Why Have a Real Estate Investment Portfolio?

Are you ready to turn your dreams into reality? Real estate investing may be the key to unlocking your desire to retire early, explore the world, or provide for your family. Whatever your aspirations, building an investment portfolio will help you achieve them. Take control of your financial future and build the life you've always wanted with this investment strategy!

What is a Real Estate Investment Portfolio?

A real estate investment portfolio is a collection of real estate assets you own for the purpose of generating income or deriving appreciation. This means you can invest in a variety of real estate assets, like residential rental properties, multifamily apartment communities, commercial buildings, vacant land, and even real estate investment trusts (REITs).

As an investor, generally the goal when building a portfolio is to achieve long-term financial benefits. This includes earning a steady stream of income and seeing your investments appreciated over time. To reduce your risk and protect your investments from market volatility, it's important to diversify your portfolio by investing in different types of real estate assets and different markets.

Why Have a Real Estate Investment Portfolio?

It's no secret that real estate investments have been gaining popularity among investors who want to diversify their portfolios and build long-term wealth beyond paper assets, and it's not hard to see why: there are many reasons why investing in real estate can be advantageous.

Real estate investing allows investors to generate passive income from rental properties. By investing in rental properties, investors can receive regular rental income without having to actively work for it. Secondly, real estate investing offers numerous tax benefits. For example, rental income is generally subject to lower tax rates than ordinary income, and real estate investors can take advantage of various deductions and credits to reduce their tax liability. It can also provide diversification benefits. Real estate markets do not always move in tandem with other asset classes, such as stocks and bonds. This provides a hedge against market volatility. Lastly, owning real estate can help build equity over time. As the property value appreciates and the mortgage is paid down, the investor's equity in the property increases. This can provide a valuable source of wealth and financial stability over the long term.

How to Build an Investment Portfolio?

Set Goals

Before diving into real estate investing, consider your goals. What do you want to achieve with your investment? Do you want to earn passive income? Build long-term wealth? A combination of both? By setting clear goals, you can better determine the real estate investing strategy for you. Remember, when it comes to real estate investing, there's no one-size-fits-all approach, so be sure to tailor your strategy to fit your unique goals and circumstances.

Do Research

Once you have set your financial goals and decided on the type of real estate investment strategy you want to pursue, the next step is to conduct thorough research. It is essential to learn about the various types of real estate investments available in the market and identify which ones align with your goals. For example, you may be interested in investing in rental properties to generate passive income, or you may prefer to invest in commercial properties for long-term capital appreciation.

In addition to understanding the different investment options available, it is also important to research the local real estate market, analyze the market trends, and identify potential opportunities to make more informed investment decisions. Some factors to consider when researching the local real estate market include vacancy rates, rental prices, property values, and economic conditions.

Start Small

Starting small is a great way to gain experience and refine your investment strategy without putting yourself at undue risk. For example, you might consider starting with a single rental property, and then gradually expanding your portfolio as you become more experienced. This approach allows you to learn the ropes of real estate investing and adjust as needed without overextending yourself financially.

Monitor Investments

Continuously monitoring your real estate investments is crucial for your portfolio’s success. Real estate markets are constantly evolving, which can significantly impact your investments. By keeping a close eye on your portfolio, you can identify potential risks and opportunities, and adjust as needed to maximize returns and minimize risks.

Want to Build Your Investment Portfolio? Contact CF Capital

Building your investment portfolio is a great way to generate passive income and build long-term wealth. By conducting thorough research and continuously monitoring your investments, you can make informed decisions and maximize your returns. However, this requires diligence and careful consideration. When you pool your resources with other investors and partner with an experienced syndicator, you access higher-quality multifamily properties that may not be available to individual investors. This investment strategy offers many benefits, including the potential for regular cash flow, tax advantages, and a hedge against inflation. Want to learn more? Get in touch with CF Capital.

From the Desk of CF Capital: May Investor Report

Hello Friends and Investors,

We hope you are doing well and having a great start to May. It's remarkable how fast each month comes and goes, and it's hard to imagine that we're already a full 4 months and counting through 2023. April was a month filled with highs and lows as our team members were able to take time off with family trips for spring break, we made progress on our latest acquisition and on the other side we tragically lost some friends, a partner and colleagues in a senseless tragedy.

For the past 3 weeks we've been grieving the sudden loss of Josh Barrick, one of CF Capital's greatest supporters, personally and professionally, and one of our incredible partners in Jim Tutt. To lose these incredibly talented and impactful people, along with the other wonderful people affected, has been tremendously jarring to our community and our team. Life is precious and fragile, and this is a reminder to make it count while we're here. They surely did, and their mark will be felt as their memory lives on. The outpouring of support to the families of those impacted from our investor community and otherwise has been nothing short of remarkable and reassuring. The good that has come from this shows how much we all mean to each other, and the sincere care to be there for one another in a time like this has been enriching. If you'd like to help Josh's young family, you can participate in a bourbon raffle where all proceeds are being donated to a trust setup to support his family. Learn more here.

With this event occurring, we were fortunate to take some time to travel and be in the moment with our families during the month of April. Bryan and his family enjoyed a trip to the famous Smoky Mountains in Gatlinburg and Tyler and his family explored beautiful Puerto Rico. As leaders, it can be hard to get away from the hustle and bustle of building this growing business, but we're blessed to have a great team that ensures things continue to move forward optimally without hiccup in our absence while we took time away to rest and create memories with those who are most important in our lives. It takes a village and we're grateful to be surrounded by outstanding professionals on our team.

In summary, things continue to progress forward for our team, our community and in the market. Time obviously stops for no one. We believe we're in a window of opportunity in the market while so much perceived macro uncertainty has other investors on their heels while we are continuing to be very active in evaluating & conservatively making offers on properties. We continue to work tirelessly to execute the business plans of our current investments in an effort to put all of our partners in the best position to be successful in protecting capital and achieving projected returns. It continues to be our greatest responsibility to look out for our partners best interest, and we're honored with that duty.

Don't hesitate to reach out to discuss what objectives you're looking to achieve in your real estate investments so we can help you. Schedule a time with either of us - Tyler and Bryan.

Here's to wishing you and yours a memorable Kentucky Derby week from all of us in the Bluegrass State!

In Partnership,

Tyler & Bryan

PS. We are hiring an A+ player for the position of Controller. If you know someone who's interested in learning more, or wants to apply, please have them visit cfcapllc.com/careers.

PSS. 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.

4 Tax Advantages of Rental Property Investment

Real estate has historically been considered a lucrative investment option for centuries and for good reasons. Modern-day tax advantages of rental property investment are among the many financial benefits of investing in real estate. From depreciation deductions to mortgage interest, rental property owners can benefit from a range of tax incentives that are not available to other types of investments. This makes rental properties an attractive option for those looking to invest in real estate and build long-term wealth.

What are the Tax Advantages of Rental Property?

1. Depreciation

Depreciation is a non-cash expense: it does not require you to spend any money out of pocket to obtain the tax benefit. When you purchase a rental property, you can claim a tax deduction for the property’s depreciation and any improvements made over a period of 27.5 years for residential properties, or 39 years for commercial properties. This means you can deduct a portion of the cost of the property each year on your tax return—reducing your taxable income, resulting in lower tax liability. You can claim depreciation even if the property increases in value over time. This is a valuable tax benefit, as it helps offset rental income.

2. Deducting Operating Expenses

One of the important tax advantages of owning a rental property is the ability to deduct operating expenses from your rental income. Operating expenses are all the costs associated with running and managing a rental property. This includes property management fees, repairs and maintenance, and so on. By deducting these expenses from your rental income, you can reduce your taxable income and potentially lower your tax liability. This can be particularly beneficial if you have a high rental income.

3. Mortgage Interest

Mortgage interest—the interest you pay on the rental property’s debt—is also tax deductible. You can deduct the interest you pay on the mortgage for the entire year, as long as the mortgage is secured by the rental property. If you have multiple rental properties with mortgages, you can deduct the interest paid on each mortgage.

4. Cost Segregation

Cost segregation involves identifying and separating the different components of a rental property and classifying them as shorter-lived personal properties or land improvements, which allows for accelerated depreciation and tax deductions. This allows property owners to depreciate certain components of their rental property. This is beneficial for newer properties, as a cost segregation study can identify components that may depreciate quicker than the building as a whole.

Maximize Your Wealth with CF Capital

Overall, the tax advantages of owning real estate can significantly elevate an investor's financial success—making rental property investing an attractive option. If you’re considering investing in real estate such as a multifamily property and taking advantage of the tax benefits, contact CF Capital. We offer investors the opportunity to obtain these tax benefits passively and many additional benefits of owning real estate, without the headache of management.

CF Capital is a real estate investment firm focused on acquiring and operating multifamily assets to help investors maximize their returns. Interested in partnering with CF Capital? Get in touch with us.

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.

Why Invest in Multifamily? 4 Benefits of Passive Income

Why is passive income so impactful? Well, it can have a significant effect on your ability to build wealth. Most people think that working until you retire or simply trading time for money, in general, will allow you to become financially free and stable, however, that isn’t usually the case. Having multiple streams of income can help you in enormous ways, which is where passive income comes to play. Let’s define passive income, list the 4 benefits of passive income, and how you can earn passive income from multifamily real estate.

What is Passive Income as it Pertains to Multifamily Real Estate?

Passive income in multifamily real estate is a way to earn steady streams of income with minimal effort. It is the opposite of active income, where you would have to actively participate with full effort. Passive income doesn’t necessarily generate immense wealth immediately. Instead, with passive income there is an opportunity to increase your income over a long period of time and create returns without the need to be actively involved, which can be extremely beneficial in how you leverage your ongoing accumulation of wealth, even with finite time and energy.

Benefits of Passive Income as it Pertains to Multifamily Real Estate

Achieve Financial Freedom

Attaining financial freedom is nearly every investor’s intermediate goal. Being financially free means having enough income to pursue whatever you are passionate about and live your dream lifestyle. Financial freedom is much more than having money. It’s the freedom to be who you really are and do what you really want in life. Instead of living paycheck to paycheck, you can make decisions that align with your life goals and values. You decide where, what, and with whom you spend your time, without sacrifices that are out of alignment with your north star. Establishing one and then multiple streams of passive income will help you achieve this goal.
Providing You Stability

The age that most people retire is 65. It seems like a normal thing, but what if you can retire or pursue your dream life sooner? If your dream is to retire or spend your time doing something different than your traditional job sooner, it is possible through the right investment strategy. You can generate income and build enough wealth before you turn 65.
Less Stress

Passive income provides an additional source of cash flow, providing security and alleviating the stress of budgeting to pay bills. It provides you with the financial support you need without stressing about how you’re going to be able to pay for your lifestyle.
Pursue Your Personal and Professional Dream Life

The more secure you feel financially the more you will enjoy work. When you rely on your active income, it can be easy to not enjoy your job - you may be overworking yourself, not spending time with family, or not taking deserved vacations. If you have steady streams of passive income, you get the freedom to pursue your career with enjoyment without needing to overwork yourself. Furthermore, with passive income, you can begin to really think bigger about how you’re spending your time in regard to your own exciting adventures, the way you’re making an impact on others, and the way you’re creating a legacy throughout your life.

How to Earn Passive income From Multifamily Real Estate

By investing alongside CF Capital in a multifamily asset, you can generate passive income and enjoy the benefits noted above. Multifamily investments with our team do not require you to be actively involved since we actively manage the investments and keep you intimately informed along the way. You invest in a tangible real estate asset upfront that will generate cash flow down the road with little effort, providing you with a stable stream of passive income.

By investing with a team of multifamily investment experts, you as an investor can have all the benefits of multifamily ownership without the hassle of actively managing the property. This makes passive multifamily investments unique and appealing to investors and empowers them to do things in life that are important, without the worry and stress of managing a commercial real estate investment.

Invest with CF Capital to Gain Passive Income

Passive income is a substantial benefit of multifamily syndication investing. However, this type of investing can be difficult without the right partner. CF Capital has a team comprised of multifamily real estate professionals who are devoted to helping investors reach their dream lifestyle. With patience, due diligence, and guidance you can build passive income streams for your future and live your best life. Get in touch with CF Capital today to learn more about how you can partner with us.

From the Desk of CF Capital: March Investor Report

Hello Friends and Investors,

I hope you're doing well and ready to kick off spring time! All-around happenings remain productive for CF Capital as we navigate a hyper-active environment in the broader economy. It's certainly an important time to be informed of the many cross winds that are blowing, but also a great time to check in to understand how your mindset is being conditioned by the inputs you're allowing in. Our team with CF Capital is completely dialed in to understand the broader trends to anticipate and strategize around within our current and growing portfolio, and we remain positively focused on healthy growth amidst a time when many seem to be focusing on solely negative conditions.

In early February, we attended the annual NMHC Conference in Las Vegas, and met with the industry's best and brightest to strategize in 2023 and beyond growth strategies, as well as contingency plans for navigating uncertain times in the multifamily space. Across a couple days, we met with 40+ strategic partners, brokers and debt providers and walked away with optimism, strengthened relationships, and many new investment opportunities to evaluate.

Mid February, we began our "State of the Investment" Webinars series for all active deals in our portfolio, to share with our current investors where we are relative to our plan and projections. We received overwhelmingly positive feedback from investors about this communication tool, and hearing directly from us on the details of how the business plan is performing, and how that impacts their investment with us. We're encouraged to continue to strengthen our relationship with our valued investors through this medium, as well as best in class communications and execution.

We're continuing our hyper focused approach on portfolio management, and in particular leading our team in the standard of outperforming industry standards on collections, leasing, and renewals. While in Q4 we experienced somewhat of a slowdown in new leasing (which isn't abnormal, due to seasonality), we're very pleased with a substantial uptick in traffic in Q1. Beyond that, our teams at each asset have been shining in particular on collections (averaging over 95% across the portfolio) and renewals (averaging 10% across the portfolio), along with very positive trends on a month over month basis. These fundamentals remain our hyper focus, in addition to attracting and retaining the right talent on our sites (we just hired 3 new staff members across the portfolio) and pushing the ball forward on major capital expenditure projects (exterior projects including parking lots, electrical conversions, amenity conversions and ongoing interior unit renovations). Needless to say, our team has been working hard to deliver for our investors.

On the acquisitions front, our pipeline is growing and we're evaluating 12-16 deals that meet our acquisition criteria every month. We've got a couple deals right now that we're targeting closely, and are patiently aggressive towards securing our next opportunity for your consideration. Conventional wisdom in our space at the moment remains that the second half of 2023 will be highly compelling with more forced sellers than at any time over the past several years. We will absolutely keep you informed as this develops. For our acquisitions team, we're planning to hire an ambitious, high upside professional with character and energy to help us grow the CF Capital portfolio across the region in the very near future. A job posting will be coming soon, but if you are or know anyone who would be interested to discuss this opportunity, please reach out or make an introduction. This will be a life changing opportunity for the right talented individual.

This month, we're traveling out west once more to attend the Best Ever Conference for Commercial Real Estate Investors in Salt Lake City, UT. In addition to strengthening our current strategic partnerships, we're looking forward to expanding our network as opportunities in this next cycle begin to unfold. Tyler will be speaking on "Enhancing Your ROI by Elevating Communities Together," a concept that's near and dear to our hearts and that has been a separator for CF Capital. If you'll be attending the conference, please let us know and we'd love to make plans to get together in person.

In Partnership,
Tyler & Bryan

PS. If you'll be in or around Louisville in late March, we'd love to invite you to attend our next event: The 2023 Real Estate Investment Landscape Moderated Panel & Event sponsored by LDG Development. Register for the event.

What is Private Equity in Real Estate?

Within the realm of multifamily real estate investing, there is a wide variety of opportunities for you as an investor, one of them being private equity. If implemented with due diligence it can be a lucrative way to increase your cash flow and expand your overall wealth. But what is private equity and how does it apply to real estate investing? Let’s find out!

What is Private Equity in Real Estate Investing?

Private equity are funds that provide value to investors who are seeking to earn better returns rather than public equity markets, like stocks. Real estate private equity (REPE) is an asset class made up of private investments in commercial real estate property. Rather than individual deals, private equity capital is raised through funds. Through this capital raising from outside investors, firms will:

Conduct Research: The real estate market will be researched with due diligence and will identify potential investment opportunities.

Underwrite Property Financials: The property financials will be reviewed, including expenses and potential return on investment (ROI).

Acquire and Develop: Once a property has been sourced and vetted through due diligence, it is time to acquire the property.

Enhance and Managed: The property will be managed through expertise to ensure it is well-maintained, improved, and generates cash flow.

Selling: Through careful research of the real estate market and when it is the right time, the property can be sold for a ROI.

Some funds are targeted at specific types of assets, whiles other are more flexible and invest in multiple assets. We believe the best category to invest in is commercial real estate: more specifically, in multifamily housing.

Benefits of Private Equity Investment in Multifamily Real Estate

If you are seeking to earn passive income, a private equity real estate firm, such as CF Capital, focuses on acquiring and operating multifamily assets that provide stable cash flow, capital appreciation, and a margin of safety. A private equity multifamily real estate partnership comes with several benefits:

Returns

The biggest benefit of investing in private equity real estate is the returns, specifically passive returns. Especially with multifamily private equity, your investments will increase over time, since it produces income in itself. Multifamily investing generates steady cash flow from rental income, potentially having higher returns in the future and providing diversification benefits. And like all real estate, multifamily investment generally should appreciate over time (and has historically done so), providing the investor with a long-term opportunity.

Tax Benefits

Income that is derived by multifamily investing is generally protected through depreciation, which provides investors with long-term benefits of substantial cash flow and little tax burden. Furthermore, any excess cash flow and appreciation that is not protected by depreciation is taxed at a lower rate than earned income. You’ll want to consult with your CPA on the wide-ranging tax benefits of investing in real estate private equity for your situation, but there are even more meaningful benefits beyond depreciation and lower tax rates that you may be able to take advantage of.

Low Volatility

Every investor's goal is to create the highest return with the least amount of volatility. When the markets are changing, investing in stocks and bonds can be nerve-wracking. Commerical real estate can reduce your portfolio’s overall volatility.

Managed By Experts

Now if you think about it, investing requires a lot of experience and professional care. You have to do research, analyze, acquire, improve, develop, manage, and enhance the property. This can be intimidating, especially if this is your first time. But what if an expert handle all of this for you? Real estate private equity provides this for you.

Why Private Equity in Multifamily Investment?

Multifamily properties play a vital role in the real estate sector and have consistently produced the highest average annual returns of any commercial real estate investment. Adding multifamily real estate to your investment portfolio increases returns, balances market uncertainty, offers tax advantages, and serves as a source of financial freedom. Today, as an accredited investor, you can partner with the highly experienced team at CF Capital to make equity investments in multifamily real estate. For more information, get in touch with CF Capital today.

From the Desk of CF Capital: February Investor Report

Hello Friends and Investors,

The 2023 sprint is now kicking into high gear - how did your first 30 days of 2023 go? The fact that it's already February is a reminder for us to course correct where appropriate and focus on what we've committed to for the first 90 days of the new year, along with the more grand vision we have for this year. While time passing can sometimes feel like a sprint, we're reminded that in the business of real estate investments, it's really a marathon. We're focused on long term relationships, long term decisions, and long term values. Your relationship with us is really the most important, and one that drives our thinking day in and day out.

In the short term, the market is still absorbing much of the rapid shift that was initiated last year. While we're seeing a bit of an uptick in new acquisition opportunities since the turn of the year, we anticipate that the most compelling opportunities will begin to surface later in the year. That still could be later this quarter, and time will certainly tell. Nevertheless, we remain nimble and prepared to strike on game-changing opportunities to provide attractive investments for you to protect and grow your wealth during volatile times alongside CF Capital. We remain patiently aggressive.

Throughout whatever stage of the market cycle we're in, our focus at CF Capital is on driving value to you, our highly valued investor partners. With that, we'd love to hear from you. What are the biggest dangers or challenges you're facing with your investments and finances this year? What do you see as your most powerful opportunities? How about your greatest strengths? Respond to this email and let us know exactly what's going on in your world from these angles, so we can support your most optimal outcomes. If you'd like to set up a virtual or in-person meeting, we'd love to make ourselves available for you - simply schedule a time with us via the link below.

Prior to wrapping up this month's dialogue, we wanted to update you on a few things going on in our world, aside from the day-to-day blocking and tackling in the business and our prime focus on 'Elevating Communities Together.' Here's what else has been going on in our world:

Louisville Business First did an expose on our new headquarters. Take a sneak peek here.
Elevate Podcast has a brand new podcast studio within the new CF Capital HQ. Some massive shows are coming out over the next month to help you elevate your real estate investment performance and lifestyle through mindset, mind expansion, and personal development.

Tyler recently has interviewed several highly influential thought leaders including Benjamin Hardy (Author of Who Not How, The Gap and the Gain - both with legendary entrepreneurial coach Dan Sullivan - Willpower Doesn't Work, and 10X is Easier Than 2X - coming soon - along with other highly impactful books). This episode, along with several others, are some of the very best and most impactful productions we've ever produced. Buckle up and get your notebook ready for some life-changing breakthroughs.

Bryan and Tyler, along with our marketing team, created a brand new presentation that shows you how to "Elevate Your Financial Security and Prosperity Through Apartments". If you want to learn exactly how CF Capital can help you reach your goals, you should absolutely check out this on demand webinar (coming soon!).

In summary, we deeply appreciate your partnership and interest in furthering your partnership with CF Capital. We're confident that exciting days and opportunities are on the near term horizon, and that for the long term, we will continue to capture upside together through course correction, adaptation, and expansion.

In Partnership,

Tyler & Bryan

CF Capital Awarded 2022 Top Owners Distinction

CF Capital is pleased to announce that our firm has been ranked in Midwest Real Estate News Magazine Best of the Best 2022 issue as one of the Top Owners. This publication honors the top commercial real estate companies throughout the Midwest. Each year, this issue lists the top-ranked brokers, developers, construction companies, real estate law firms, financial intermediaries, lenders, and owners. CF Capital was ranked thirty-six out of all the owners across the Midwest.

"Our business is about locating inefficiencies in the multifamily marketplace and driving value for the betterment of our residents, staff, and enhancing returns for our investment partners. While we’re hyper-focused on those outcomes, we appreciate the recognition as we further our mission to ‘Elevate Communities Together.’ We are energized to make a substantial impact through this market for years to come.”

-Tyler Chesser

CF Capital is a national real estate investment firm that focuses on acquiring and operating multifamily assets. Our company’s success comes from our team’s experience, dedicated leadership, and the strive to serve our clients. The team’s vibrant culture is built on the power of our people and the relentless pursuit of elevating communities together. We are proud to be included as one of the top owners in the Midwest and we will continue to pursue our vision of delivering integrity, leadership, excellence, and purpose.

Cap Rates and Interest Rates in Commercial Real Estate

Investing in commercial real estate requires forecasting current and future performance. This involves many variables, but for today’s discussion, we want to focus on two important metrics: cap rates and interest rates. As an investor, it’s imperative to pay close attention to the movements in these two metrics since they impact commercial real estate investment performance.

What is the Cap Rate?

Cap rate, also known as capitalization rate, is used in commercial real estate to determine the rate of return that is expected to be generated on an investment property, if purchased without leverage. It describes the relationship between a property’s Net Operating Income (NOI) and its market value. The formula used to calculate the cap rate is:

Net Operating Income = Total Income – Operating Expenses

Capitalization Rate = Net Operating Income / Purchase Price

Cap rate is a basic calculation for how real estate investments are valued in the marketplace. If there are lower cap rates, it generally means that the property is less risky, and the asset price is high. Conversely, the higher the cap rate, generally the greater the risk and potential return. Lower value cap rates typically indicate the property is steady and has reliable growth, a characteristic commonly seen in multifamily properties. Higher cap rates imply relatively lower prospects of return on property investment and are therefore considered riskier investments.

What are Interest Rates?

Interest rates are the amount charged by a lender to a borrower and can have a profound effect on the value of income from real estate investments. If interest rates are low, the bank will earn less on the loan issued and a borrower will pay less to obtain the loan. When rates are high, a bank earns more, and a borrower pays more. Higher interest payments reduce your net cash flow and investment returns, which is called the cost of financing.

When it comes to investing in commercial real estate, there is one type of interest rate benchmark that is important to track, risk-free rate. That is the rate paid on a bond issued by the U.S. Department of Treasury with a 10-year maturity. It is called the risk-free rate because it is considered the safest place to put money and investors can be confident that they will be repaid, with interest, on time. However, in comparison to investment returns on commercial real estate, the return on investment is low.

As an investor, how much more risk are you willing to take in order to capture higher returns? This is where the relationship between cap rates and interest rates comes into play.

The Relationship Between Cap Rates and Interest Rates

Commercial real estate cap rates and interest rates are historically highly correlated and understanding the relationship between the two can give you insights into the market. As interest rates go up and down, cap rates also go up and down. Both are not static, which means both are constantly changing, impacting real estate valuations. Economic conditions and investors' demand are factors that drive changes in the 10-Year Treasury rate. During economic setbacks, investors tend to lean toward the safe side and use Treasuries, which drives prices higher and rates lower.

Cap rate changes are driven by numerous factors, but the most prominent are supply and demand expectations. When there is a low supply and high demand, investors will accept a lower return because there is a lower risk. Cap rates fall and prices rise, meaning investors are willing to pay more for potential growth. So, depending on the economy, the spread between treasury rates and cap rates expands and contracts. When the spread is at a high, it means the potential return may be higher, but if it is a lower spread then it is a lower return.

Invest with CF Capital Today

The relationship between interest rates and commercial real estate can significantly impact property values. That’s why it’s important to strategically monitor changes in interest rates and how it might impact the market. At CF Capital we carefully research and due diligence, to find investment opportunities that offer the potential for high returns even in today’s current market. When you passively invest alongside our team, you can have confidence we are closely monitoring and optimizing these factors for your real estate investment success.