article will discuss ways to address eliminating your pain points by investing in passive income.  

Not financial advice. I’m not a CPA, an attorney, or a financial advisor. This article is intended for educational and informational purposes only. 

Let’s begin with a quote from Aristotle (over two thousand years ago). 

Here’s a more modern-day quote from Tony Robbins… 

Without a doubt, for thousands of years, humans have been looking to avoid complications. Many investors, myself included, think of long-term goals. I’ve asked hundreds of investors about their goals over the years and nearly every time, investors share long-term goals with me.  

Examples include: 

“I want to retire from my corporate job by the age of ____.”  

“I want to have ____ amount of net worth when I retire.” 

“I want to create _____ amount of passive income per month in the next 10 years.”  

Today I want to explore how you could start benefiting much sooner. What if you could start expanding your lifestyle this year?  

I’ll begin with a quick story. There was a time in my life, where I accrued bad debt from a hasty auto loan. I had purchased a luxury vehicle that frankly, I could barely afford. This also came at a point where my gross income was less than $30,000 per year.  

As you can imagine, any re-occurring expense that I had in my life at that time was a big deal. This loan payment was a major pain point that made me cringe every time it came due. I would fill up with anxiety, because I worried that some unknown expense was going to pop up that would prevent me from making the payment causing me to lose my car. 

(Not my house by the way ^) 

In hindsight, my car payment was only $500 per month. But again, putting this in perspective of someone who earns less than $30,000 gross income per year, it was a big deal at that time. Like most people, I would go to work, save up money, and make my payment at the first of the month, and then my anxiety would drop down for two or three weeks until I started thinking about having to make the payment again. Living this way was uncomfortable but did you know….? 

According to Lending Club, 60% of Americans Now Living Paycheck to Paycheck (As of January 2023) 

This was my life just before I started investing in real estate, which was a huge game changer for me. Specifically, it was passive income that was the turning point. My first introduction to passive income was when I rented out a room in my first house. Today, this is called “house hacking”, back then it was called “having a roommate”. In any case, my roommate began paying me $600 per month in exchange for a furnished bedroom.   

What did I do with this $600 check? I made my car payment! I effectively learned how to have someone else pay for my car. From an emotional standpoint, I eliminated one of my biggest pain points, which was much more satisfying than the money.  

Throughout the years, I’ve used a similar strategy, and it’s really quite simple: 

#1 Make an investment that produces passive income 

#2 Use the passive income to eliminate a pain point  

Here are a few practical examples of how you can apply this same strategy: 

#1 Let’s say you have kids and they constantly make a mess of the house. This would be an example of a pain point. Let’s assume a house cleaning service cost $150 for a group or individual to come clean your house. Cleaning twice per month would cost $300.  

What if you first invested $50,000 into an asset that produced passive income? Say that the investment offered an 8% annualized yield. Therefore, the monthly distribution would provide $333, which could be used to hire a house cleaning service, thus eliminating this pain point. 

#2 Let’s say you have a high-stress job and it’s difficult to unwind at the end of the week. Using the same example as before, what if you invested $50,000 into an asset that produced passive income at an 8% annualized yield? You could consider setting up a massage on a Friday or a Saturday, two or three times per month and use your monthly distribution to pay for it. Thus eliminating the pain point and making your weekends a little more enjoyable. 

#3 Here’s an example for those who want to take this strategy to the next level. MarketWatch released an article in 2022 stating that Ford Motor Company’s customers had an average auto loan payment of $832 per month for those who purchased a vehicle and financed it. This is compared to the average Ford lease payment of only $516 per month.  

Consider this… 

Instead of buying vehicles throughout a lifetime, financing them, and watching the “investment” disappear with depreciation, what if you invested $100,000 into a passive income producing asset that yielded 8% a year on average? That could generate a $666 monthly distribution.  

Keep in mind with this example, I’m not even discussing potential equity upside on the investment, meaning the investment could increase in value over time (depending on what it’s invested in). I’m only talking about the possible passive income component.  

Something else to consider… 

#1 This strategy does not involve spending $100,000, as with buying vehicles that depreciate over time. This is simply moving cash into an investment, preserving the principle, and only using the passive income component to lease the vehicles. 

#2 Compare this to what most people do. For example: 

• If a person buys five cars in their lifetime 
• They pay an average of $50,000 each time (including the taxes, fees, and registration)  
• Each car depreciates to $10,000 because of high mileage and the ageing of the vehicle  
• The vehicles get traded in for a new vehicle each time 

  This amounts to $200,000 in capital losses throughout a lifetime, and this doesn’t include any financing and interest cost if the vehicles were financed.  

The Takeaway 

Focusing on passive income can be a unique way to view investing. Most people are equity focused and use a “buy-low and sell-high” strategy. Most also defer the benefits of investing until retirement. You don’t have to suffer until your golden years and have pain points build up over time. You can start eliminating pain points today, using passive income as your tool.  

I want to leave you with this quote from Benjamin Franklin:  

I recently launched a series on Ashcroft Capital’s YouTube Channel called “Passive Income Lifestyle” which is designed to help you enhance your lifestyle and learning the game of passive income. 

If you ever have questions, you can reach me at travis@ashcroftcapital.com. I’m always happy to help and have a conversation. I appreciate you taking the time to read. I hope you found some value in this short article!  

To Your Success, 

Travis Watts  

travis@ashcroftcapital.com

Ashcroft Capital works hard to continually protect its investors’ finances and data from cyber threats and criminals. We recognize that the best line of defense against cybercrimes is awareness. Therefore, we recommended several tips to help keep yourself safe from internet fraud. 

• Scammers often use fake emails, text messages, voice calls, and/or letters to pose as a legitimate company (like Ashcroft Capital) and request personal information or a payment transfer. When receiving requests for confidential information 
• Remain suspicious of calls, texts or emails requiring immediate action;   
• Investigate before responding to any unfamiliar requests; and 
• Remember that Ashcroft’s policy is to never request personal information over the phone, by text, or by unsecured email.  
• Do not click on any links included in unsolicited emails or text messages that ask you to update or verify account information. 
• Never send funds to a third party until you confirm that the payment request is legitimate. 
• For example, use the verified payment information in Ashcroft Subscription documents and if you have questions, reach out to an investor relations team member. 
• We will keep you updated as we learn about how new scams evolve. It’s all part of how Ashcroft Capital is looking out for our investors. 

Here are some additional resources to learn more about avoiding potential scams and fraud:  

• FTC: Online Privacy and Security 
• FTC: Report Fraud 
• FBI: Internet Crime Complaint Center (IC3) 
• BBB Scam Tracker 

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

By: Ryan Wynkoop, Investor Relations Manager

Many real estate subtypes in the market require their own approach to ownership and investment. Differences also exist in the returns they respectively generate. Here, we want to take a minute to outline a number of these for our readers and the reasons our strategy to market revolves around Value-Add and Core+ multifamily real estate. 

This list is not exhaustive, but it encompasses several real estate subtypes. They differ in terms of asset location, risk tolerance, and overall return generation.   

• Core 
• Core+ 
• Value-Add 
• Opportunistic 
• New Construction Development 

Strength of Location 

Generally, working from the top down in the list above, real estate asset types often decrease in regard to their strength of location. For instance, Core properties are located in the center of urban city cores. Core+ properties are on the outskirts of those city cores—they are, perhaps, in emerging market locations, but they are very strong in their own regard. On the opposite end of the spectrum are Opportunistic properties, which are often aged or blighted and located in areas ripe for reinvestment and major overhauls. New Construction Development properties are often part of an expansion of the city core into newly emerging and developing areas. Value-Add properties tend to be located between Core and Opportunistic areas in locations that have opportunities for improvement, but the market supports a selective improvement, repositioning the asset. 

Risk Tolerance 

Risk tolerance increases as well in the property type investment profile as you move down the asset classes. Core properties tend to hold their value the most through volatility in the overall real estate market. This tendency is driven by the properties’ premium location and more high–end tenant mix. Core+ properties are in strong submarkets surrounding Core areas. By comparison, Opportunistic and New Construction Development properties require major investment and transitions until they are stabilized and generating the projected returns. They can also be located in newly emerging areas that have not fully met their potential full value. These properties have more risk exposure to the value of the real estate because of repositioning and the transitional nature of the surrounding submarket. Value-Add properties tend to be in the middle of Core and Opportunistic/New Construction Development locations—often in Core+ submarkets—making them suitable to a medium risk approach.  

Return Generation 

Returns can also vary widely, depending on the asset class. Core properties tend to have a very stable value but modest returns. The opportunity to push higher values and returns in Core areas tends to have a limited upside, but the locations bring tremendous stability. Rents in Core areas are fairly consistent and do not move quickly—up or down. Core+ properties can generate slightly greater returns than Core locations, with comparable strength of submarket attributes. By comparison, Opportunistic properties may be distressed or aged, requiring major capital infusions to turn them around and help them make a transition. New Construction Development properties also require a tremendous capital infusion to help them get through development and stabilize. However, both Opportunistic and New Construction Development can generate significantly larger returns in the end due to substantial value creation. Through major construction overhauls and the development of new properties, significant value is created in rents and can be achieved after the improvement process. Value-Add properties also tend to have a strong return generation because they are transitioned to a higher valuation. This return generation is created because the improvements drive higher income in rents and a higher valuation after improvement. 

Ashcroft Capital’s Strategy 

Ashcroft Capital focuses on what we consider the “sweet spot” of property types when they are measured against investment risk tolerance. We target Core+ property locations, which we consider strong and established submarkets where values are on an upward swing. These are often infill property locations that are typically around 20 years old. We also target properties ripe for a Value-Add approach: properties that could use some selective infusion of capital to generate additional return. These properties are not aged and blighted real estate needing major overhauls like Opportunistic properties are, nor do they require the up–front capital needed to develop New Construction Development properties before an income stream is generated. The combination of these Core+ and Value-Add strategies to market makes up our business plan, which generates a fantastic return for our investors while offering a much more calculated and reduced risk compared with other asset types. 

To learn more about investing in multifamily apartments or for IRR and cash-on-cash projections, visit https://info.ashcroftcapital.com/fund or schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com. 

ryan@ashcroftcapital.com

The June edition of The Monthly Distribution is now available.

Articles:

How to Eliminate Pain Points Using Passive Income

3 Practical examples that demonstrate how passive income can alleviate cost of living pain points.

Read More

By the Numbers: The Advantages of Real Estate Investing

How strong is the multifamily investment sector according to recent data?

Read More

The Catch-22 of Investing in a Recession

An analysis on the different risks associated with starting a new investment during times of economic uncertainty.

Read More

Investor Features:

Jim Shaw

How does Washington State University basketball coach, Jim Shaw, embody the Ashcroft team spirit?

Read More

Lynetta Johnson

Multifamily property management executive and broker of 20 years, Lynetta Johnson, shares her personal experience with Ashcroft.

Read More

Stan Sudarso and Kelly Lee

As COVID-19 swept the globe, Stan Sudarso and Kelly Lee were inspired to reassess their priorities and go all-in on their passive income strategy.

Read More

Additional Insights:

AVAF3

Updates on AVAF3 Properties.

Read More

Cybersecurity Insights

Tips to help keep yourself safe from internet fraud.

Read More

We invite you to discuss your educational and investment goals with us to ensure you are on the path to success. Let’s work together to develop a plan to help you achieve those goals. You can schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com.

By: Danielle Jackson, Investor Relations, Senior Manager

Join Ashcroft Capital’s Investor Relations Senior Manager, Danielle Jackson, for her series, “3 Minutes of Real Estate.” Tune in to our YouTube channel weekly for an easy 3 minutes of learning about investing in real estate.

On this edition of 3 Minutes of Real Estate, Danielle continues to focus on the US multifamily fundamentals making recent headlines given the capital market environment we are all experiencing. Referencing the most recent CBRE report, she looks at what is driving the demand for US multifamily and keeping the occupancy level around 95%.

• What is the disparity between owning your own home and renting?
• Will this disparity close enough to significantly affect occupancy level?

Take a couple minutes to watch the video. If you would like to learn more about investing in multifamily assets schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com.

Start your investment here.

danielle@ashcroftcapital.com

By: Travis Watts, Director of Investor Education

Join Ashcroft’s Director of Investor Education, Travis Watts, for his new YouTube series Passive Income Lifestyle. This series is all about you, the passive income investor, and will discuss mindset, strategies, philosophies, stories, and more.

On this episode of Passive Income Lifestyle, join Travis as he considers how to use money as a tool to expand your lifestyle. It is interesting to consider how income affects our daily life. Follow along to learn four ways to improve your lifestyle.

• Reframe the way you think
• Create win-win situations
• Take 1% of your earnings and reinvest in yourself
• Passive income cash flow investing

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.

travis@ashcroftcapital.com

By: Ben Nelson, Investor Relations Regional Manager

Investing can be exciting, and sometimes frustrating, but it is one of the greatest ways to build long-term wealth. For most investors, a singular and all-important question remains paramount: “How should I diversify my assets?” Those who have accumulated enough wealth to consider investing can find no shortage of strategies to minimize risk while maximizing returns. While many of these strategies work (until they don’t), some have withstood the test of time. One of those strategies is known as Modern Portfolio Theory (MPT).  

Put simply, MPT is the process of constructing a diverse portfolio of assets to drive strong returns, while reducing overall risk. Modern Portfolio Theory is founded on the idea that different investments and investment classes inherently carry different levels of risk and return. By diversifying your portfolio across multiple types of investments and asset classes with different risk/reward profiles, you can reduce the overall risk of your portfolio and still participate in positive performance. This theory is less about beating market indices year over year, but about a steady advance of your portfolio over a longer time horizon. 

In this article, we will discuss how investors use the Modern Portfolio Theory to create a diversification strategy to maximize portfolio performance while accounting for an acceptable level of risk. We will also discuss alternative investments, such as real estate, and how they fit into a diversified portfolio. 

Lessons from the Past: Looking Backward to Move Forward 

Modern Portfolio Theory is based on a concept called the Markowitz Efficient Frontier or Efficient Frontier. American economist and Nobel Laureate, Harry Markowitz, first proposed this theory in a 1952 issue of The Journal of Finance. Markowitz argued that portfolios should optimize expected return relative to volatility. He also asserted that a portfolio’s assets should be selected based on how an asset will impact others as the overall value of the portfolio changes.[1]  

The graph below illustrates this concept and the level of risk an investor should be willing to assume in order to achieve higher returns. The line represents all possible combinations of risk versus reward that can be obtained through diversification. Riskier investments will have a higher potential return, but also greater volatility and potential for losses. 

The illustration shows that a portfolio that falls outside the Efficient Frontier is suboptimal because it either carries too much risk relative to the anticipated return or too little return relative to its risk. If a portfolio falls below the Efficient Frontier, it does not allow for enough return compared to the risk level being taken. In contrast, the illustration shows that a portfolio whose anticipated return falls on the upper portion of the curve is considered optimal, maximizing the investor’s expected return based not only on overall market risk, but risk relative to the other investments in the portfolio. 

Markowitz believed that most investors are risk-averse and would select assets in a portfolio with the least risk, even with the possibility of lower returns.[2] Using MPT, an investor will consider how much risk they’re willing to take against the return they expect from their investment. 

Correlation measures how different assets move together or against each other over time. If two different assets have a high correlation (i.e., 0.85 to 1.00), they tend to react similarly. If they have a low correlation (i.e., 0.10 to 0.00), they tend to move in different directions at different times. According to the MPT, diversifying a portfolio across asset classes with lower correlations to each other could reduce investors total risk. Markowitz stresses that investors who can diversify and reach zero or near zero correlation between assets can minimize the volatility of their portfolio and maximize their expected returns on a risk-adjusted basis.[3] 

Risk is measured in terms of volatility and can be categorized into systematic and unsystematic risk.[4] 

Systematic risks affect all assets in an economy simultaneously. Interest rates, inflation, recessions, and geopolitical conflicts are all examples of systematic risks. Unsystematic risk refers to risks that affect only a particular asset or group of assets (e.g., a product recall or natural disaster). Once an investor has determined their level of risk tolerance and expected return, they can create a diversified portfolio that effectively manages both types of risk. 

Achieving Optimal Diversification 

Based on the MPT an important first step is to decide on an asset allocation strategy that suits the investor’s tolerance for risk. Asset allocation refers to the percentage of your portfolio invested in different asset classes (e.g., stocks, bonds, alternatives, real assets, cash). Asset allocation is an ever-evolving process, as market environments (and your personal situation) can shift quickly. 

Depending on the different asset classes an investor selects, they may reduce their overall exposure to any one type of risk. The crux of the MPT is to create a balanced portfolio that includes assets that tend to do well when the economy is growing and when the economy is contracting. 

Alternative assets, like private multifamily real estate funds, typically exhibit a low correlation with traditional assets. In addition, real assets, such as real estate, traditionally hold their value, even during recessions, as value is retained in the land. 

Introducing Ashcroft’s Value-Add Fund III 

Real estate funds like the Ashcroft Value-Add Fund III (AVAF3) differ from syndications by investing in multiple deals rather than a single property. The fund is structured so that investments are allocated across multiple properties in multiple states, creating diversified sources of return and mitigating concentration risk. Along with income generation, Value-Add Fund III will allow investors to participate in the upside potential of a portfolio of real-estate assets in different areas of the United States.  

The Ashcroft Value-Add Fund III (AVAF3) is an open private placement fund for accredited investors interested in diversifying their retirement and wealth portfolios into multifamily real estate. 

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.

ben@ashcroftcapital.com

Sources:

1. Portfolio Selection. Retrieved September 23, 2022, from The Journal of Finance, Vol. 7, No. 1. (Mar., 1952), pp. 77-91. https://www.math.hkust.edu.hk/~maykwok/courses/ma362/07F/markowitz_JF.pdf
2. What Is Modern Portfolio Theory (MPT) and Why Is It Important? thestreet.com™. (n.d.). Retrieved September 30, 2022, from https://
   www.thestreet.com/investing/modern-portfolio-theory-14903955
3. Ibid.
4. Ibid.

By: Travis Watts, Director of Investor Education

Join Ashcroft’s Director of Investor Education, Travis Watts for his series, “Multifamily Report: Market News and Industry Updates.” Tune in weekly as Travis keeps you up to speed on what’s happening in the news and market as it relates to multifamily apartments.

In this episode of Multifamily Market Report, Travis draws attention to rising interest rates and what you can do to help protect yourself against them. There has been a lot of talk about interest rates recently. While nobody can predict the future, what we can talk about is what you do in multifamily apartments to help preserve capital, increase net-operating-income, and combat interest rates.

• Interest Rate Caps
• Assumable Loans
• Interest Only Long Term Loans
• Ability to purchase property at a discount

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.

travis@ashcroftcapital.com

By: Danielle Jackson, Investor Relations, Senior Manager

Join Ashcroft Capital’s Investor Relations Senior Manager, Danielle Jackson, for her series, “3 Minutes of Real Estate.” Tune in to our YouTube channel weekly for an easy 3 minutes of learning about investing in real estate.

In 2021, Ashcroft Capital switched from a one-off syndication structure to a fund model, and since has successfully closed 2 funds with our third, the Ashcroft Value-Add Fund 3 open. On this edition of 3 Minutes of Real Estate, Danielle discusses the purchasing power of the fund model. The fund model creates a more positive perception that you can achieve greater success with:

• Having cash on hand to close on the property
• Your ability to raise the capital quickly
• Presenting your built-in investment process –
• Completing/conducting due diligence and securing debt financing

Take a couple minutes to watch the video. If you would like to learn more about investing in multifamily assets schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com.

Start your investment here.

danielle@ashcroftcapital.com

By: Travis Watts, Director of Investor Education

Large multifamily properties have historically been owned by institutional investors, such as mutual funds, REITs, insurance companies, and pension plans, largely due to the capital required to acquire them. 

Real estate private placement offerings provide accredited investor(s) the opportunity to invest and have an ownership stake in large real estate acquisitions (i.e. a 400-unit apartment building). The Limited Partners (investors) can benefit from passive income, debt leverage, tax benefits, and potential equity upside. Rather than investing $25 million to buy the property on their own, an individual can invest as little as $25,000, for a stake in a commercial property.  

Better yet, a limited partner investor has the benefit of owning a percentage of an apartment community without the day-to-day management obligations. No managing tenants, toilets, termites or underwriting deals. 

Passive Income 

An apartment building’s revenue is derived from rents paid by the residents for leased units and other income-generating items: covered parking spaces, fenced-in yards, laundry facilities, on-site storage facilities, package locker systems, profit sharing programs with internet and TV providers, etc. A property management team will focus on attracting qualified residents to the property and will have lease agreements executed, often with contracts lasting twelve months or longer. These practices then can generate long-term, consistent cash flow for Limited Partner investors. 

Forced Appreciation 

By making improvements (updated amenities and units) to an existing property, also known as a “value-add” business plan, the property’s value can increase; therefore, increasing rents once the renovations have been completed. With the combination of higher rents and occupancy, higher levels of revenue can be generated. Since multifamily apartments are primarily valued based on the income they produce, a value-add business model can “force” the property to appreciate in value, rather than relying on market conditions or inflation. When the property is sold, the proceeds are returned to the Limited Partners and, in some cases, can be rolled into another “like-kind” investment property using a 1031-exchange to defer any taxable gain at the time of sale. 

Steady Cash Flow 

One of the greatest advantages of real estate investing is the steady monthly cash flow generated from rent and other sources of revenue.  

Tax Considerations 

If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) is a Limited Partner, the U.S. federal income tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. A Limited Partner that is a partnership, and the partners in such partnership, should consult their own tax advisers about the U.S. federal income tax consequences of an investment in the Partnership. 

Many private placements syndicators issue a Schedule K-1 tax form to report each limited partner’s annual share of the partnership’s income, deductions, credits, etc.  

The tax considerations relevant to a particular Limited Partner depend upon its particular circumstances and state of residence.  Please consult with a licensed CPA or tax advisor for more details. 

How Does a 1031 Exchange Work with a Syndicator R.E. Fund? 

In the event that an investment is sold, the real estate syndicator may seek to structure such sale to qualify, in whole or in part, as a like-kind exchange pursuant to Section 1031 (as amended or replaced from time to time), or other applicable tax deferral or savings provisions of the U.S. Internal Revenue Code, to the extent available, with providing each Limited Partner with the right to contribute such Limited Partner’s Partnership Interests to a newly formed investment vehicle on a tax-deferred basis for a capital account in such investment vehicle in the amount of the Liquidation Value of such Limited Partner’s Partnership Interests with respect to such properties. 

“Liquidation Value” means the amount that a Limited Partner receives upon an actual sale, or would have received upon a hypothetical of the relevant Properties at their then Fair Market Value, and distribution of the net proceeds of such sale (i.e., in the event of a hypothetical sale, the Fair Market Value less any Fund Expenses and other transactional expenses related to such sale, assumed in the case of a hypothetical sale as 3% of such Fair Market Value) to the Partners through the Fund’s distribution waterfall.[1]

IRA Investing 

Many investors are not aware that they can invest in real estate private placements using a self-directed IRA. Currently, there are over 30 trillion dollars in American retirement accounts nationwide.1 The private equity sector has been recently reaching all-time highs and helps to provide investors diversification from traditional stocks, bonds, and mutual funds. 

Self-directed IRA’s are held by a custodian that allows investments in a broader set of assets.  These are “alternative assets” such as real estate, promissory notes, tax lien certificates, and private placement securities.  Therefore, investors are encouraged to conduct their own due diligence on investments, pay attention to the details, and to talk with a qualified legal or investment advisor.[2] 

Total Return 

The combination of cash flow (primarily derived from rents), capital gains (resulting from increased property value upon sale), principal paydown (from residents paying down the loan balance over time), and potential tax savings (based on the current IRS tax code) can provide an overall potential return that is unmatched by many asset types. 

A Hedge Against Inflation 

Historically speaking, rents, property values, and the replacement cost of real estate improvements rise with inflation. This makes real estate a particularly effective hedge against inflation, especially in the low-yield environment we are in today. 

Private Ownership of Commercial Real Estate 

Investors desiring steady income with a balance between risk and reward, may consider multifamily apartment investing as a Limited Partner to provide a solid foundation for building lasting wealth. Additionally, the ability to use a “hands-off” investing approach can be useful in building passive income streams that free up time to spend on what matters most to the investor. 

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. 

travis@ashcroftcapital.com

Sources:

1. $35 Trillion in Retirement Savings Tells a Tale of Two Economies™. (n.d.). Retrieved January 20, 2023, from https://www.planadviser.com/35-trillion-retirement-savings-tells-tale-two-economies/2 SEC.gov | Investor Alert: Self-Directed IRAs and the Risk of Fraud
2. SEC.gov | Investor Alert: Self-Directed IRAs and the Risk of Fraud

By: Annalisa Povlock, Investor Relations Regional Manager

Many investors look to real estate syndications for passive income and capital preservation. Real estate offers many benefits, such as lower volatility than other asset classes, a low correlation to stock market performance, a hedge against inflation, and the opportunity for depreciation.   

A real estate syndication is a group of individuals who pool their money to invest in a property or in a fund model—several properties. Syndication opportunities exist in all asset classes of commercial real estate, including multifamily, hospitality, office, retail, self-storage, mobile home parks, and industrial.   

Syndication opportunities are typically structured as limited partnerships; those who invest passively are referred to as the limited partners. The general partner, or syndicator, actively manages the deals, establishes the team, assembles the resources, and manages the day-to-day responsibilities to execute the business plan.   

We understand that investors have many options to consider when deciding with whom to place their hard-earned funds. Investors often wonder if they are asking sufficient questions and how to compare one investment opportunity to another.   

We talk about assessing deals and syndicators in our Passive Income Workshops, and we would like to share some of that information with you.  

First, there are key financial metrics that should be available to potential investors for any deal. These are the following: 

• Preferred return: This is also referred to as the “coupon.” This is a legal term for the agreed-upon return the general partner must pay the limited partners prior to splitting the profits. 
• Cash-on-cash return: This is an annualized percentage that shows the total cash flow received from an investment divided by the total investment amount. 
• Internal rate of return (IRR): This is a similar measure to cash-on-cash return, except it considers the time value of money. IRR can be helpful to reference when comparing different syndication opportunities with different hold periods.   
• Equity multiple: This is similar to cash-on-cash return, except it is shown as a ratio instead of a percentage. For example, if $100,000 is invested, $80,000 is paid in distributions over the course of the investment period, and the initial investment is returned, the equity multiple is 1.8x.  

In addition to these important financial metrics, here are some questions to ask syndicators. This is not an all-inclusive list, but it is a great place to start in your conversations and due diligence.   

• What is your track record? 
• What is your business plan? 
• Who operates your day-to-day deals? 
• What is the minimum investment? 
• Will you share references of existing investors? 
• Is this a single asset or a fund structure? 
• What has been your experience through previous recessions? 
• How frequently do you communicate with your investors? 
• What percentage of your investors invest with you multiple times? 
• Are your returns gross or net of fees? 

What questions or information would you add to this list? We would love to hear from you.   

At Ashcroft Capital, we focus on multifamily syndication, and to date, we have taken 26 properties full cycle. You can view more information about our current offering, the Ashcroft Value-Add Fund 3, here.  

Please reach out to me at Annalisa@AshcroftCapital.com to ask questions and to learn more. 

By: Ryan Wynkoop, Investor Relations Manager

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. Ashcroft recognized these were key needs for us as a company to support our growth and establish a successful model for the long term. It was clear, as our company grew, that a robust operations team was required to oversee property management, engineering, and construction management. This is essential not only during times of robust growth but also during times of a tightening market, which many in the industry see as a differentiator for successful owner operators in the industry outlook for 2023. [1]

Ashcroft has an in-house robust, comprehensive property management and construction management team in Birchstone Residential. Birchstone was established in 2020 and manages all the properties in the Ashcroft Capital portfolio—currently 37 properties and growing. This growth has enabled Birchstone to quickly expand to more than 400 people and required establishment of a tight system for overseeing operations while managing capital projects and apartment renovations as properties are taken through the Value-Add process. 

Ashcroft and Birchstone hold a wonderful partnership in maintaining vibrant communities for tenants and improving the properties we acquire while generating a return for our investors. We wanted to take a moment to highlight the role they play and how critical it is to our success as a firm.   

ryan@ashcroftcapital.com

https://info.ashcroftcapital.com/fund

Sources:

1. Multifamily Dive. “2023 Multifamily Industry Outlook.” https://www.multifamilydive.com/trendline/multifamily-trends-outlook-2023/308/  

By: Travis Watts, Director of Investor Education

Join Ashcroft’s Director of Investor Education, Travis Watts for his series, “Multifamily Report: Market News and Industry Updates.” Tune in weekly as Travis keeps you up to speed on what’s happening in the news and market as it relates to multifamily apartments.

In this episode of Multifamily Market Report, Travis walks us through the most recent CBRE report that recaps multifamily in 2022 and provides a forecast for the market in 2023.

• How is multifamily expected to perform in 2023?
• Is the price gap between owning a home verse renting growing?
• Will supply and demand balance out this year?
• Will cap rates continue to expand in 2023?

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.

travis@ashcroftcapital.com

By: Travis Watts, Director of Investor Education

When asked to assess their financial knowledge, did you know 71% of Americans give themselves high marks, yet the data shows that only 7% can answer six financial literacy questions correctly? In fact, the financial literacy rate among Americans has decreased from 42% to 34% since 2009.[1]

At Ashcroft Capital, we are committed to educating investors on navigating commercial multifamily real estate investments. As part of our mission, we are hosting Building Passive Income Workshops around the country. 

When your passive income exceeds your lifestyle expenses, you are financially free.

If you are looking to create more passive income, you might want to consider the many benefits that real estate has to offer. Passive income investing is a way to put more money in your pocket while freeing up your time.

This strategy allows you to expand your lifestyle without the hassle of becoming a landlord. Investing in real estate is ideal for those who prefer a more conservative approach to growing and preserving wealth, and the great news is you can begin today even if you do not have past experience.  

At our Building Passive Income Workshops you will learn:

– The power of passive income 

– How to create passive income through real estate 

– How to become an investor, rather than a landlord  

Register for a workshop in your area today:

Fall 2023 dates to come

About Ashcroft Capital:

Ashcroft Capital currently manages 12,814 units throughout Florida, Georgia, North Carolina, and Texas. Our national reputation has attracted thousands of investors just like you.

We purchase well-located properties in Sun Belt states that need improvement. By improving the properties and focusing on operational efficiencies, we create value for our investors and our residents. Simply put, we do the heavy lifting for you so that you can focus your time on the things that matter most.  

Ashcroft Capital attracts and develops the best talent in the industry to serve our investors and residents while providing superior service. 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 at investorrelations@ashcroftcapital.com. 

travis@ashcroftcapital.com

Sources:

1. The State of U.S. Financial Capability: The 2018 National Financial Capability Study, FINRA Investor Education Foundation, 2019. 

Workshop Disclaimer:

Ashcroft Capital LLC is not an investment adviser or a broker-dealer and is not registered with the U.S. Securities and Exchange Commission. The content shared throughout this workshop is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. Any ideas or strategies discussed therein should not be undertaken by any individual without prior consultation with a financial professional for the purpose of assessing whether the ideas or strategies that are discussed are suitable to you based on your own personal financial objectives, needs and risk tolerance.

By: Danielle Jackson, Investor Relations, Senior Manager

Join Ashcroft Capital’s Investor Relations Senior Manager, Danielle Jackson, for her series, “3 Minutes of Real Estate.” Tune in to our YouTube channel weekly for an easy 3 minutes of learning about investing in real estate.

On this edition of 3 Minutes of Real Estate, Ashcroft Capital’s  Danielle Jackson, walks us through what Ashcroft Capital’s strategy is to stay active and continue acquiring properties in the current multifamily market.

Investor Question: In this market environment, where there is some volatility in capital markets and rising rates, how is Ashcroft Capital staying active?

• Acknowledging that where there is market dislocation, there is opportunity.
• We are sourcing and identifying the right deals using our disciplined underwriting approach.
• Identifying opportunities where the purchase price is less than the current market evaluation.

Take a couple minutes to watch the video. If you would like to learn more about investing in multifamily assets schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com.

Start your investment here.

danielle@ashcroftcapital.com

By: Evan Polaski, Investor Relations Managing Director

Conferences are a great way to meet new people, while boosting your personal and business investment profiles.  As we are becoming fully entrenched in an unavoidable recession, these connections can help bring your personal and business objectives out unscathed.  Whether the outcome is seeking new investment options, a partner to launch a new business, investors to help fuel that business, or simply a desire to connect with people and add value to their goals, it all starts with networking.  

Conferences, like the Best Ever Conference, are known to foster advancement on attendees’ goals, but only through effective networking.  Here are five steps to get the most out of any networking event: 

1. Know Your Goal

Before you ever set foot in the conference venue, you should know the answer to:  

“If I only get ________ out of this conference, it will have been a success.”   

This will vary for each attendee.  Some will be arriving to learn more about investing and to meet different operators in order to broaden their investment options. Others may be looking for a business partner to launch a new endeavor. Some may be pursuing an investor to expand their existing business.  

Regardless, be prepared to meet said investors, podcasters, or others who are accomplishing the goals you wish to accomplish.  Enter the conference with a growth-mindset and a willingness to find value from each interaction.  These interactions can form a lasting impression and could be an incredible boost to your own ventures. 

Be cognizant of the importance of building an infrastructure of solutions, not just meeting investors.  Being in a referral position that also helps others meet their needs can generate a positive reputation in investment circles.     

Lastly, as Benjamin Franklin said, “If you fail to plan, you plan to fail.”  

2. Do Your Research  

Ideally, a conference will offer a list of attendees ahead of time. Use this list to begin connecting to a “target person” or building a “target list” (i.e. LinkedIn searches, google searches).  Through these searches, scaffold background information to find shared interests.  This serves two functions: 1. you may find someone else who has a skill set or association that the “target person” needs; therefore, securing a way to approach them through mutual benefit and/or 2. you may find a commonality between interests to encourage authentic conversation. 

Nonetheless, if your aim is to learn more about investment opportunities, a conference like the Best Ever Conference is ripe with benefits. Even without an attendee list, you will be able to view the speakers, many of whom run investment businesses themselves.   

And, if the conference attendee list is not available, utilize social media and online forums to tap into your existing network.  Make inquiries about who will be attending the conference. On online forums, like BiggerPockets.com, there tends to be entire discussions about conferences and who is attending.  Creating and nurturing connections with others is crucial; therefore, completing the research into who will be attending these conferences will create the best possible networking results for you. 

3. Be Ready to Add Value to Those You Meet 

Your goal is outlined, you have a target list of people you would like to meet, now it is time to complete a self-assessment of your current strengths and where you can add value to each of these connections.   

If your goal is to find and meet with investment managers, your value is the possibility of a future investment. If you are focused on staying active, you may have an outgoing personality and a network of potential investors, but are not comfortable with the underwriting and day-to-day operations of the business. 

The primary point is to think of what you can offer, not what you need.  Humans have two ears and only one mouth, so ask questions, seek to find the challenges of others, and propose possible solutions.  Helping resolve challenges opens others to be able to view you in a positive light, thus encouraging the connections you want to seek you out.  Providing value in this way requires a long-term outlook, while simultaneously providing a most advantageous result. 

In addition, the goal of a conference should be quality over quantity.  Diving past the surface level conversations to create valuable and meaningful connections will be more conducive to long-term goals. 

4. Follow-Up  

Keep in mind, meeting and shaking hands with people are just the beginning. The real work in any relationship comes from the maintenance.  Contrast one of your good friends asking for help versus someone you have not spoken to in over a year.  One feels genuine and is likely to receive a positive response, where the other likely gets ignored.   

In professional networks, the goal is not always to become best friends; however, like any relationship, you need to build up your “emotional bank account.” This comes from follow-up conversations, creating authentic, respectful relationships, and building professional trust before seeking anything more from them.  In personal relationships, researcher centers around a 20:1 ratio of positive interactions to negative interactions. The ratio is most likely smaller in professional relationships, making each interaction extremely important.  Positive responses are obtained through contacts of value prior to that point: follow-ups, follow-through, and simple acts of kindness. 

5. Stay Open-Minded 

Open-mindedness, arguably the most important step. As humans, we all have a limited amount of knowledge: we “don’t know what we don’t know.” You may be a successful physician with the intent of seeking to better understand new investment options in real estate. But through the power of network, you may run into someone looking to start a new tech-focused real estate software package.  You may connect with someone that is the right match to go from a passive to active role in real estate.  But these investment opportunities are only available through broad-minded networking.  

Keeping an open-mind creates a positive pivot that catapults you to a direction you never imagined.  

At the end of the day, studies of older individuals show that their personal relationships are the most important factor in their lives. Many of these personal relationships stem from a common career and finance focused goal. Goals that can be established at a well-rounded conference.  

Join 1200+ investors, operators, and syndicators at the Best Ever Conference in Salt Lake City, March 8-10 for three days of learning, unparalleled networking, and making deals. www.besteverconference.com. 

Save 30% on your ticket with promo code ASHCROFT23.

Invest in AVAF3 here.

evan@ashcroftcapital.com

By: Danielle Jackson, Investor Relations, Senior Manager

Many first-time investors shy away from investing in multifamily real estate. Concerns like the time commitment involved, the significant initial investment, the risks involved, or simply not understanding the basics of real estate investing are just some of the most common reasons why first-time investors miss out on the abundance of opportunities that come with real estate investing. Yet, by understanding the basic terminology of multifamily property investing, such as property classes, it quickly becomes apparent that when done correctly, it can be a lucrative form of investing. By breaking down the various property classes below, we aim to
help first-time investors to seasoned professionals understand the potential value and risks that each property class presents.

WHAT IS A PROPERTY CLASS?
When choosing to invest in multifamily homes, the most important thing is to understand the risks and rewards that your investment will bring. Property classes, therefore, refer to the classification system used in determining the potential value and risk of an individual investment property. This system breaks down properties into Class A, Class B, and Class C buildings and is based on geography, demographics, and physical characteristics. Additionally, it is essential to understand that these classifications are not fixed. Various strategies and practices, such as a value-add strategy, can leverage specific attributes to increase a property’s class. Understanding the basics of each property class can help even the most novice investor make the right choice for their investment.

CLASS A PROPERTIES
In multifamily investing, Class A properties are typically defined as properties that are less than fifteen years old with modern amenities, such as gyms, laundry rooms, and high-end finishes, such as stainless steel appliances and hardwood floors, and granite countertops.

On top of their well-kept exterior and luxurious amenities, Class A properties are in the most desirable areas with low crime, green space, and good school districts. These properties will typically be found within the best neighborhoods in and around the city. Residents of these buildings and neighborhoods typically treat the area well, keeping it free of pollution and trash. Because of these luxurious features and great communities, these properties charge a high monthly rent and can be the most rigorous when screening tenants.

While Class A properties are often viewed as top-notch for renters, they offer lower returns for investors. Class A properties have minimal maintenance costs, offer higher rental prices, and are extremely desirable due to their location and property appeal. All factors that make these properties more likely to offer investors a steady stream of income. Yet, the overall upfront costs of the initial investment are far greater than the other class properties. This higher-priced initial investment can limit the appreciation of the asset.

In addition, although the common location, asset, and financial risks are less of a concern in Class A property investments, there are still risks. One of the risks of Class A properties is that they depreciate faster than other properties. Dynamics that make a location “desirable” are often shifting, and newer, nicer buildings are being built all the time. Therefore, a building that is only ten years old may be reclassified as a Class A- or Class B property much sooner than other property classes.

While Class A property investments have a more conservative risk/return profile relative to other classes, they are not risk free investments. Instead, the risk focus tends to shift to operator risk, or the person executing the investment strategy and business plan. Executing the business plan, while not all inclusive, may include managing the day-to-day operations, investor communication, property management and maintenance, and ensuring you are holding the correct types of insurance. These reduced risk factors relative to other property classes make these properties more likely to offer investors a lower, yet steady stream of income. [1-2]

CLASS B PROPERTIES
Class B properties can represent a balance of multifamily property investing for seasoned and first-time investors. This is because, through various strategies, such as Ashcroft Capital’s value-add strategy, there is an excellent opportunity for financial growth for these properties.

A Class B property is typically a ten to thirty-year-old building often in a well kept condition with limited deferred maintenance. These buildings share many features with Class A buildings, but have dated architectural features and require more maintenance overall. Additionally, similar to Class A buildings, these buildings are in desirable locations with low crime and good school districts. Tenants of these buildings are typically middle-income workers who also provide a reliable source of income to investors.[3]

The primary risks associated with Class B properties are similar to Class A properties, with location and sponsor being towards the top of the list and the somewhat dated physical condition of the asset. Additionally, because Class B properties are often on the border of desirable neighborhoods, a shift in neighbor dynamics can often reduce the value of these properties.[4] Because these assets often come with some deferred maintenance and general renovations within the business plan, the sponsor risk remains present but can be mitigated by investing with specialists that focus exclusively on this product type. One reason many investors prefer this asset class is because the potential return within Class B properties can be much higher than the perceived increased risks.

Class B properties offer many benefits to investors. First and foremost, they have a lower initial investment than Class A properties. Additionally, because of the moderate rent prices and amenities, these buildings are also highly desired by renters. These two factors alone can offer a higher and more stable cash flow than either Class A or Class C properties, making them ideal for investors.

However, sponsors can also leverage specific strategies to increase the overall value of the Class B properties. At Ashcroft Capital, we advocate for a light value-add strategy, one of the many ways to increase the return on investments for Class B properties. This light value-add strategy consists of active asset management to minimize the risks in property andmaximize appreciation over time.[5] In multifamily property investments, this is done through renovations, repairs, and
improvements to the property, to turn a Class B or a lower Class A property into a Class A property. When successfully executed, this strategy can help generate stronger cashflow, as well as strong appreciation, both of which generate the overall returns for investors.

Although Class B properties are riskier properties overall than Class A properties, they tend to offer higher returns. They can be the right investment for investors who are willing to accept additional risk in exchange for possible higher investment returns.

CLASS C PROPERTIES
Class C buildings are often the least desirable in multifamily property investing. Unlike Class A and Class B buildings, which are kept in good condition with minimal repairs, Class C buildings often have internal and external signs of deterioration. These buildings often rely on charging the lowest rents to attract tenants. Additionally, the locations of these buildings are not as desirable to tenants. The neighborhood itself may also show signs of deterioration and neglect compared to the neighborhoods of Class A or Class B buildings.[6]

While these buildings may appear to be not ideal for investors, they offer some benefits. Class C buildings often have a low initial
investment cost, leading to a higher cash flow than other properties when paired with the right strategy. Class C buildings are also a great opportunity for those
looking to be more hands-on with their investment, often employing a heavy valueadd or full redevelopment strategy through renovations and remodeling to increase the overall value of the property. Additionally, if a Class C building is in a location that is focused on development, then there is an increased desire to occupy the area at a lower rate.[7]

WHICH PROPERTY IS RIGHT FOR YOU?
Knowing the type of building you are investing in is critical when it comes to investing in properties. Factors such as risk tolerance and financial goals should be weighed with many other factors to choose which investment type is right for you. High-end properties come with lower risks but with a lower cash flow. Inversely, lower-class properties come with much higher risks, but have the chance for a higher cash flow with the right strategies. Overall, Class A- and Class B properties tend to balance risks and value-add strategies to earn investors a steady, higher cash flow and investment 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 at investorrelations@ashcroftcapital.com.

danielle@ashcroftcapital.com

Sources

1. Hart, M. (2021, February 4). Class A real estate: An investor’s guide. Millionacres. Retrieved February 15, 2022, from https://www.millionacres.com/realestate-investing/commercial-real-estate/class-a-property

2. Schena, A. (2021, June 7). Council post: The risk in real estate: Six types to evaluate before you invest. Forbes. Retrieved February 15, 2022, from https://www.forbes.com/sites/forbesrealestatecouncil/2021/06/07/therisk-in-real-estate-six-types-to-evaluatebefore-you-invest/?sh=177d366346b6

3. Rohde, J. (2020, May 22). What is a class B property and are they good investments? Learn Real Estate Investing. Retrieved February 15, 2022, from https://learn.roofstock.com/blog/class-b-property

4. Schena, A. (2021, June 7). Council post: The risk in real estate: Six types to evaluate before you invest. Forbes. Retrieved February 15, 2022, from https://www.forbes.com/sites/forbesrealestatecouncil/2021/06/07/therisk-in-real-estate-six-types-to-evaluatebefore-you-invest/?sh=177d366346b6

5. Felton, S. (2021, February 4). Real estate strategies: Core, core plus, value-add and opportunistic investments. Jasper. Retrieved February 15, 2022, from https://www.jasper.io/global/blog/realestate-strategies-core-core-plus-valueadd-and-opportunistic

6. Class C buildings – walk up Apartments. PropertyShark. (2021, March 10). Retrieved February 15, 2022, from https://www.propertyshark.com/info/class-c-buildings-walk-apartments

7. Rohde, J. (2021, June 4). What is a class C property and should you invest in them? Learn Real Estate Investing. Retrieved February 15, 2022, from https://learn.roofstock.com/blog/class-c-property

By: Travis Watts, Director of Investor Education

Most of us are seeking some version of financial freedom, but what exactly does that mean? Financial freedom, or financial independence as I like to call it, is for the most part, subjectively defined in terms of your own life and/or financial goals. For me, financial freedom is defined as a financial status where I generate more passive income than I need to cover my living expenses. A financial status where you can stop trading your time for money, and work becomes an option, rather than an obligation. It’s a goal that arguably almost everyone aspires to. Yet the path to financial independence can feel elusive and overwhelming to many.  

So what is required to become financially free? How do you know when you’ve attained such a status?  

The answers to questions like these will be different for each person.  

For me, four fundamentals have helped me pave my path to my own financial goals and optimal lifestyle. I call these my “Four Pillars to Financial Independence,” and while these are unique to me and may or may not work for you, my hope is that it will lend you some motivation and insight to come up with your own path to achieving your financial goals and optimal lifestyle.     

Earn at Your Highest and Best Potential  

For my first pillar of financial independence, I’ve learned that it is essential for me to earn as much income (actively) as I can using my highest and best earning potential. I know, it sounds counterintuitive to the end goal, but the reality is, absent inherited wealth or a major windfall, the path to financial independence usually starts with active income. I define my highest and best earning potential as a factor of two things:  

• My available time  

• My hourly rate or salary 

In an ideal scenario, I always aim to make the most amount of money possible in the least amount of time. However, sometimes this isn’t always possible, for example when you are just starting out in your career or role. There may be only so much I can charge for my time, which is why I found that the best way to expand my earning potential is to expand my time. We all have 168 hours every week.  

Years ago, in the pursuit to financial independence, I was an active W2 employee in the oil and gas industry working literally 98 hours per week. I would work for 14 days in a row and 14 hours each day. I was determined to achieve financial freedom, so in the little spare time I had and my days off, I would flip homes to generate additional income. The extra income I made from flips was used to invest in long-term, buy and hold single-family rentals for cash flow. At that point in my life, my fullest potential was limited to the numbers of hours I could physically work. The same may be true for you.  

I want to be clear, I’m not saying that anyone should work 98 hours per week, but always think about where you may have additional hours because it could possibly be used to make additional income.  

Are there promotions that might be available in order to generate more income? Is it possible to pivot careers or companies to a position that pays better? Are consultant or self-employed jobs an option? These are things I’ve considered as an approach toward my end goal(s).  

You Can Be Twice As Rich By Desiring Half As Much 

The second pillar I established on my road to achieving financial independence is reducing my living expenses. I’ve managed to live off as little of income as possible for a set period of time (not forever) to expedite my process drastically. I’m not saying that I’ve lived or currently live drastically below my means. However, for me a little sacrifice has gone a long way.  

In the first 7 years of my pursuit towards financial independence, saving as much money as I could played a critical role. For example, if I made $100,000 working full time in oil and gas, plus $75,000 a year fixing and flipping properties, and $25,000 a year in passive income generated from my long-term rentals, then I had a total of $200,000 in annual income. This was nearly double my salary on its own, which is the power of having a side hustle. Rather than increasing my expenses and lifestyle in the short run, I kept my overall expenses around $50,000 per year, so I could invest the remaining $150,000 a year. While I am not including taxes in this example for simplicity purposes, I am grateful for the tax advantages I’ve been able to utilize investing in real estate. 

I was disciplined enough to manage a 75% savings rate. This is certainly extreme, yet it allowed me to kickstart the journey to my own financial independence.  

Invest For Passive Income 

The third pillar of achieving my financial independence was by investing the difference between my earnings and expenses into something that could produce passive income. I never want the margin between my income and living expenses sitting on the sidelines. Especially knowing that it can be used to generate additional income that I will not have to trade my time for.  

I was taught to be a saver, by simply putting my money in the bank for a rainy day or hoping for the right opportunity to pop up. Overtime, I learned that the problem with this strategy is that my money loses value against inflation and the opportunity cost has been substantial over the long run.  

Instead, the key to my success so far has been being a long-term investor focused on acquiring passive income assets that replaces some it not all of my earned income. My goal when seeking financial independence is to acquire assets that will “work” for me.  

Avoid Bad Debt 

The fourth and final pillar of my road to financial independence is to avoid bad debt. For the sake of this article, I consider bad debt anything that has a higher interest rate than I could otherwise achieve by investing for passive income. Two examples could be credit cards and personal loans. Here’s the simplest approach: If I can reasonably and conservatively invest in something that produces passive income and that investment has a higher yield than the interest I owe on my debt, then I’m not focused on paying off the debt. I considered this “good” debt in my book.  

Let’s assume that I have student loan debt with 3% annual interest and let’s say that I can reasonably and conservatively invest in a real estate project that provides a 7% annualized yield. Given the positive spread, I’d rather place my money into the real estate project because I can potentially earn 4% more than what I owe on the debt. 

On the flip side, if I have credit card debt at 15% annualized and I can only achieve a potential 7% yield, I’d rather pay down the credit card debt. For me, it wouldn’t make sense to take on the additional risk. While I know that there are no guarantees in investing, there is a guaranteed savings of 15% for me by paying down the credit card.  

In Conclusion  

To recap, what has been the fundamental the “Four Pillars of Financial Independence,” for me are:  

1. Earning at my highest and best earning potential 
2. Living on as little as possible (for a period of time)  
3. Investing the difference in assets that produce passive income 
4. Minimizing high interest debt     

Please note, this is a summary of my personal journey and based on my own definition of financial independence. What worked for me may not be right for you, but hopefully there are a few practical takeaways for you, nonetheless.

Download the full article here.

If you are interested in learning more about investing with us please schedule a call with our Investor Relations Team at investorrelations@ashcroftcapital.com. 

Travis@ashcroftcapital.com