Our Investment thesis
In light of recent market events, we feel the opportunities for strategic investments are becoming more and more prevalent each passing day. For example, consider the actions of the Federal Reserve to increase interest rates in order to to fight inflation. While this may be necessary to combat the effects of a money oversupply (also caused by the Fed), the results are already being felt. This is primarily because the cost of capital/debt has increased.
For those (and there are many) who acquired real estate based on appreciation, instead of cash flow, this is a huge problem. For example, consider an investor who bought a mobile home park 4 years ago, with a note on a 5 year term. Unless the investor was initially focused on high cash flow (most haven't been), this increase in the cost of debt could very well be the nail in the coffin. The scary thing is, this concept is true across all real estate classes - Residential, Apartments, MHP, Office, Industrial, Storage Units, etc.
Warren Buffet says - "Be fearful when others are greedy, and greedy when others are fearful."
With that, we believe the market is becoming more and more fearful over time. All said, while the market has changed, our approach to capturing and creating value hasn't. By sticking to the fundamentals, we believe we can capture the best opportunities this new market creates.
Cadia Capital Group is about cash flow, forced appreciation and emerging markets. By focusing primarily on affordable multifamily property assets, we are able employ a multi-faceted approach to investing.
Our criteria for investment begins with an asset's ability to create cash flow substantially over and above its cost to own. Healthy cash flows, don't only create immediate returns for investors, but also ensures sustainability in any market cycle. Unlike more traditional methods (mutual fund, 401k, stocks, bonds and CDs), cash flow provides financial benefits in the present vs. only in the future.
Forced appreciation is about maximizing a property's potential and therefore maximizing a property's value. By identifying cash flow properties with current operational inefficiencies, we are able to turn these oversights into tangible benefits for our investors. For every $1 increase in annual profit, a property's value can be increased by a multiple of 10-20 times. This powerful rule of forced appreciation allows investors to maximize a property's operations (Optimize Revenue, Minimize Expenses) and greatly increase the property's value as a result.
Some of the opportunities to increase revenue include; raising rents to market rates, renovating units, passing utility costs to tenants, adding laundry, adding storage, improving the building's overall appearance and adding amenities to provide more value to tenants.
Some of the opportunities to decrease expenses include; resolving leaky faucets, installing efficient lighting, removing inefficient heating and air units, adding insulation, replacing ineffective management, reducing insurance bills and contesting tax assessments.
Lastly, our goal is to purchase assets in emerging markets. Our definition of emerging markets are those markets that have traditionally been stable to declining, but are experiencing job growth, population growth, early outside investment, and progressive governmental leadership. By doing so, our assets enjoy increased rents, an improved tenant base, and natural appreciation. The net effect, when combined with a strategy of improving the Net Operating Income (NOI), is exponential property value increases and superior returns to investors.
When you combine ongoing cash distributions, forced appreciation, natural appreciation, and the tax benefits, it's hard to imagine a better investment vehicle.
***Note, we are currently targeting to hold properties for a 5-10 year period. During this time investors can expect to receive periodic distributions from cash flows, a % return of capital via one or more refinances, as well as equity upside in the overall asset.
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