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.

Real Estate vs Stocks: Which is a Better Investment?

The two most popular investment vehicles are real estate and stocks, both of which can offer lucrative profits. As an investor, you are looking to grow your future wealth and ideally, you should consider diversifying your portfolio and investing in both. But investing in both is sometimes not possible, especially with the current economic state, and there are strategic considerations such as the weighting of your allocations. So, why should you invest in real estate vs stocks? Here are just 4 reasons why:

Real Estate vs Stocks: The Rundown

Real Estate is More Stable than Stocks

Real estate is generally more stable and easier to predict than the rather volatile stock market. While it’s not immune to the market cycle, the value of real estate has historically appreciated. Since real estate profits steadily increase over time, they can act as a hedge against inflation. This is because housing is a constant need and is considered a consumer good, and inflation can increase the price of consumer goods. Cash flows usually keep pace with inflation: as the cost of living grows, so does the market price for rent.

In the stock market, dramatic fluctuations can take place daily and losses can be significant, making investing in real estate a lower risk than the stock market. Stock markets can be a struggle to predict, even for investment professionals. A significant drop in the market can reduce your principle and if it is significant enough it could take years to recover your original investment.
Return on Investment

Typically, in the stock market, you make money by buying low and selling high, but most investors can’t do this consistently. Real estate practically guarantees ROI if you invest with prudence. Commercial real estate offers continuous value because you are dealing with individual properties that vary in features, location, size, and more. By locating and acquiring properties at a discount versus their market value, creating additional value, and optimizing operations, real estate can be a terrific vehicle to create very attractive ROIs. Investing in real estate gives you more nuanced opportunities to build on your wealth.
Commerical Real Estate: Source of Income

Commercial real estate is the type of investment that you can live on. Revenue from commercial real estate can be used to pay down debt or cover expenses associated with the property including mortgages, taxes, insurance, maintenance, etc. Unlike stocks, commercial real estate can have a day-in, day-out value in the form of cash-flow income that stocks typically cannot match. Commercial real estate properties can increase your personal cash flow if selected well.
Real Estate is a Controllable Investment

Your investment is important to you, so why invest in an uncontrollable stock market? Trying to time the market is nearly impossible, even for experienced investors. But with real estate, timing the market is more likely due to the overall inefficiencies in the market. The real estate industry is historically more stable and predictable than the stock market. Real estate is not affected by a company making poor decisions or committing fraud. Though real estate doesn’t exactly protect you from the economic cycles, it gives you leeway to make more stable profits.

Real estate isn’t something where you can go into and expect immediate results and return. But with an experienced team, you can be sure that you are making the right investments. The current economy has investors concerned, however, our team at CF Capital leverages our expertise and is dedicated to helping our current and future real estate investor partners. Get in touch with us today and learn about how you can passively invest with our experienced team!

Is Commercial Real Estate Really a Good Hedge Against Inflation?

Many experts are predicting inflation will continue to grow higher and higher. While there is uncertainty about the broader economy, it is important to apply sound economic strategies during this time and for the long haul. This has led investors like you to ask: is real estate really a good hedge against inflation? In this blog, the CF Capital team investigates this question through the lens of commercial real estate.

How Does Investing in Commercial Real Estate Hedge Against Inflation?

Inflation is one of the most significant risk factors for those looking to invest their hard-earned capital. However, commercial real estate is considered a safe haven against that insidious and sometimes invisible force. Here’s why:

The cost of rent rises generally at the same rate as inflation. As currency devalues, average property values increase with commercial real estate—new or old—as lease renewal rates rise. Multifamily real estate, in particular, resets rent annually per resident and is generally a sounder hedge against inflation versus other asset classes in commercial real estate as a result.

Inflation will typically increase the cost of the rent. When the rent increases, the investor’s income will increase. The higher income possibilities lead to higher sale value when selling real estate (assuming your income growth exceeds expense growth). Commercial real estate is a quality inflation hedge because of its intrinsic properties making it a compelling investment during inflation periods when prices rise rapidly.

Benefits of Investing in Commercial Real Estate

Commercial real estate can be a highly profitable investment vehicle. On top of that, it’s also considered exceptionally reliable regardless of market cycles since it has little correlation with stocks and bonds. Of course, all real estate is hyper-local, but generally, there are many inflation-hedging benefits to investing in commercial real estate. Investing in it is not only about generating cash flow, but also building on your own wealth over time via appreciation and tax mitigation. Here’s how:

Ensures streams of cash flow
Equity appreciation through NOI enhancements
Allows you to utilize powerful leverage
Cash flow is taxed at a lower rate than earned income
Appreciation is taxed at capital gains rates, a significant savings versus earned income
Improvements can be depreciated, generating powerful “paper losses” for investors

Selecting the Best Property Type

Here comes the question: which type of commercial property will work in the current economy and as things continue to unfold in the broader market? It depends on the specifics and your goals in particular. At the current state of the economy, investors are leading toward the safe haven of multifamily real estate. Of course, CF Capital specializes in apartment investing. Multifamily real estate has grown in popularity over the past few years because it can offer a secure and more reliable investment where there are multiple sources of cash flow coming from different tenants, and everyone needs a place to live (in a strong or weak economy). That means there will always be income, as long as the operator can meet the market.

The market can seem unpredictable. When it comes to commercial real estate investing, including multifamily investing, it is always good to monitor the economic situation and plan out your strategy carefully. If you are interested in passively investing in quality multifamily real estate, sign up for our investor list.

Capital Appreciation: Evaluating Performance of Real Estate Investments

If you are new to the world of real estate investing, it won’t take long to come across a lot of different industry specific terms such as capital appreciation. This term may seem confusing and daunting at first, but the good news is we are here to explain what it is and how to implement it in your investments.

What is Capital Appreciation?

By nature, the market value of investments changes over time with prevailing market conditions. When the value of your investment increases, there is appreciation, and when the value of your investment decreases, there is depreciation. Simply defined, capital appreciation is when the market price of real estate rises. It is the difference between the initial purchase price and the eventual selling price of an investment. It is used to determine the performance of real estate investment. It happens when the price of a stock, the property worth of a home, or the value of your real estate grows. For example, if you pay $1,000 for a stock investment and its price increases to $1,500, you could say that the investment has appreciated by $500.

Here are two important definitions that are connected to capital appreciation:

Cost Basis: Cost basis is the context of commercial real estate. It’s the original purchase price of investment property and any out-of-pocket expenses or closing costs related. Consider this scenario: you bought a rental property for $500,000 which is now worth $550,000. Sounds like a $50,000 gain, right? Not exactly. Keep in mind, during the closing you might have paid $10,000 for title insurance and another $10,000 in loan fees. This means your initial basis in property is $520,000 and your gain is $30,000.

Market Value: Market value is the sales price of a property in the market if you were to put it on the open market. Market value is usually determined by the market through a combination of comparable sales, projected rebuild costs, and the income approach. Generally commercial real estate, including large multifamily investments, are valued with an emphasis on the income approach, via the market capitalization rate derived from the Net Operating Income (NOI) of the asset.

Capital appreciation is different from income and total return. Income is the money that is paid out from owning an asset, such as operating expenses and debt service. Your total asset return is defined as a combination of capital appreciation and ongoing cash flow.

How Commercial Appreciation is Calculated

There are two ways to go about calculating capital appreciation: either by dollar amount or as a percentage.

Dollar Amount

Calculating a capital appreciation dollar amount involves subtracting the cost basis from its market value. For example, let’s say your real estate’s cost basis is $200,000 and the market value is $230,000, the formula for your capital appreciation would be:

Cost Basis - Market Value = Capital Appreciation

$230,000 - $200,000 = $30,000

The capital appreciation is $30,000.

Percentage

When calculating a capital appreciation percentage gain or loss, take the dollar amount of your capital appreciation, then divide it by your cost basis, and then multiply by 100.

Let’s take the example from above. Your basis is $200,000, your market value is $230,000, and the dollar amount of your capital appreciation is $30,000. Here is the formula:

(Capital Appreciation/Cost Basis) x 100%

($30,000/$200,000) x 100% = 15%

The Importance of Capital Appreciation

Capital appreciation is important for you as an investor to be aware of and fully understand. Every commercial real estate investor needs to consider capital appreciation when planning their investment property strategy to get the most out of their investment. Capital appreciation provides one of the best ways to make a large return on their investment.

CF Capital is here to support you in achieving your real estate investment goals. We are a national real estate investment firm that focuses on acquiring and operating multifamily assets that provide stable cash flow, capital appreciation, and a margin of safety. Contact us today and learn about our passive investment opportunities!