From the Desk of CF Capital: October Investor Report

Hello Friends and Investors,

As we approach the cooler weather and earlier fall sunsets, we hope you and your family have been well. The new season reminds us that change is all around us—and not just in the weather. The economic and political landscape is undergoing significant shifts, as the Federal Reserve’s long-anticipated rate cuts have finally commenced. After an extended period of aggressive rate hikes, the first cut in September marked a potential turning point for capital markets and the economy at large. This change brings both challenges and opportunities, and we are keeping a close eye on how it impacts multifamily real estate.

Speaking of weather, Hurricane Helene's impact on our friends in Florida, Georgia, North Carolina South Carolina and Tennessee is immense and the rebuilding will be extensive to say the lease. Our hearts go out to the millions of people affected by this historic storm. Seeing the devastation in particular in Western North Carolina, a place near and dear to our hearts, has been heartbreaking. Knowing many people personally impacted by this catastrophe brings it close to home. Our prayers go out to all those affected.

In addition, the 2024 Presidential election is heating up, with less than a month until Election Day. The political climate is creating ripples throughout the economy, but we remain focused on long-term growth and stability in the face of uncertainty. Remember, it's more important than ever to make your voice heard as voters. While we navigate the noise, we're finding ways to position ourselves for success in any scenario.

Here’s a look at our current projects and market trends:

1. Portfolio Performance and Key Updates

Pending Acquisition Delayed: In September, we expected to close on Island Club, a 314-unit multifamily community in the Eagle Creek submarket of Indianapolis, IN. However, official loan assumption approval didn't come in until a couple of days ago (finally!), and we're now working through nuances with the seller on a recent insurance claim to ensure our partners interests are best represented ahead of closing. We’re now anticipating a closing this month, and are excited to begin the value-add process with renovations, which will enhance both tenant experience and property value. NOTE: We do have a few limited slots remaining available for investors if you'd like to get in on the action for this opportunity!

Financing Extension and Refinance: We are working through an agency refinance for one of our Louisville assets which is expected to close over the next 30-45 days. Our business plan of renovating 90% of the units has been completed and initial projected premiums have been out-paced significantly. We've also successfully completed 100% of the asset reposition, which included rebranding, a new playground, dog-park enhancements, new parking lot, new roofs throughout, renovated leasing office, a new mural, renovated common area hallways, new windows, dumpster corrals and more. We look forward to delivering further long-term stability to our investors and residents as a result of this successful refinance.

Operational Improvements: Our properties are generally seeing improved occupancy rates and stronger rent collections, even in a turbulent market where everyone is feeling the lingering impact of the historic inflation of the past few years. Proactive management strategies, enhanced by recent property upgrades, have paid off, and more projects are ongoing at several of our assets. We are especially pleased with the feedback from tenants, whose satisfaction is essential to our long-term success, a leading indicator to future renewal performance. There's always room for improvement, and we're continuing to focus on economic occupancy optimization, and expense ratio management as we move into Q4.

2. Market Trends, Insights & Opportunities
Economic Overview: The U.S. economy is in a moment of transition. The Fed's recent rate cuts signal a shift towards a more accommodative stance, and although inflationary pressures remain, we believe this opens new opportunities for real estate financing and growth. Multifamily real estate continues to be a resilient asset class, benefiting from strong rental demand across the country. Migration trends into our markets in the Midwest and Southeast remain steady and robust, which supports our long-term investment strategy.

Interest Rates & Financing: The reduction in federal funds rates offers some breathing room, but the bond markets remain volatile as the economic landscape adjusts. We are actively exploring opportunities to leverage this shift, particularly in sourcing debt for acquisitions and refinancing our existing portfolio. Loan assumptions with favorable terms, like our Island Club acquisition, are becoming a critical tool for navigating these financial conditions. Anecdotally, recently we've seen the acquisition market get a bit more agressive of late, with multiple pursuits being awarded to competitor investment groups putting down hard money day 1 and pursuing extremely aggressive purchase prices and compressed cap rates. Is this a sign of things to come? We will see. We continue to pursue smart growth through asymmetric risk/reward acquisitions through the inefficient market, and we will keep you informed of future opportunities. We are cautiously optimistic that we will be securing our next opportunity for your investment consideration by the end of this quarter.

Local Market Dynamics: Our targeted markets—Indiana, Kentucky, Ohio, and Tennessee—are experiencing steady population growth and economic expansion, which continue to support rental demand and stable property values. The moderate pace of new development in these regions, coupled with ongoing economic development, makes them attractive areas for long-term multifamily investment. While more volatile Sunbelt markets experience challenges from excess supply, our approach remains steady and strategic.

3. Looking Ahead
The last few months of 2024 promise to be eventful, with both the election and the economy's shifting tides. We remain focused on identifying value in these transitional times and are poised to capitalize on opportunities that align with our strategy of slow, steady, and calculated growth. Stay tuned for opportunities for your participation. We remain patient yet persistent in continued expansion of our portfolio.

As always, we appreciate your continued trust and partnership. We are committed to navigating the road ahead with you and remain available for any questions or discussions about your investment goals.

Here’s to a great fall season and continued success!

In Partnership,
Bryan & Tyler

PS. There's no higher compliment than you referring us to your friends, family, and colleagues. We'd be honored by the opportunity to become a part of their trusted networks. Share your experience investing with CF Capital & invite others to become an investor here.

Understanding Defensive Investing in Turbulent Times

During times of market volatility, defensive investing emerges as an anchor of stability. This investment strategy is relevant for institutional investors and high net worth individuals alike. Both of whom prioritize capital preservation and consistent returns over the tempest of market volatilities.

Philip Fisher's poignant observation that "The stock market is filled with individuals who know the price of everything, but the value of nothing," underscores the principle of defensive investing, applied to markets well beyond stocks. Fisher's wisdom reminds investors of the importance of discerning true value — which lies not in the erratic swings of market prices, but in the enduring strength and consistent performance of robust assets. Rather than focusing on the daily ticker, a defensive strategy involves selecting investments that demonstrate long-term stability and reliability, aligning perfectly with Fisher's philosophy.

The Essence of Defensive Investing

Defensive investing avoids the allure of speculative gains, focusing instead on stability and reliability. This approach prioritizes assets that remain strong during economic downturns, such as essential services, healthcare, and other consumer staples—sectors known for providing essential services irrespective of economic conditions, along with an asset like multifamily real estate.

Diversification: The Investor's Shield

"Diversification is a protection against ignorance; it makes very little sense for those who know what they're doing." —Warren Buffett

While Warren Buffett's approach to investing contains layers of strategic depth, the basic principle of diversification is still widely embraced as a key defensive tactic. Instead of putting all one's financial eggs in one basket, spreading investments across different types of assets helps shield an investor's portfolio from the negative effects of any single investment that may perform poorly.

Put simply, diversification means owning a variety of assets. This strategy can reduce the risk that an investor's overall portfolio will suffer if one particular investment decreases in value. It's like having different types of crops in a field; if one fails, the others may still thrive, providing a safety net.

The Pursuit of Quality

When building a solid portfolio, defensive investors look for high-quality assets supported by strong financial performance and stability. These are the investments selected for their proven resilience in tough economic times and serve as the anchor for a defensive investment strategy.

The Bulwark of Bonds

Fixed-income securities, like bonds, are extremely predictable stalwarts. They provide consistent income streams and maintain their footing due to low default risks, becoming a safe haven when the investment climate turns volatile.

Navigating a Smooth Course with Low Volatility Stocks

Defensive investors prefer low volatility stocks for their more predictable nature, allowing them to enjoy steadier, if not spectacular, returns—an approach that embodies the investment maxim "slow and steady wins the race."

Cash Reserves: The Strategic Reserve

Liquidity is a key yet often overlooked element in defensive investing. Maintaining a cash reserve is essential for investors, as it allows them to stay adaptable during market downturns and to seize investment opportunities that may appear, much like an emergency fund can help weather financial storms.

Timing and Patience: Navigating the Long Haul

Defensive investing advocates for a long-term perspective, focusing on the steady accumulation of wealth and its protection rather than trying to predict short-term market fluctuations. This strategy highlights the value of patience and the passage of time in creating a robust investment portfolio.

*Multifamily real estate remains in demand, complementing defensive investment strategies.*

Anchoring Stability with Multifamily Real Estate

Multifamily real estate, with its persistent demand regardless of economic cycles, naturally dovetails with the principles of defensive investing. This form of investment is not only about maintaining equilibrium but also about benefiting from diversification, cash flow, tax advantages, and appreciation potential.

Stability and Cash Flow

"Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world." Reflecting on the words of Franklin D. Roosevelt’s 's words, the allure of real estate as a stable and tangible asset becomes clear. It not only offers the promise of security but also the potential for generating consistent cash flow, making it a cornerstone for those seeking a defensive approach to investing.

Diversification Benefits

The unique characteristics of real estate can help counterbalance the performance of securities in a portfolio, providing a buffer against the ebb and flow of stock market volatilities and the surrounding economic climate.

Tax Advantages and Appreciation

Real estate's attractiveness in a defensive investment strategy is significantly enhanced by its tax benefits and potential for appreciation.

Tax Advantages:

Depreciation: Investors can deduct the property's depreciation from their taxable income, providing a valuable tax break.
Mortgage Interest and Property Tax Deductions: Reduces taxable income further.
1031 Exchanges: Allows deferring capital gains taxes by reinvesting the proceeds into another property.
Opportunity Zones: Offers tax incentives for investments in designated areas.

Appreciation:

Real estate values tend to increase over time, offering the potential for profit upon sale and contributing to long-term wealth growth.

Benefits for a Defensive Strategy:

Stability: The tax advantages improve returns while adding stability, fitting a defensive strategy's goal of wealth protection.
Inflation Protection: Appreciation can help maintain purchasing power over time, aligning with the objective of steady, risk-adjusted returns.

These aspects underline real estate’s role in safeguarding against market volatility and ensuring consistent, long-term value growth.

Strategic Considerations

The defensive investor must be astute in selecting properties in vibrant markets and managing costs and operations effectively to ensure real estate serves its intended role in the broader investment strategy.

Integrating Defensive and Growth Strategies

Adding multifamily real estate to your investment portfolio can be a smart move, especially when the goal is to fortify against unpredictable market swings. This kind of investment often brings stability and consistent income that can be hard to find in more volatile markets.

Defensive investing isn't just another choice—it's an essential part of any smart financial plan. Institutional investors and high net worth individuals alike are looking for ways to protect and grow their wealth, even when the economic outlook is volatile. As Benjamin Graham famously advised, investment is more about managing risks than chasing returns, and that advice is especially relevant today.

At CF Capital, our focus is on multifamily syndication, which allows our investors to pool their resources and invest in properties they might not have access to on their own. We're not about chasing the latest stock picks or jumping into volatile markets. Instead, we believe in the long-term stability and potential for passive income that multifamily properties can offer. Whether you're new to investing or looking to diversify your holdings, CF Capital is dedicated to helping you navigate these complex investments with confidence.

Understanding Defensive Investing in Turbulent Times

stacks of pennies on a desk with person in background

The Essence of Defensive Investing

Diversification: The Investor's Shield

"Diversification is a protection against ignorance; it makes very little sense for those who know what they're doing." —Warren Buffett

The Pursuit of Quality

The Bulwark of Bonds

Navigating a Smooth Course with Low Volatility Stocks

Cash Reserves: The Strategic Reserve

Timing and Patience: Navigating the Long Haul

Anchoring Stability with Multifamily Real Estate

Stability and Cash Flow

Diversification Benefits

Tax Advantages and Appreciation

Real estate's attractiveness in a defensive investment strategy is significantly enhanced by its tax benefits and potential for appreciation.

Tax Advantages:

Depreciation: Investors can deduct the property's depreciation from their taxable income, providing a valuable tax break.

Mortgage Interest and Property Tax Deductions: Reduces taxable income further.

1031 Exchanges: Allows deferring capital gains taxes by reinvesting the proceeds into another property.

Opportunity Zones: Offers tax incentives for investments in designated areas.

Appreciation:

Real estate values tend to increase over time, offering the potential for profit upon sale and contributing to long-term wealth growth.

Benefits for a Defensive Strategy:

Stability: The tax advantages improve returns while adding stability, fitting a defensive strategy's goal of wealth protection.

Inflation Protection: Appreciation can help maintain purchasing power over time, aligning with the objective of steady, risk-adjusted returns.

These aspects underline real estate’s role in safeguarding against market volatility and ensuring consistent, long-term value growth.

Strategic Considerations

Integrating Defensive and Growth Strategies

Investing vs. Speculation: What's the Difference

When it comes to the world of finance and investing, two terms that are often used interchangeably but should definitely not be confused are investing and speculation. Both involve putting money into assets with the goal of generating a return or profit, but the approaches and outcomes can vary significantly. Therefore, it’s crucial to understand the differences for making informed financial decisions and aligning your investment strategy with your goals and risk tolerance.

Investing vs Speculation: Definition and Approach

Investing can be defined as the act of putting money into an asset or venture with the expectation of generating a return or profit over time. The investing approach is typically focused on long-term growth and stability. Investors prioritize fundamental analysis: carefully evaluating an asset's underlying value, financial health, and growth potential. They take a patient and disciplined approach, aiming to harness the power of compounding returns over time.

On the other hand, speculation involves taking risks with the purpose of making quick profits. Speculators are less concerned with the long-term value of an asset and are more focused on short-term price fluctuations. They rely on market trends, rumors, and technical analysis to make speculative investment decisions. Speculation often, but not always, involves rapid buying and selling, attempting to profit from short-term price movements. Speculation generally is making an uncertain bet on what the future could hold, without firm concrete rationale for that future materializing.

Time Horizon

One of the key differences between investing and speculation lies in the time horizon. Investing is centered around long-term growth, compounding returns, and riding out market fluctuations. Investors understand that financial markets can be volatile in the short term but tend to trend upward over the long term. They apply a patient mindset, allowing their investments to grow over time.

Speculation is driven by shorter-term bets and the hope of quick or outsized profits. Speculators aim to take advantage of short-term price movements and may engage in rapid buying and selling. Time is of the essence for speculators, as they seek to maximize gains within a short period and/or well outside the market norms by participating on the outer edge of the risk spectrum.

*With investing, you are more prepared to weather market volatility and take advantage of compounding returns.*

Risk Level

The risk level associated with investing and speculation can also differ significantly. Investing, especially in already existing and financially operating commercial real estate, is generally considered a lower-risk activity. Investors meticulously analyze an asset's fundamentals and take a comprehensive systematized approach to mitigate risk. They sometimes spread their investments across various asset classes, markets and industries, reducing exposure to any single investment. Furthermore, because of the long-term vision investors employ, they are more prepared to weather market volatility and take advantage of compounding returns.

Conversely, speculation involves higher levels of risk. Speculators may take long positions, use leverage, or make investment decisions based on short-term trends. The approach is based more on speculation, with the potential for larger gains but also the risk of significant losses. Speculators must be prepared for the possibility of their bets not paying off.

Which Method is Considered the Better Approach?

Investing is generally considered to be a more prudent approach for most investors compared to speculation for several reasons. Firstly, investing takes a disciplined and long-term perspective, allowing individuals to harness the power of compounding returns over time. By staying invested in well-performing assets and weathering short-term market fluctuations, investors have a higher chance of achieving consistent and sustainable growth. Additionally, investing promotes a diversified portfolio, spreading risk across different asset classes and industries. This diversification helps mitigate the impact of any single investment's performance, reducing overall risk. Lastly, investing offers stability and predictability. With a focus on fundamental analysis and research, investors have a clearer understanding of an asset's value and growth potential, reducing the reliance on market speculation or sometimes unpredictable or unreliable rumors. Ultimately, the patient and calculated approach of investing provides a higher probability of long-term success and profitability. There can be a time and place for speculative bets, such as in real estate development, but you must consider the risk profile of those speculations and still perform your proper due diligence to understand the likelihood of your assumptions coming to fruition.

Invest with CF Capital for Long-Term Stability and Growth

Understanding the difference between investing and speculation is crucial when it comes to making financial decisions. It helps individuals align their investment strategy with their goals and risk tolerance. While speculation can be potentially lucrative at times, having a solid foundation of long-term investments provides stability and growth over time. At CF Capital, we recognize the importance of having a diversified investment portfolio that includes long-term stable investments. Our real estate investment firm focuses on acquiring and operating multifamily assets that offer stable cash flow, capital appreciation, and a margin of safety. With our expertise in acquisitions and management, we provide investors with superior risk-adjusted returns and prioritize capital preservation. Contact CF Capital today to start maximizing your returns through long-term investing in high-value multifamily communities.

How the Changing US Demographics Impact Multifamily Real Estate

The landscape of the United States is undergoing a profound transformation driven by shifting demographics—influencing many business sectors, not to mention society as a whole. One of the key areas significantly impacted by these US demographic changes is the multifamily real estate market. As the population diversifies, ages, and adapts to evolving lifestyle preferences, the demand for housing options also evolves, presenting new opportunities for real estate investors. Understanding these dynamics is essential for navigating the ever-evolving multifamily real estate landscape and staying ahead in an increasingly competitive market.

What are the Key US Demographic Trends

Let's start by summarizing the key demographic trends in the US that have an impact on multifamily real estate:

Aging population: The baby boomer generation is reaching retirement age, leading to a growing number of senior citizens. This presents an opportunity for multifamily properties to cater to the needs and preferences of seniors, such as age-restricted communities or properties with amenities geared toward an aging population.

Increasing diversity: The US population is becoming more diverse, with minority populations quickly growing. This demographic shift has implications for multifamily real estate, as different ethnic and cultural groups may have unique housing preferences and requirements.

Rise of single households: Single-person households are on the rise in the US, accounting for a significant portion of the population. This trend is driven by factors such as delayed marriage, increasing divorce rates, and the number of people living alone. As a result, there is more demand for smaller, units that cater to the needs of single individuals.

Urbanization: More people are choosing an urban lifestyle, leading to higher housing demands in city centers. This trend is driven by factors such as employment opportunities, access to amenities and services, and the desire for a vibrant lifestyle. Multifamily properties in urban areas can benefit from this trend by offering convenient and attractive living options for urban dwellers.

Millennials: The millennial generation—born between 1981 and 1996—is a significant force in the multifamily real estate market. Many millennials prefer renting over homeownership, prioritizing cost savings, flexibility, and convenience. They are drawn to multifamily properties which offer amenities such as coworking spaces, fitness facilities, and social areas.

*Understanding demographic trends enables you to pinpoint potential market openings and adapt your approaches to align with changing consumer demands.*

How US Demographics Affect Multifamily Real Estate

Demographic trends have a significant impact on the multifamily real estate market. They shape tenant preferences, influence the demand for different types of properties, and impact overall market dynamics. For instance, an aging population drives the need for properties with accessibility features and healthcare amenities. Millennials, on the other hand, prioritize properties with flexible leasing options and modern amenities.

Demographic trends also affect the location and design of multifamily properties. Urbanization creates opportunities for investors to acquire properties in prime city locations, while increasing ethnic diversity necessitates the development of welcoming living spaces.

Implications for Investors

Understanding demographic trends help you identify market opportunities and tailor your strategies to meet evolving demands. Investors who adapt to these trends stand to benefit from targeted marketing, higher occupancy rates, and increased rental income.

Invest with CF Capital

Understanding the impact of US demographics presents promising opportunities for investing in multifamily real estate; however, seizing these opportunities requires thorough research and expertise. At CF Capital, we understand the complexities of multifamily real estate investing. Our team leverages our expertise in acquisitions and management to provide investors with superior risk-adjusted returns. With CF Capital, investors can trust that all the necessary work and research will be handled by a team focused on delivering results. Let CF Capital be your trusted partner in navigating the multifamily real estate market and achieving your investment goals. Get in touch with us to learn more!

How to Invest in a Real Estate Syndication

How does it sound to take your real estate investments to a whole new level, where you can go further faster? If going further faster resonates with you, you’re invited to discover the power of real estate syndication. Whether you're a seasoned investor looking to diversify your portfolio or a beginner hoping to transform your financial life through real estate, syndication has the potential to unlock a whole new realm of possibilities. So, if you're ready to take control of your financial future and unlock the secrets of real estate syndication, let’s dive in and discover the endless possibilities that await.

What is Real Estate Syndication?

Real estate syndication is a partnership between multiple investors who pool their capital and resources to jointly invest in a real estate project. This collaborative investment approach allows investors to access larger and potentially more lucrative real estate opportunities that they might not be able to undertake individually. A syndicator or sponsor identifies and manages the investment property on behalf of the investors, while the investors—also known as limited partners–fund the acquisition, development, or operation of the property. In the case of CF Capital, we as the sponsors also invest in all of our investments alongside our LP partners, as well. We believe in our deals and we also think it’s very important to have skin in the game!

Benefits of Real Estate Syndication

Investing in real estate through syndication offers several benefits, such as:

Diversification: Real estate syndication allows you to diversify your investment portfolios by participating in multiple properties or asset classes. This helps spread the investment risk and reduces the impact of any individual property's performance on their overall portfolio.

Access to Larger and More Lucrative Opportunities: Syndication enables you access larger and potentially more profitable real estate projects that they may not be able to pursue individually. By pooling their resources, investors can take advantage of economies of scale and participate in projects that require substantial capital.

Passive Income Potential: Real estate syndication can provide investors with passive income through rental income generated by the investment property. As limited partners, investors can enjoy a share of the income without being directly involved in the property's management.

Access to Expertise: By investing in syndication, investors can gain access to the knowledge and expertise of the syndicator or sponsor. This can be particularly beneficial for beginner investors who may not have extensive experience in real estate investments.

Potential for Capital Appreciation: Real estate investments have the potential for long-term capital appreciation. As the property increases in value over time, investors may benefit from appreciation when the property is sold or refinanced.

Limited Liability: As limited partners in a real estate syndication, investors are typically shielded from personal liability beyond their initial investment. This means that their risk is generally limited to the amount they have invested in the syndication, offering a degree of protection in case of adverse events.

*Investing in multifamily* *properties offers a myriad of benefits with unlimited potential for investors.*

How to Invest in Real Estate Syndication?

Here are some steps to help guide you through the process:

1. Identify a Syndicator or Sponsor

The first step in investing in a real estate syndication is to identify a syndicator or sponsor. Look for a reputable and experienced syndicator who has a track record of success in real estate investments.

2. Evaluate Investment Opportunities

Once you have identified potential syndicators, you will need to evaluate the investment opportunity. The syndicator will typically provide you with a private placement memorandum (PPM) that outlines the investment terms, expected returns, risks, and other relevant information.

3. Investment Amount and Structure

Determine your investment amount and structure. Typically, syndications require a minimum investment of $50,000 - $100,000, but the exact amount may vary depending on the syndication. The investment structure can vary as well, with options such as equity ownership, preferred returns, or debt investments.

4. Sign Subscription Agreement

If you decide to invest, you will need to sign a subscription agreement that outlines the terms of the investment and your obligations as a limited partner.

5. Monitor Your Investment

As a limited partner, you will receive regular updates from the syndicator on the investment's progress. It is important to monitor your investment closely and stay informed on any significant developments or changes that may impact the investment's performance.

CF Captial, Real Estate Syndication Experts

Real estate syndication offers investors the opportunity to unlock a new realm of possibilities in their investment journey. By partnering with other investors and pooling resources, you can access larger and potentially more lucrative real estate projects that may have been out of reach individually. If you're looking to level up your real estate investment game, consider exploring the possibilities with CF Capital. Our mission is to offer property investment and asset management solutions that enable investors to maximize their returns. By investing in carefully selected multifamily communities, we aim to create long-term value and help our investors achieve their financial goals. Get in touch with us to learn more!

Investing in CDs vs Multifamily Syndication

Investing in CDs vs multifamily syndication, which one is better? Understanding the key differences between CDs and multifamily real estate can be an example that helps you decide where to invest your capital. These investment strategies offer a range of differing benefits and risks. Let’s take a look!

What is Investing in CDs?

When you open a CD (Certificate of Deposit), you agree to entrust a certain amount of money with a bank or credit union for a/over fixed period of time: generally ranging from a few months to several years. In return, the bank or credit union agrees to pay you a guaranteed interest rate on your deposit during the term of the CD. This is different from a savings account since the money must not be withdrawn for the entirety of the term. Generally, CDs have a higher interest rate than a savings account, however, the rate of return is typically lower than other investment types. CDs are still appealing, though, because they are considered a safe and predictable investment with minimal risk.

What is Multifamily Syndication?

Multifamily syndication is a real estate investment that is a way for investors to pool their capital into a larger real estate project, such as an apartment complex or other types of residential or commercial properties that have multiple units. In this type of investment, a professional real estate sponsor researches and identifies a real estate investment opportunity and then invites multiple investors to contribute their capital to passively invest alongside the sponsorship team. The best part of this type of investment is that you will not be responsible for managing the property, leasing, and dealing with the many day-to-day issues. Instead, the sponsor will manage the investment on your behalf. You can receive returns in the form of positive cash flow generated by the property and from the appreciation of the property’s value over time.

Multifamily real estate syndications can be an attractive investment option for investors looking to diversify their portfolio without the responsibilities of property management. It can also provide access to larger, higher-quality real estate assets that may not be available to individual investors.

Investing in CDs vs Multifamily Syndication: Which is Better?

Risk and Return: Multifamily investments have higher risk and higher potential returns; whereas CDs are low-risk investments with a low rate of return. According to the National Council of Real Estate Investment Fiduciaries (NCREIF) report, the return rate for multifamily real estate investments was 7.52% over the past 10 years, while CDs typically provide a lower rate of return: usually 1% to 2%.

Liquidity: CDs are very liquid, which means you can withdraw your money at any time, however, if you withdraw your money before the fixed period, you may have to pay a penalty. On the other hand, multifamily real estate is illiquid, which means it can be difficult to sell your stake quickly. Typically, real estate investment takes more time and effort to sell compared to liquid assets.

Management: Both require little management. CDs require you to simply deposit your money and wait for the CD to mature; multifamily syndication management responsibilities are handled by the sponsor.

Diversification: CDs investments are stable and diverse, but they’re low-risk, and therefore low-returning. Multifamily real estate investments also provide diversification with the potential for high returns, especially since they are not directly tied to the stock market or other traditional investments.

CF Capital: Your Investment Partner

Ultimately, the decision between CD investing vs multifamily real estate investing depends on your goals and risk tolerance. However, if you are looking to make the most out of your capital, then multifamily investment may be the right investment opportunity for you. When you invest alongside the CF Capital team, we will be committed to maximizing your returns and minimizing the risks associated. Get in touch with CF Capital to see how we do it and get started on passively investing with us.

Risk Adjusted Return: What It Is and 5 Ways to Calculate It

Including risk-adjusted returns into your finances can be difficult without knowing how to find the best investments for your financial plans. Often, investors looking to improve their portfolios can become excited with the prospect of earning more profits that they can lose sight of which investments are truly meeting their goals. To better decide the best investments for your savings, then, let’s review what risk-adjusted returns are, as well as which ways to calculate those return investments.

What Is a Risk-Adjusted Return?

A risk-adjusted return is the calculation of profits or potential profits earned over time from an investment that accounts for the degree of risk needed to achieve it compared to one without risks. Financially speaking, such risks measure the chances of an investment performing differently from its expected goal, resulting in a ratio based on past data and deviations to determine return.

Applied to investment stocks, funds and portfolios, and of course real estate, higher risk-adjusted return ratings typically produce better returns for investors, with higher-risk investments generally yielding more success than low-risk assets. However, no investment is truly risk-free, and must therefore be considered with caution by investors before being accounted into personal finances.

Calculations for Risk-Adjusted Returns

Since risk-adjusted returns measure your investment’s profits against how much risk the investment presents within a certain time, calculating risk-adjusted returns comes down to figuring out which of the two investments holds the lowest risk and—in turn—yield better profits. Here, we review some of the most common ways to calculate risk-adjusted returns:

Sharpe ratio

Developed and named after the American Nobel Laureate, William Sharpe, the Sharpe ratio calculation measures risk-adjusted returns by separating a risk-free asset’s average profits.

To calculate a risk-adjusted return via Sharpe ratio, simply:

Subtract the risk-free rate—such as U.S. Treasury bills that are nearly risk-free assets—from an asset’s return.
Then, divide results by the standard deviation of the asset’s return. Highly concentrated distribution return data suggests more stability, while wide-spread data proposes instability.

Any risk-adjusted return results of 0 indicate no returns outside the risk-free rate. As a result, not only can investors find the best investment opportunity by highest ratio, but also measure the excess returns of investments outside the risk-free rate per volatility unit.

Sortino ratio

When picking investments, investors or financial managers worried about potential losses with risk-adjusted returns can utilize the Sortino ratio calculation. Although similar to the Sharpe ratio where higher ratios show better investments, the Sortino method focuses only on the downward distribution of risk-adjusted returns below average.

To calculate risk-adjusted returns via Sortino ratio:

Subtract your investment portfolio’s total profits from the return’s risk-free rate.
Then, divide by the standard deviation of negative earnings.

Through the Sortino method, investors can find the potential downside risks involved in certain investments, wherein comparing two investments one can discover which is more likely to fail over the other. Therefore, investors can find more profitable risk-adjusted returns by weeding out poor results with the Sortino ratio.

Jensen’s Alpha

With the Jensen’s Alpha calculation, investors can measure the performance of active returns, ultimately helping to determine which investments will succeed in the market. Jensen’s Alpha includes in its calculation a risk-adjusted element that measures assets against a set benchmark to highlight normal or abnormal risk-adjusted returns. This is done by using the asset’s beta coefficient, which is a measure of volatility.

To calculate risk-adjusted returns with Jensen’s Alpha, the formula includes the asset’s measured volatility, or beta coefficient, as follows:

Portfolio Return − [Risk Free Rate + Portfolio Beta x (Market Return − Risk Free Rate)]

As alpha measures return performance relative to a set benchmark, beta measures which return investment is exposed to higher risk, thereby making it perfect for investors looking to cut return risks in their investment plans or portfolios.

R-squared

R-squared ratios calculate the relationship of movement between a risk-adjusted return and its benchmark through a percentage from 1-100. R-squared calculations greatly assist investors hoping to receive the most in risk-adjusted returns on investments. Essentially, the best results to look for in investments lie within the 1 to 100 range, as 100% may increase payments on investments rather than greater returns.

In short, investors need a lower R-squared value to justify taking risks in active investment strategies.

Calculate risk-adjusted returns using the following R-squared formula:

R-Squared= 1- (Sum of First Errors/Sum of Second Errors)

Here are the following ranges best suited to risk-adjusted returns through R-squared:

High correlation: 70-100%
Average correlation: 40-70%
Low correlation: 1-40%

Treynor ratio

Structured similar to the Sharpe method, the Treynor ratio calculates risk-adjusted returns by incorporating the beta coefficient via Jensen’s alpha. Like R-squared, the Treynor method is used to measure reward for units of risk taken on by an investment portfolio or fund.

To calculate risk-adjusted returns via the Treynor method, follow this formula:

Treynor Ratio= (Average Investment Portfolio Return – Average Risk-Free Rate)/ Portfolio Beta

Using the Treynor ratio, investors can determine within their investments the degree of systematic risk and amount of returns to be earned depending upon the risks taken in an investment. Basing its findings on the historical data of an investment, investors can likely use the Treynor calculation to adjust actions or progress of investments according to successes within their previous finances.

By finding the right calculation for your investment plan and financial goals, more can be earned in risk-adjusted returns to substantiate a healthier, stable financial plan. To learn more about how you can passively invest in quality risk-adjusted real estate investments, contact CF Capital today to get in touch with our experienced team. Our team leverages its expertise in acquisitions and management to provide investors with superior risk-adjusted returns while placing a premium on preserving capital.

Inflated State: Let’s Talk About Real Estate Investing in an Inflationary Environment…

“Invest in inflation. It’s the only thing going up.” -
Will Rogers

Recently, we have had an enormous number of discussions surrounding the US economy and its current inflation. One thing we do know is that “inflation is here,” and it appears that there are no near-term signs of stopping.

The Consumer Price Index (“CPI”), the most common index to measure inflation, reached 283.716 points in February 2022, nearly 8% higher than in February 2021 – the largest year-over-year increase in 40 years.

But what does that really mean for multifamily real estate investors in the US?

Historically, many financial experts and academics have recommended real estate as a hedge (or a source of financial protection) against inflation. If you’ve invested in the real estate market lately, you have most likely felt some of the forces of inflation. If not, I am sure many of you have heard a story or two from your family, friends, or network.

Since no one can say they’re quite certain about the future, it’s important for our audience to understand: 1) inflation; 2) how it works; 3) how it affects your current and/or future real estate investments; and 4) the best ways to protect your financial health and portfolio of investment assets.

What Is Inflation?

Inflation is essentially the rise in prices of goods and services within an economy over a set period of time (one-year or year-over-year is most commonly used).

To paint this picture simply, here’s an example

· Over the long-term we are usually experiencing an average annual rate of inflation of 1.8%. Let’s say you bought a microwave for $400 last year at this time, you would need to pay an additional $7.20 for the same cooker today.

· With today’s inflation we are looking at 7.9%., so instead of $7.20 additional from the average 1.8% you would now pay $31.60 more (a $24.40 difference).

It might not seem like a lot of money to be worried about in this case. However, after adding up all your bills for the year, like internet, gas, groceries, phone bills, and other expenses, you actually end up spending a lot more.

In terms of purchasing power this means a dollar buys less over time.

For example, since 1913, the US dollar’s purchasing power has declined by roughly 96.5%. If you had $1 a century ago, it would only be worth about 3.5 cents today

Some people confuse inflation with appreciation. The two are different.

1) Appreciation in real estate refers to the rate at which a property’s value goes up over time.

2) The increase in value in appreciation isn’t due to inflation. The value appreciates due to the rise in demand and underlying fundamentals of the asset.

It’s common to see the value of property increasing at a higher rate than inflation, but can also increase at a slower rate, or perhaps even depreciate, as the economy experiences inflation.

What Causes Inflation?

We made a short list of some of the important (and currently relevant) causes of inflation for you all:

· Lax monetary policy - This is also known as money printing. It increases the amount of money in circulation, which, in turn, results in the decline of the currency value. The US government provided a $5 trillion stimulus during the pandemic, which was the largest amount of money ever distributed in US inflation history. To put this in perspective, this amount is 3x the amount after the financial crisis in 2008.

· Expecting prices to rise - Based on knowledge of the experts, expectations of rising prices eventually become self-fulfilling. When businesses expect prices to increase, they also adjust their prices. This is when you find rent prices increasing or see real estate investment firms directing their property managers to negotiate wages of the property staff.

· Supply Shocks - Supply shocks happen when there’s a rise in prices due to an increase in demand but a low supply. It happens when there are natural disasters or business lockdowns.

· Demand Shocks - Demand shocks include when you find real estate investors engaging in bidding wars to purchase investment properties with the potential to yield rental income.

(View our past discussion on navigating the market cycle)

How Does Inflation Impact Real Estate Investors?

While inflation can look like a negative thing, it’s not entirely so – believe it or not, there are some positives. Let’s break down this section into what inflation means for current and prospective real estate investors.

Inflation for (Current) Investors

One case is if an investor or investment firm has financing to invest in property as a leveraged asset while interest rates were low (and in the meantime still are, relatively speaking). Depending on the type of financing, the investor could be paying back the same rate while the investment property appreciates in value.

(View our past discussion on interest rates)

In the current inflationary environment, financing (i.e. interest) rates aren’t rising at the same rate as the inflation. Given a sale, this means that an investor’s return on investment could soar.

Inflation for Prospective Investors

Based on historical data, prospective investors could potentially experience the most negative effects in an inflationary market.

· Inflationary times lead to high costs of borrowing. Since banks and lenders don’t want to lose their money, they offer fewer loans at high interest rates to reduce their risk.

· Inflationary times lead to a high cost of building. Due to the high cost of borrowing and building materials, new constructions or larger renovations during inflationary periods could make for a difficult investment.

With that said, this would not be the case for every prospective investor. In fact, there are always ways to find hidden value and participate in the market as a contrarian.

(View our past posts on: identifying hidden value & contrarianism)

How Does Inflation Impact the Real Estate Prices?

Some are expecting real estate prices to continue rising into the double digits over the next year.

So how about we answer the question, “what are the causes of the real estate price increases during inflation periods?”

1) Demand in Income Generating Assets

One of the major reasons why real estate prices increase during inflation times is because real estate investors search for assets that will generate rental income that keeps up with or outpaces the current inflation rate.

Rental income is the money collected from the tenants and used to settle property operating expenses, taxes, and mortgages. Any money that remains after settling the expenses is the net cash flow. In this case, we express the rate of return as the cash-on-cash return. . Cash-on-cash return measures the amount of cash flow relative to the amount of cash originally invested in a property. As inflation increases over time the inflated income dollars collected measured against the original investment amount should help to boost this cash-on-cash return.

2) Limited Real Estate Inventory

Real estate prices during inflationary periods also go up because of the limited amount of real estate compared to fiat currency. You’ll find governments printing more money during such periods to increase the money supply.

This can cause real estate prices to rise.

3) Increase in Construction and Renovation Costs

Inflation tends to cause all prices to increase, including land, wages, building materials, and supplies.

As a result, home builders and multifamily property developers pass the cost of construction to home buyers and investors, which we are currently seeing in the market today.

· Over the past 12 months, building material prices have risen by over 19%, including lumber, ready-mix concrete, and boards used for finishing ceilings and walls.

(View our past discussion on capital expenditures)

So, what’s the remedy for real estate investors during inflation?

What Should Real Estate Investors Do During Inflation Periods?

Ask yourself: how long would you like to (or intend to) own the prospective investment property?

If you want to keep it in the long term, you can expect to enjoy the same benefits as existing owners, such as property value appreciation. If you’re looking to invest in a much shorter period, we advise you to proceed with a lot of caution.

One major danger of investing in the short-term during inflation is that the potential risk of a real estate bubble. If you are a new direct investor, if you don’t have enough equity to settle such costs, then you may lose a lot of money should the bubble burst.

Book a meeting with the CF Capital team today to learn more about how we can help you navigate inflation with multifamily real estate investing utilizing our tools expertise.

Recently, property prices have risen to historic levels. While the trend may not cause concern, it emphasizes the importance of understanding your investment time horizon and planning accordingly. For CF Capital, we are spending more time than you can even imagine to make sure we are being as thoughtful as possible with our Business Plan. (View our past discussion on our Business Plan)

How Can Investors Use Investment Property as an Inflation Hedge?

Investing in real estate during inflationary periods always depends on the location and the state of the market. However, investors may use the following ways to gain a hedge (i.e. protect their investment portfolio) against inflation:

· Invest in Multifamily properties: Since many people can’t afford to build their own homes during inflation, multifamily rental properties tend to have a higher demand. As a real estate investor, you can then hedge against inflation by controlling the revenue levers available in the marketplace as a result. For those looking to gain exposure without the hassle of managing a property, please feel free to reach out to us – we can discuss our current or potential upcoming investment offerings OR just guide you to the right path that you are looking for. Either way, we would be more than happy to have a conversation. (CLICK HERE to fill out our inquiry form)

· Leverage historically low financing: Interest rates for real estate financing reached historical lows, and still remain quite low in relative terms. A real estate investor can take advantage of the low-interest-rate environment to steer clear of paying higher rates in the future.

· Capitalize on rising asset values: History has demonstrated that real estate investors benefit from owning properties in the long term. For example, since 1990, median home prices have risen by 345%. Similarly, property prices have increased by nearly 20% since 2020. It is another reason to justify using real estate as a hedge against inflation.

It’s essential for you to have funds available so that you can seize any available opportunities. As we always advise, make sure you carry out your due diligence since investing during inflation periods can go either way. If you do not have the capacity or do not feel comfortable in your due diligence, we would be more than happy to discuss what we do!

(View past discussion on due diligence checklists)

What’s Next for Real Estate Investors?

The bursting of the 2008 real estate bubble and consecutive economic recession still haunts investors, buyers, and sellers to date.

Please note that while prices continue to go up, it’s difficult to predict a market decline. On top of our lack of interest in speculation, there’s still insufficient data to suggest that a recession is imminent.

The current market inflation is quite different from what we experienced just before the Global Financial Crisis. Though there’s a short supply of labor, the economy is growing at a steady rate, and the rate of unemployment is on a decline.

We remain optimistic that the post-pandemic economy will fully reopen and grow to provide more opportunities.

Remember to always do your due diligence. Smart planning and time management will help you manage your economic risk.

Finally, we recommend that you speak to your financial advisor or a real estate investment firm, like CF Capital, so you can find the best way to invest in a multifamily property.

Main Takeaways

· Real estate prices tend to increase during periods of inflation due to the excess money in circulation in the economy.

· Many investors have used real estate as a hedge against inflationary periods.

· You can use multifamily real estate investment to generate income above the inflation rate while also capitalizing on the potential property value appreciation in the long term.

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Interested in partnering with us? Join our investors list here.

Response Regulator: Let’s Talk About Contingency Planning…

**“One thing that makes it possible to be an optimist is if you have a contingency plan for when all hell breaks loose.” – Randy Pausch**

Even the most concrete plans will show some cracks every now and then.

In the world of real estate, if you are depending on your first option you will quickly realize that things don’t always go as planned. The most successful investors will make contingency plans for such a scenario, as there is a slight chance it will be needed.

It is usually in times of panic or crisis that bad decisions are made. Inappropriate knee-jerk reactions will only compound the initial lack of preparation.

With every property that you get involved in you need to protect yourself and have a backup plan ready. It may be the only thing that protects your investment.

Deals Processes are Rarely Perfect

It is very rare that a deal will go exactly how you envision it from the time you make an offer until the time you take ownership. Even after you close on the property, you will have another set of obstacles and challenges that you will be forced to deal with.

It is always great to have a plan, but you also need to have a couple of backup plans in place as well. This is a critical part of the CF Capital investment process that investors rest assured we’re prepared to execute contingency plans on their behalf while they passively invest alongside our team.

Everything from budgeting to scheduling could throw a monkey wrench in your plans if you are not prepared. Even if you are prepared and have everything in place, it doesn’t mean that the people around you share the same vision.

Things to Cover in the Deal Process

If you intend to flip, how realistic are you with your end price? What would you do if there is not as much interest as you thought there would be? If you opt to rent, what are the fair market rents and do you want to be a landlord? If you decide to sell, what is the minimum you would take?

All of these questions, and many more, have to be thought about before you even make an offer. Once you acquire the property, it is too late to run these scenarios when there is real money at stake. If you are forced to make a tough decision in times of desperation you are more likely to compound the error.

Making a Good Plan

Take the time and lay out every step of the process and what can go wrong in each area. Play out what you would do in the worst case scenario and how it would impact your bottom line.

There are those who say that thinking like this is negative and is a precursor of how the deal will go. The reality is that this is much more the exception than the norm. If you don’t prepare for negative circumstances along the way you will end up disappointed in the results and will be less positioned to take the necessary actions to iterate. If you have to say that you hope it doesn’t come to that or you don’t know what you would do if that happened, you may be taking too much of a risk with the property. As the saying goes, hope is not a strategy.

Of course, some worst-case scenarios are not very realistic, but if others are only a couple of steps away from happening you have to put that on your radar and at least consider the possibility. It’s also helpful to consider probabilities and work to project various potential future outcomes ahead of time, and ask yourself if the worst-case is something you can mitigate and what you might do should it occur.

Closing Thoughts

A truly smooth deal from beginning to end is not the most likely scenario with any real estate deal. The more prepared you are for this, the better your investing business will be. What you will quickly find is that your backup plan may be your only plan.

When making investment decisions, choosing to invest alongside a team like CF Capital helps investors find comfort in contingency planning from the professionals to protect and grow your capital through a fluid and constantly changing market and day to day business. Knowing that you’re investing with a sponsor who considers alternative scenarios from the beginning drives confidence and eases concerns.

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Interested in partnering with us? Join our investors list here.