Archive for the ‘Investing in Foreclosures’ Category

Shifting Dynamics for Residential Real Estate

Investors and Colleagues,

There’s a major transition underway for residential real estate in the US. For a number of years, inflated home prices have distorted the equilibrium between owning a house, signing a long-term lease.

Since the “American Dream” has been largely built on home ownership, purchase demand for homes jacked up prices to unsustainable levels, while rental rates were low due to depressed demand. But according to a recent study, the price points have reversed to a point where it is much more economical to buy than rent. From the Wall Street Journal:

“Home prices and mortgage rates have fallen so far that the monthly cost of owning a home is more affordable than at any point in the past 15 years and is less expensive than renting in a growing number of cities.”

If you think about it for a minute, this is the way the equilibrium actually should work. When you lease a car, you pay more per month because you are paying a premium for the flexibility of a short-term commitment. The same should be true when you rent a house. Renting keeps you from making a long-term commitment to a particular area – and for that flexibility, you pay a premium price.

Looking at the picture from the perspective of a home buyer, it also makes sense. If you’re going to buy a property to live in for 20 or 30 years, you should expect to get a “discount” for committing to that home for a long period.

And of course if you buy a home for the purpose of renting it out and collecting monthly income, the dynamics have to make sense. You need to expect to collect more in monthly rent, than your interest, taxes, and maintenance expenses.

Now that these price dynamics are back to a “fair” place of equilibrium, the entire market is affected.

Price Affects Supply and Demand

In most economic textbooks, we are taught to look at “price” as a function of supply and demand. The statement that we all remember from these classes is “All things being equal…”

But in the real world, supply and demand don’t operate in a vacuum. Consumers change habits based on price points, along with assumptions of value and long-term expectations. In the case of the residential real estate market, price often affects supply and demand (instead of the other way around)

Today, as individuals make decisions about where they want to live, they have a number of options to consider. They can rent space in a multi-family community (apartments or townhomes), they can rent space in a single family dwelling (there are plenty of distressed as well as premium homes for rent in the Atlanta market) – or they can take advantage of low mortgage rates and attractive pricing to purchase a new or used home.

Since the monthly cost of buying is now lower than renting, we’re expecting to see demand pick up in 2012 – leading to increased activity in the Atlanta housing market. This will result in two important dynamics:

• The “shadow inventory” of homes that banks and the FDIC are holding for sale will be absorbed by the market, resulting in a more stable real estate environment.

• Builders with low inventories of finished new homes will need to acquire land to keep up with the rising demand for new homes.

Seizing The Trend

We’ve all heard the phrase “make hay while the sun shines…” In business as well as when investing, it’s important to capitalize on opportunities when they are available. This requires both the ability to recognize an attractive opportunity, as well as the willingness to execute on the idea.

At Ashford Capital, we have worked hard to identify the most opportunistic properties in the Atlanta market. These are the developments that builders will be first to purchase – so that they can meet rising demand for new homes.

In terms of execution, we have stepped up to the plate and purchased these properties at an incredible discount. Our investors have made a similar decision by identifying our investment programs as an attractive way to benefit from the real estate opportunities in Atlanta – and they have executed by placing capital in our investment programs.

Is your investment program following a similar path? Are you recognizing the opportunities available to you – and executing by making your capital work for you?

If so, then I would love to chat with you about how Ashford Capital can offer strong absolute returns as well as diversification for a traditional investment program. If not, then what better place to start than with an investment company that has identified high-return situations and allows you to come alongside and share in the profits?

I would love to have a call with you and give you more information on our investment opportunities. Would you call me this week so we can set some goals for your investments in the coming year?

Wishing you every success,

Matt

Happy Thanksgiving From Ashford Capital

I trust you had a healthy and pleasant Thanksgiving, spending quality time with friends and family. During challenging and uncertain economic periods, it is important to remember that we ALL have reasons to be thankful, and to value the quality time with those who know and love us best…

In addition to the many personal reasons I have to be thankful, I’m also excited to be in a business that offers my investors some of the best investment opportunities available in today’s market. This year, we have been working very hard to identify and purchase some of the most attractive properties in the Atlanta market – and we have been able to negotiate tremendous purchase price discounts.

This week, a new real estate report came out, identifying some of the most attractive markets available for investors… I’ll bet you can guess which city hit the top tier in terms of sales activity…

Atlanta Leads the Competition

The October existing home sales report was encouraging no matter what city you invest in… (ok, New York and Washington DC were slightly lower, but all other major cities reported gains). For the month, total existing home sales were up 1.4% from September’s reading – and 13.5% above the October reading from 2010. No matter how you slice it, home sales are picking up which is great for our business.

But as I’ve mentioned quite a few times, real estate is a “location” game – and national trends aren’t nearly as important as what is happening in our own back yard. Well, you’ll be happy to know that Atlanta is “on the map” when it comes to a robust recovery in housing.

According to the National Association of Realtors, Atlanta placed second among the top-tier metro regions with an increase in sales of 33.4%. To give you some perspective, the only city that beat Atlanta was the Miami / Ft. Lauderdale region which saw sales pick up by 33.6% – not a meaningful difference.

It’s hard to overstate just how important this reading is. As sales levels pick up, the level of “inventory” – homes for sale or ready to be put on the market – declines. Basic economic theory tells us that when supply levels decline and demand picks up, price levels naturally rise. This means that the properties currently held by Ashford Capital are increasing in value, leading to positive returns for our investors.

Fewer Distressed Homes in Play

One of the key components to consider when looking at home sales figures is the number of “distressed” sales versus more traditional transactions. “Distressed” transactions are divided into two categories: foreclosures, and short-sales…

For the month of October, distressed sales made up 28% of the total – down from 30% in September. It’s interesting to see that although the total number of sales was higher, the quality of transactions were actually higher (a smaller percentage of foreclosures and short sales).

The decline in distressed transactions points to two important concepts. First, we’re seeing banks and the FDIC slowly working through their inventory of foreclosed homes – and the number of homeowners “stuck” in short sale situations is reaching an inflection point.

Second, on the demand side, investors are looking for higher-quality houses. There is less demand for the perceived “beat up” houses that usually fit into the distressed category, and more demand for high-end housing that is more in line with the new home business that we cater to.

The bottom line is that this report was an important indicator of strength in the housing market, and more specifically for our local Atlanta region.

Let’s Have A Post-Thanksgiving Lunch

I know that this soon after Thanksgiving, the last thing you may want to think about is eating… But I’d still like to chat with you about our real estate opportunities.

Maybe this week – after the in-laws leave town and the schedule gets back to normal – we could arrange a time to meet. I’d love to grab lunch with you, or even just a cup of coffee, and discuss how Ashford Capital can help you meet your investment goals.

There is tremendous opportunity in our market right now, and we’ve worked hard to be in a place to take advantage of these trends. I look forward to our conversation.

Wishing you every success,

Matt

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

678-231-4579
[email protected]

The Consumer Confidence “Trickle Down” Effect

Investors and Colleagues,

Last week we received another strong piece of evidence that the economic rebound is continuing. What’s that? You missed it? Well, I can hardly blame you considering the small amount of attention it received in the financial press…

While the entire world obsesses about the European debt situation – and speculates on how it will affect markets from Wall Street to Shanghai, many investors are missing opportunities because they are so worried about the well-publicized risks.

We will get to Europe in a minute, but first let’s talk about consumer confidence. Last week the consumer confidence index came in at 64.2. The actual number doesn’t really tell us much about the consumer unless you put it into context. The number came in well above the 60.9 reading from September, and was the highest recording in the last 5 months.

So what does this mean for us at Ashford Capital? Like most businesses, our level of success rests primarily on the long-term resiliency of the US consumer. Since the US consumer accounts for roughly 70% of our economy, purchase decisions are what truly drives our economic recovery.

This is an important time of year for consumer confidence. Many retail businesses make the majority of their profit in the fourth quarter of every year. The holiday season is when we truly get to see whether consumers are feeling confident enough to spend money – and how that spending will ultimately work its way through the system.

The early indications are in – and it looks like the holiday spending will come in well above previous expectations. Companies often make hiring decisions based on these confidence reports – and more hiring means stronger economic activity across the board.

Lower interest rates are making it easier for consumers to consider purchasing a house, and as I mentioned to you in my last letter, homebuilders are reporting increasing demand for new houses and inventory is moving.

Strong demand for residential housing is great news for current Ashford Capital investors. I’m excited about the activity that I’m seeing and our attractive properties are becoming more valuable as the environment improves.

So What’s All The Fuss About Europe?

While the environment here at home is showing strong evidence of a recovery, most investors are still extremely concerned about the events in Europe. You might think that I’m about to say that the events in Europe don’t really affect our business in Atlanta – but that’s actually not true…

In an increasingly global economy, uncertainty on the other side of the Atlantic can actually have an effect on our business in Metro Atlanta. But my perspective is a bit different than the reporters on Fox News or CNBC. Instead of immediately wondering what will happen when “the world comes to an end,” let’s connect the dots from Europe to Atlanta.

First of all, the major issue is whether countries like Greece, Italy or even France will eventually default on their debt. If they are unable to repay their obligations, who takes the loss?

The majority of this debt is held by European banks – although US banks have some exposure as well. So if Greece or Italy ends up in default, the major European banks are going to be in a world of hurt. Farther down the line, however, the US banks are in trouble too. That’s because there are plenty of credit lines and derivative agreements between US and European banks.

If US banks end up taking on losses because of a European default, does that affect our business? You Bet! Remember, the majority of our properties have been bought either from US banks that were selling distressed properties at an incredible discount – or from the FDIC after the banks have been declared insolvent.

If US banks take a hit from Europe, the natural reaction will be for them to raise cash from their distressed assets. This means selling MORE properties to us because we are some of the only buyers out there willing to put up capital for land. For many investors who missed the very best bargain prices from the “original” financial crisis, we may very well have “round two” when it comes to tremendous buying opportunities.

Carpe Diem – Now Is the Time

If you’ve been on the fence about whether to invest in residential real estate, or wait for a better opportunity, I’d love to chat with you. I promise I won’t twist your arm or push you towards a decision. I just want to make sure you understand the opportunities that this market offers.

There may never be a time quite like today when demand is improving and supply is still cheap and attractive. There’s something very special about an environment where you can buy cheap and sell dear – at the same time!

Would you give me a call this week so we can discuss these tremendous opportunities? I would love to help you profit from this unique market environment.

Wishing you every success,
Matt

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

Positive Report for New Home Sales

Investors and Colleagues,

This week we received the Commerce Department’s report on new home sales for the month of September. The data was very encouraging…

For the month, new home sales increased by 5.7% – the first monthly increase we have seen since early spring.

An increase in new home sales does two things for the residential real estate market. First, it helps to reduce the inventory of new homes currently offered for sale. As the supply of new homes decreases, prices will naturally rise. Think back to your high-school economics class and those supply / demand curves. Whenever you reduce the supply, all other things being equal, you see an increase in the price…

The second issue is the effect that this report has on residential developers. When the rate of new home sales picks up – and when new home inventory begins to drop, this is an important signal to developers that it is time to begin building.

Over the last three years, these developers have worked hard to decrease their inventory. It’s expensive to hold on to large tracts of land and wait for the market to pick back up. Developers have to pay taxes, maintain the properties, and cover overhead expenses – whether the real estate market is hopping or not.

Many of our local developers have allowed their land inventory to dwindle, waiting for the right time to step back into business. This month’s new home sales report may be just the catalyst they need to begin negotiating to buy land – and it’s likely that when they start to look for good opportunities, the best lots will be those that Ashford Capital already owns – the very same properties that you are invested in…

Mortgage Relief Adds Another Catalyst

There’s one other big issue that has surfaced in the last week. On Monday, the Fed announced revisions to their mortgage refinance program which is designed to help homeowners arrange better terms for current mortgages.

The health of current homeowners is very important to us as real estate investors – even though our primary focus is on new homes.

In order for the new home market to improve, we need to see a parallel improvement for existing homeowners. If the default rate continues at a very high level, it will mean more existing homes on the market. The prices of these homes are typically very low – enticing buyers that would typically want to invest in a new home to consider fixing up a foreclosure.

If this new mortgage program turns out to be as successful as economists expect, it could be a game changer in terms of a turnaround in the residential real estate market.

According to the Wall Street Journal, this new program will allow 800,000 to 1 million current borrowers to refinance their homes at a better rate. This means lower monthly payments, quicker payoff of principal, and a significant overall boost to the broad economy.

The goal of this program is to allow homeowners to refinance – even if their loan balance is significantly more than the value of their home. So it doesn’t matter how far a homeowner is underwater, he or she should still be able to benefit from this program.

Swift Changes – Time Is Limited

When economic trends shift, they have a tendency to move quickly and catch unsuspecting investors off guard. This can be true because too many people believe one side of an argument and fail to think critically about a number of inputs they might not be considering.

In the case of residential real estate, we appear to be at the beginning of one such transition.
Investors have bailed out of real estate positions. Developers have reduced inventories, banks have foreclosed on properties, and real estate investors have moved on to other things.

But now that most have left this market, prices are very low and the tide is turning. We’re seeing the major home builders like John Wieland, Ashton Woods, and Beazer Homes all making investments in the Atlanta market. Business is picking up and it’s an exciting time to be invested in the recovering residential real estate market.

Are you ready to discuss how Ashford Capital can help YOU participate in this dynamic growth environment? I would love to take a few minutes and introduce you to some of the developments we are currently involved in.

Since each one of our investments covers a specific development, our investment space is limited. Once we fill all of the slots for each investment, the door closes and we move on to find new opportunities.

I want to make sure that you are able to participate in the best deals we are following right now. Don’t wait until the market has moved sharply higher before we talk. Give me a call today and we will figure out what opportunity fits best with your situation.

Wishing you every success,

Matt

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

In Search of Yield…

Investors and Colleagues,

This is a difficult environment for investors who rely on income from their investment or deposit accounts. Have you seen the interest rates banks are paying on CD’s or savings accounts? Last month, a number of large banks announced plans to start charging customers a fee just to maintain checking accounts.

Yields on 10-year treasuries are now below 2%, and if you’re investing in 5-year municipal bonds, you’re likely getting less than 1% on your money. So for investors who need just $50,000 in annual income, a balance of $2.5 million to $5 million is required to generate this kind of yield.

The low interest rates are no accident. The Federal Reserve is pushing interest rates lower intentionally – in an effort to force investors into more risky positions. The rationale is that if investors put money into corporate bonds, equities, or other high-yielding securities, the capital will help to stimulate the economy and help support the recovery.

A discussion of fed policy is beyond the scope of this letter today (but if you want to know my thoughts on this, shoot me an email or feel free to give me a call). Today, we’re going to talk about what Ashford Capital is doing to offer clients a better alternative for investment yield.

An Attractive “Preferred Rate Of Return”

Since we understand the need our clients have to generate income from their investments, Ashford Capital has constructed our programs to offer an attractive preferred rate of return for our investors.

This means that when you invest in an Ashford Capital deal, the clock immediately begins ticking and your interest starts accruing right away. We pay our investors a 15% annualized rate of return, regardless of the profit on the actual transaction.

Here’s how the deal works for a typical investor:

Let’s say you invest $100,000 in the Ivey Estates deal I mentioned a couple weeks ago. If you remember, our cost per lot is roughly $33k and our conservative expectation is to sell these lots in 12-14 months at $75k each.

For simplicity sake, let’s assume that we meet our goal in 12 months. As an investor, you would receive your payment from three sources:

• First, you would receive your initial $100k back

• Second, you would receive your 15% preferred rate of return ($15,000)

• Finally, you would receive 60% of the remaining revenue with Ashford Capital taking 40%. In this example, the profit sharing portion would be $40,846 (netting out all fees & expenses)

So in this case, the total gain on a $100k investment would be $55,846 ($15,000 from the preferred rate of return, plus the $40,846 profit split). That’s a 55.8% return in just 12 months!

Why Offer a Preferred Rate?

A number of investors have asked me why Ashford Capital would offer a preferred rate of return in addition to a profit split. After all, most investment firms would offer one or the other – but not both sources of income.

From my perspective, this arrangement makes perfect sense. When we set up this structure, I wanted to make sure that Ashford Capital’s interests were aligned with our clients. For our clients, the very best outcome is for us to buy and sell properties with a very attractive profit – in the shortest amount of time possible.

The preferred rate of return starts the clock ticking for us as a company. We realize that we’re on the hook the moment we receive your investment – and we want to offer you a profit as quickly as possible. So the preferred rate of return simply adds incentive for us to get deals done in a short period of time.

The profit split is obvious – we want to make money only when our customers make money. So we benefit when you as an investor makes money. If you aren’t successful, then we’re not going to do well. But if you realize a strong profit, we’re going to succeed alongside our investors.

In today’s low-yield environment, we think a 15% preferred rate of return is very competitive. When you add on the 60% profit split, we think the opportunity becomes even better!

I would love to sit down with you and discuss how we can help you generate yield – and strong returns from your investment capital. Please give me a call so we can schedule a time to grab some coffee or share lunch. I think you’ll be excited about the opportunities we have on the docket right now.

Wishing you every success,

Matt

Matthew J. Riedemann
Founder, President, & Managing Director

Ashford Capital Partners
678-231-4579
[email protected]

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

Bank Failures and Real Estate Supply

Investors and Colleagues,

Last Friday, another three banks kicked the bucket…

At the end of last week, the FDIC announced that Integra Bank, Virginia Business Bank of Richmond, and Bank Meridian were officially insolvent and would be merged or taken over by the government.

Bank Meridian hit closest to home as the South Carolina bank was forced into a merger with SCBT Financial – another South Carolina bank. All together, these three banks represented about $2.5 billion in assets, and the total number of failed banks this year is now at 61.

A few generations ago, even one or two bank failures like this would have the potential to damage the entire financial system. If depositors lost their assets at one bank, consumers would be likely to pull their savings out of other financial institutions – igniting a run on the bank and sending the system into a state of chaos.

Today, of course, the FDIC protects depositors by ensuring the first $250,000 for each depositor. So as long as your savings account is below a quarter million, you can rest assured that a bank failure won’t result in you losing money.

Most people understand that the FDIC insures deposit accounts, but fail to realize what happens behind the scenes when a bank goes under.

The Proud New Owner of Real Estate
When a bank is taken over by the FDIC, depositors receive the full value of the assets in their accounts, and the FDIC actually takes over the assets of the bank. Sometimes the assets are able to be merged with another more healthy bank, but often these assets continue to sit on the FDIC’s balance sheet.

For banks who have made bad real estate loans, these assets actually represent property that has been foreclosed on.
Here’s an example… A southeastern developer might take out a $3 million dollar loan from Bank Meridian in South Carolina to purchase development property in Greenville, Nashville and Atlanta. Due to poor planning and a difficult economic environment, this developer goes out of business and the bank forecloses on the property.

Now a few quarters later, the bank is declared insolvent and is taken over by the FDIC. The FDIC pays the depositors cash and assumes ownership of the bank’s assets (including the developments in Greenville, Nashville and Atlanta).

The FDIC is now the proud owner of a few hundred acres of residential property. But of course this is not the position the government entity is supposed to be in. The FDIC’s assets are supposed to be held in cash so they have capital available to insure deposit accounts.

So what does the FDIC do with these developments? Well, the short answer is that they go looking for a buyer. Sometimes the assets are able to be merged with another bank, sometimes the real estate is sold to a private buyer, and sometimes the land is put up for sale by auction.

Today, the FDIC is sitting on a substantial amount of non-cash assets such as residential real estate developments. The number of bank failures over the past two years has been very high – and the longer it takes for our broad economy to recover, the more banks continue to fail.

Bank Failures Create Opportunity
Now no one wants to see banks continue to go under. But for us as investors, these bank failures actually translate to opportunity.

With the FDIC holding significant amounts of real estate (and needing more cash to cover deposit balances) there are some tremendous bargains available to opportunistic buyers.

At Ashford Capital, we are working directly with the FDIC to identify attractive properties and buy them at a significant discount. We only purchase properties in locations that we expect to rebound quickly – and this gives us a chance to sell the locations at a substantial profit for our investors.

Could we grab a few minutes to chat this week? I would love to give you details on some of the deals we are negotiating and help you grow your capital through one or two of these opportunities.

Wishing you every success,
Matt

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