Archive for the ‘Interest Rates & Inflation’ Category

The Inventory Silver Lining

Investors and Colleagues,

There’s a question I get from colleagues and investors almost every day…

Matt, How is Ashford Capital able to invest so successfully even in this difficult economic environment?

It’s a fair question… The media headlines have been overly dramatic, and often don’t accurately portray what is going on in the economy (not to mention the local real estate market). To be quite honest, this is one of the most opportunistic periods I have seen in a number of years – and today I want to explain just how we are creating wealth for our investors…

Let’s take a quick example of the most recent housing statistics. This week the media jumped on a report that showed a lower “median” price for homes, and lower sales activity for the past month. Most investors failed to notice the good news behind the headlines.

Median Price – A Flawed Metric

To begin with, let’s look at the “price” component of the most recent report. Since the “median” price was lower, investors believe that home prices continue to drop.

There are certainly some areas that are seeing price drops – but at the same time there are key areas of our country (and key areas in Atlanta) where home values are actually rising!

When the statistics report a “median” price, it simply notes the middle price of houses that sold in the past month. If the middle price is lower, that could mean that the market for lower-priced houses is more robust – maybe because foreclosed properties are moving quickly.

It could mean that owners of higher-priced homes are making fewer transactions because they have the financial ability to wait until prices rise.

A fall in the “median price” of homes sold does NOT directly equate to the value of homes that were not engaged in a transaction over the past month. Because of the way that this metric is calculated, an increase in transactions from low-priced homes can actually skew the numbers and lead to the wrong interpretation.

Inventory – You Can’t Manipulate This Number

At Ashford Capital, we look much more closely at inventory statistics which tell us exactly how much real estate is on the market right now – giving us a better understanding of the supply and demand picture.

The good news from the most recent batch of statistics is that the number of new homes for sale has hit a record low. There simply aren’t enough units on the market to meet the growing demand.

Sure, there are a number of foreclosed homes being sold by banks, but have you seen the shape these homes are in? There is a certain subset of the market – home buyers who have good employment and a strong savings account – who aren’t interested in buying a “fixer-upper.”

And today, the number of new homes that they have to choose from is at its lowest level since Case-Shiller began keeping records. This is a tremendous opportunity for builders who cater to these new home buyers who want a unit that is “move-in” ready.

This is How We Do It…

Ok, apologies for the bad song reference…

But seriously, this is how we create value for our investors. We study the supply and demand dynamics in our specific market – the metro Atlanta area.

• We analyze the demand for new homes in specific neighborhoods.

• We study the assets held by troubled banks and the FDIC.

• We contact builders to determine who is ready to undertake new projects.

• We work with our investors to raise capital for attractive properties.

• And we profit when our developments are sold to builders who are fulfilling the demand for new homes.

It’s that simple! Despite this turbulent economic period, Ashford Capital is offering investors value, growth, and investment stability. We buy residential developments at dirt-cheap prices and then sell to builders as demand picks up.

Every time we complete a transaction, our investors win. We’re involved in a number of attractive properties right now that I would love to discuss with you.

If you’re tired of watching your net worth swing up and down on the whims of the market makers on Wall Street, then please give me a call. We can work on an investment program that meets your personal needs and set you on the path towards financial stability capital growth.

Wishing you every success,

Matt

Ivey Estates: A Defining Deal for Ashford Capital

Investors and Colleagues,

Every now and then, an opportunity emerges with the potential to define a company – or change the course of an investor’s account…

Today, I want to introduce you to one particular deal that perfectly represents the investment approach that Ashford Capital stands for.

This model investment will give you a better picture for exactly what we look for when buying property, and for a short time, we are still accepting investors who want to participate in the Ivey Estates property in beautiful Cobb County, Georgia.

When searching for real estate opportunities in the Atlanta market, there are two variables that are crucial in deciding whether to invest or not:

1: Location

Of course we all know that location is the most important variable for real estate investment, but at Ashford Capital, we have perfected our location analysis down to a science.

When we look at the location of a property we have a proprietary method for analyzing the supply and demand metrics for real estate in the area, the employment opportunities for potential residents, reasonable price expectations for selling the property to a developer, and a timeline for when the investment opportunity will be completed and investors paid.

It’s a rigorous process, but one that has helped us to be involved with only the most promising locations in the growing Atlanta real estate market.

In the Atlanta real estate market, builders typically invest in projects when there is less than six months worth of inventory currently on the market. This ensures that when they are ready to sell the homes that are being built, the market demand for these new locations will be strong.

For the Ivey Estates development, our research indicates that there is a 5-month supply in the $225k to $325k price range – perfect for attracting builders to the market.

While we have confidence in our proprietary location analysis, it is helpful to note that a number of national builders including Beazer Homes, Ashton Woods, and John Wieland Homes are actively building out properties in the same area as our Ivey Estates project. In fact, John Wieland is developing three different locations within a 2 mile radius of our property!

2: Price

Our goal is to generate the very best returns for our investors – and since our interests are aligned with our investors, Ashford Capital makes the best profit when our investors are paid well.

For this reason, we’re only interested in purchasing properties at an extreme discount to “fair value.” When we are able to pick up attractive properties at a distressed price, our transactions are completed more quickly, at a higher rate of return for us and for our investors.

We have negotiated a price of $495,000 for the Ivey Estates property – and this price represents the cost for 15 lots. These are premium developed lots which already have access to utilities and are builder-ready.

Our “all-in” cost for this location is $33k per lot – representing a 65% discount to the price a developer paid for the same location just a short time ago. Because of our deep relationships with regional banks and the FDIC, we are typically able to buy properties at a tremendous discount.

With such a steeply discounted purchase, we are able to sell these lots to a builder – at an attractive price – and still make a very healthy return. For the Ivey Estate location, our conservative estimate is a selling price of $75,000 per lot to a builder in 12 – 14 months. Of course our target price is higher, but we want to set your expectations conservatively and if you are surprised, we want it to be a good surprise.

Reserving Slots for First-Time Investors

Because of the special nature of this model investment, I wanted to make sure that the Ivey Estates project is accessible to all of our investors. I’m particularly interested in opening this deal to first-time participants in an Ashford Capital offering.

At Ashford Capital, we understand that traditional investors may not be experienced when it comes to buying residential real estate property. Sometimes participating in a new investment concept is challenging and investors want to start small before allocating a larger portion of their capital down the road.

For this reason, we’ve reserved a few slots in this offering for first-time investors, and for investors with a smaller amount of capital. My hope is that by offering smaller investment opportunities in this model transaction, you will become comfortable with our investment process, and be more willing to discuss additional opportunities once you have recognized an attractive return on this property.

I should mention that with the Ivey Estates offering, you can even use capital from your IRA to invest – which carries its own tax benefits for you.

If you’re interested in participating in this model deal, I would ask you to do two things:

First, go to http://www.youtube.com/watch?v=sTkVCJ0QOns and watch our short video on this property. You can see an aerial picture of the location along with some of the proprietary location metrics that I have mentioned.

Second, give me a call so that we can set up a time to discuss this opportunity. We can sit down and discuss the specifics, you can get a copy of the offering document which details our preferred rate of return and profit sharing arrangement, and best of all it will give us a chance to catch up and discuss your financial future.

Wishing you every success,

Matt

Matthew J. Riedemann
Founder, President, & Managing Director
Ashford Capital Partners

678-231-4579
[email protected]

Are You a Short-Term Trader or a Long-Term Investor?

Think about it for a minute – and be honest with yourself… Are you a short-term trader or a long-term investor?

You might be surprised to hear me say that there’s not a right or a wrong answer to this question. Sure, there are advantages and disadvantages with each approach, but BOTH short-term traders and long-term investors have the potential to make great returns over time.

If you’ve had a discussion with your traditional money manager this month, chances are good that you have sat through the tried and true “in it for the long haul” speech. And for true long-term investors, this is an important concept to keep in mind.

Long-term investors can’t get worried about volatile swings in the market. After all, they’re in it for the long haul. When prices trade lower, it doesn’t matter. They weren’t planning on selling any time soon and in time they expect their positions to rebound.

The luxury of being a long-term investor is that you don’t have to worry about the day-to-day gyrations in the market. You simply have to wait patiently and allow for long-term growth trends to send the value of your investments higher. Of course the downside of being a long-term investor is that you don’t get to take advantage of the “buy-low, sell-high” opportunities in a volatile market.

Short-term traders can either love or hate markets like this. When things are moving rapidly (and in every different direction) there are plenty of chances for short-term traders to make a lot of money. But at the same time there are plenty of opportunities to rack up losses too.

If you’re a short-term trader, you know that the day-to-day action can be a grind. Short-term traders don’t have the luxury of sitting back and patiently watching. But of course a talented trader can make a much higher return buying cheap and selling dear.

The Key is Discipline

As with most business ventures, the key to success (whether investing for the long-term, or actively trading) is developing a disciplined approach. Long-term investors MUST have a rigorous process for identifying strong, valuable investments that they can stick with for years.

Without this detailed analysis, the long-term investor will undoubtedly pick sub-par investments and will ultimately earn a less-than competitive return. But with a rigorous process for identifying quality investments, and the patience to hold on to these investments through the long-term, a disciplined investor can expect to beat the market over time.

Discipline is just as important for short-term traders. Using risk management techniques, stop losses, proper position sizing, and reasonable profit targets ensures that a trader will keep his capital base intact and grind out profits quarter after quarter.

Once again, the key to success is building a disciplined approach – and then sticking with the rules throughout the turbulence.

Ashford Offers the Best of Both Approaches

At Ashford Capital, we incorporate some of the strengths from both long-term investors as well as short-term traders. Our goal is to buy residential real estate at the lowest possible price, and sell to developers at a significant profit.

From a short-term perspective, we’re acutely aware of the day-to-day market dynamics and how they affect real estate prices. When banks are in dire need of capital, we’re able to negotiate tremendous deals – buying distressed properties at fire sale prices. When the FDIC is saddled with a portfolio of illiquid properties, we’re willing to buy – but only at a significant discount.

Looking farther down the road, Ashford can afford to be patient, waiting for the very best opportunity to sell these properties to developers. Since we buy quality locations that will rebound in value quickly, we can be confident in the ultimate value of our locations and ride out a turbulent environment without hitting the panic button and selling.

Does your investment process have the discipline to ride through both good environments as well as rough periods? If not, why not?? In times like this, you owe it to yourself to have a carefully crafted plan and to manage your investments with the utmost care and diligence.

I would love to chat with you one-on-one and see if Ashford Capital can help you work to build a disciplined investment approach. Today’s environment offers tremendous opportunity – but you have to understand how to manage your risk and develop a long-term plan. Let’s have a conversation this week!

Wishing you every success,
Matt

Matthew J. Riedemann
Founder, President, & Managing Director
Ashford Capital Partners

678-231-4579
[email protected]

The S&P Downgrades US Debt – What It Means to You …

Investors and Colleagues,

It’s been an interesting week for the US economy…

Last weekend, US Lawmakers and the president reached a compromise with the debt ceiling. An 11th hour agreement kept the government from defaulting on debt or shutting down key operations, and a corresponding spending plan lopped a couple trillion off the deficit over the next 10 years.

Equity markets initially responded positively, but an hour after the open, stocks were trading lower – setting the tone for the week. You see, once the debt issue was out of the way, traders began to look at the other economic challenges on the horizon – and the realization of these risks sent prices spiraling. On Thursday, the Dow dropped more than 500 points – the largest single day decline in years.

But that wasn’t the big event for the week. The most significant piece of news last week occurred after the market closed on Friday. As you probably heard, Standard & Poor’s downgraded the rating on US treasuries from AAA to AA+

What Does the Downgrade Mean for Us?

As consumers with families and businesses – and as real estate investors, it’s important to take a step back and determine exactly how this downgrade will affect our lives and our finances.

On one hand, the downgrade was not a total surprise. For years, we have seen deficit spending increase, we have seen the US struggle with debt, and we have seen the economic recovery run into resistance. The S&P downgrade simply formalizes what we have understood for some time. So conceptually, the downgrade really doesn’t change anything.

But on a practical level, the downgrade can have much more profound ramifications. The downgrade has a particularly sobering effect on the financial industry – because of the widespread ownership of treasury securities.

For a number of money market funds and bank reserves, there are specific rules in place as to what kind of assets can be held. These accounts may be required to hold all of their assets in AAA rated securities, or in some cases a particular percentage of their assets must be top rated holdings.

Now that certain treasuries are downgraded to AA+, these funds or bank holdings will be forced to liquidate their positions – and all of the selling will likely drive treasury prices lower.

As banks see the value of their reserves (typically held in US treasuries) decline, they will be under even more pressure to liquidate assets to reduce their risk. This means selling a major portion of their foreclosed real estate inventory – creating opportunity for buyers with available capital.

Buy When There’s Blood in the Streets

There’s an old trading axiom that says it is wise (and profitable) to buy when there’s blood in the streets. The concept is simple: When things look like they are as bad as they can get – and everyone around you is panicking – that’s precisely the right time to be buying.

Not only do you get a tremendous discount in price (panicked sellers are usually much more worried about getting RID of assets than about what price they can demand), but you also have the best days of recovery ahead of you.

So as we enter a very uncertain week for our markets, for our economy, for our nation; I want to encourage you to keep your wits about you, to look for opportunity, and to realize that significant challenges translate to significant opportunity.

Since Ashford Capital has been in constant communication with our contacts at regional and national banks, along with the FDIC, we’re going to be in a great place to negotiate this week. These institutions don’t have to take time to establish a relationship with us, because we have already inked deals with them in the past. Instead, we’re free to immediately begin talking business.

I hope that our success in this market will translate to your success as well. If you’ve been receiving my updates along the way but haven’t participated in a transaction yet, there is no better time than right now. If you’ve been involved in a deal already but have an interest in putting more capital to work, this could be a great time to add to your investment.

Could you give me a call this week? I look forward to working with you to grow your assets, improve your investment outlook, and add stability to your financial outlook.

Wishing you every success,
Matt

Income Levels and Consumer Spending

Investors and Colleagues,

Are you confident about your prospects over the next six months? Do you expect your income to remain stable or even increase? Are you willing to splurge on a totally discretionary big-ticket purchase (like a vacation or a new vehicle?)

Chances are, your answer depends on your income bracket. Of course it makes sense that individuals with good jobs and a healthy income level are more willing to spend money. But one of the more interesting issues in today’s economy is the broad gap in confidence between different income levels.

Last week, the Wall Street Journal had an interesting article regarding the rebound in optimism by those earning more than $50,000 per year:

When massive job losses hit in early 2009, all income groups turned equally pessimistic about the economy, as shown by confidence indexes constructed from the Conference Board’s indexes divided by income groups, along with Census Bureau household income data.

Confidence among households earning less than $50,000 a year improved in 2009, but has stayed weak over the past two years, while consumers earning more than $50,000 have registered a large increase in confidence.

This confidence is showing up in numerous areas of the economy and is especially evident when looking at different retailers.

Retail companies catering to the “average consumer” – companies like Sears Holdings (SHLD), Target Corp. (TGT) and Kroger Co. (KR), have been struggling to recover. As consumers below the $50k income line pinch pennies, profit margins are difficult to maintain.

On the other hand, companies like Harley Davidson (HOG) and Polaris Industries (PII) – maker of ATV’s and snowmobiles – have been killing it (in a good way …) Demand has been robust and profits keep growing quarter after quarter.

The Real Estate Market Mirrors Retail
When looking at investments in residential real estate, the income gap applies just the same. Consumers with incomes over $50,000 are more likely to invest in a house.

This is not true just because of the price issues (there are plenty of cheap houses that are within reach of a 50k income). The real issue is one of confidence – whether buyers actually believe they will still have a job six or 12 months down the road.

As a general rule, buyers with incomes above $50k are generally in more stable positions, more willing to make a long-term financial commitment, and they are driving demand for higher-quality housing.

This means that when we are looking through developments for Ashford Capital to purchase, we are primarily focusing on lots that are high-end, will feature more expensive homes, and will be the first area to begin selling as builders begin rolling out new developments.

Speaking of builders, the housing start data out last week was very encouraging. For the month of June, US home starts were up 14.6% over the May period. As high-income buyers re-emerge, the demand for quality housing is increasing. This means more new homes are being built, and home builders are willing to engage in new projects to meet the demand.

At Ashford Capital, we are one step ahead of this surge. Over the past several years, we’ve been buying distressed properties from the banks and the FDIC at pennies on the dollar. Our investors now hold attractive properties that represent great opportunities for builders.

As the builders look for new real estate for their projects, we will be able to offer them attractive deals while still locking in a tremendous return for our investors. It’s a truly exciting time to be invested in Atlanta residential real estate.

Are you one of our current investors, looking for another property to allocate capital to? Are you a new investor, ready to make that first purchase? Or maybe you’re just interested in learning a bit more about how our real estate opportunities are structured.

Regardless of your situation, I would appreciate the opportunity to chat with you. Ashford Capital may or may not have the right investment for your situation. But it doesn’t hurt to explore the opportunities and decide for yourself. Please give me a call this week so that we can discuss your options.

Wishing you every success,
Matt

Interest Rates, Inflation, and Opportunity

Investors and Colleagues,

One of today’s most important financial debates revolves around interest rates.  Ever since the beginning of the financial crisis, the Fed has kept interest rates artificially low.

The purpose of low rates is to create an incentive for investors to allocate capital for growth.  The fed knows that if investors keep their money parked in “safe” deposit-based accounts, that capital will not be efficiently used to generate economic growth.

In a healthier environment, this capital would be used to invest in businesses, which in turn creates jobs and leads to widespread prosperity.  The Fed has kept rates at historical lows for the last two years, attempting to manipulate markets and stimulate growth.

While low rates may help to funnel capital into productive areas of the economy, they can create some nasty side effects as well.  Low interest rates are typically associated with “cheap money” – and with so much capital available at low costs to investors, inflation becomes a major risk.

High inflation can hurt a wide range of the population.  Retirees are typically the hardest hit, because high inflation means that the value of their savings quickly erodes.  If the cost of living increases by 30%, while a nest egg only increases by 5% or 10%, then the TRUE value of a retirement account actually drops.

For younger workers, the effects of inflation can still be very damaging.  Higher costs of gasoline, food, and electricity can create personal budget issues.  Unless your income rises fast enough to keep up with inflation, you will find yourself with less and less spending money over the next few years.

As I look at my own personal finances, my primary goal is to grow my income and my investment capital at a higher rate than future inflation – so that my money is actually working for ME rather than the other way around.

WHEN IS INFLATION A GOOD THING?

Anytime there is a significant shift in financial markets, there are people who are hurt by the new environment, and those that take advantage of new opportunities.  I want both of us to be included in the second category.

When inflation begins to increase, the majority of people find that their income just doesn’t stretch as far as it used to.  But there are a few that actually profit from this trend, and use the new dynamics to grow their wealth.

Inflation has the effect of increasing prices for “tangible assets.”  Typically, these are things that you can see, and feel.  Real estate fits nicely into this category, because inflation typically boosts the price of land, similar to the increases we have already begun seeing for energy and agricultural commodities.

If you are serious about protecting your family’s wealth, or the wealth of your investment clients, then you should have a well defined strategy in place for fighting inflation.

Just like any professional stock investment program, an inflation-fighting strategy should be well diversified.  Typically, institutional investors recommend investments in precious metals, energy assets, and agricultural commodities as an effective portfolio against inflation.  This may be a good strategy, but the truth is that all of these asset classes have already experienced the majority of their gains.

The one inflation-fighting asset class that still appears to have significant gains ahead is the real estate market.  A high inventory of residential property has held prices down for the last two years.  But we are already seeing significant appreciation in the very best real estate locations.  Ashford Capital has been capitalizing on niche opportunities in the Atlanta market for years, and we’re still seeing tremendous deals even as inflation begins to affect the real estate market.

History has been kind to investors who have to foresight to take advantage of major shifts in the economic environment.  Don’t let the inflationary environment take its toll on your net worth. Please give me a call this week so we can discuss opportunities for you to use this period to your advantage.

There is no time to take action like the present.  I look forward to our conversation, and to serving you as we protect your wealth and pursue strong inflation-adjusted returns.

Wishing you every success,
Matt

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