Top Things Investors Need To Know To Future-Proof Your Finances with Travis Watts

At the end of the day, what my real passion is. The real thing that I've learned, even though we're talking heavily about multifamily, is just to focus on stabilized, cash flowing assets.

And there's so many that you can do even outside of the world of real estate.

Welcome to truly passive income. I'm Neil Henderson.

And I'm Clint Harris.

We are thrilled to welcome Travis Watts, a full time passive investor and the director of investor education at Ashcroft Capital. He has a wealth of experience in real estate investing and a passion for educating others.

Travis has transitioned from active investing to building a substantial portfolio of passive investments. We are going to dive into his journey and insights on achieving financial independence through passive investing.

Travis, welcome to truly passive income.

Thanks so much for having me. Appreciate the invite, you guys.

Absolutely.

Weve spoken before, so I know quite a bit about your journey from oil and gas industry into active real estate investing and then to where you are with Ashcroft and as an experienced passive investor. But for our listeners who might, might not know you, walk us through your journey from active real estate investor to passive investing.

Lots of my family and network and friends were not investors or real estate individuals, and they're all persuading me not to go that route. But I could recognize there was a buy the dip opportunity.

So I got started in Colorado with just a simple townhome, two bed, one bath, you know, $95,000 townhome, and first had a roommate for a while because I needed someplace to live. That kind of opened the door to what passive income might be able to provide. So I wanted to scale that up.

So I turned that unit into a full time rental and just kind of went on to these condos, townhomes, single family homes, eventually getting into Airbnbs and short term rentals and fix and flips and stuff like that. But my story really isn't unlike many people that get started in real estate.

The only thing I could comprehend back then was single family homes and that type of real estate investing. I had no idea what a syndication was, what private placements were.

If you'd asked me who owns that apartment building over there, I'd say Wall Street. I don't know. So I ran into a couple gentlemen through a real estate meetup.

I was a little skeptical over it, but they were explaining how much more scalable it was for them to not have to be landlords and chasing down properties and showing up to closings and dealing with tenants and all this kind of stuff. So I was flipping a home at that time and it was about to sell, and I said, okay, I'm going to try it.

I'm going to take half the equity that I get in this deal, and I'm going to put it into one of these so called syndications. And I just, long story short, it wasn't easy to pull the trigger. I was nervous, I was skeptical, but it worked out.

You know, I was getting monthly cash flow. The deal sold early, long story short.

So I started just diversifying across a lot of different operators, mostly in value add, multifamily syndications, but later branched into all kinds of other assets that exist out there.

I think that's key for your listeners to think about and understand is that you really can, in my opinion, diversify yourself, or perhaps even an entire portfolio like I've done throughout commercial real estate with land plays and note lending and car washes and self storage and mobile home parks and multifamily. There's so many different things that you can invest in.

And really it's been a journey of let's build up as much passive income as I can, let's be as hands off as possible, and then let's use that income to basically pay for a lifestyle, you know, your bills, your expenses. And so it's been a fun ride. It's been a crazy last two to three years. We could dive into that here in a minute.

But I really fell in love with this business model and with this type of investing. I reached out to Joe Fairless and Ashcroft Capital.

I had been investing with him already in a handful of deals, and I was like, joe, let me come on board. I can podcast, I can do webinars, I can go to conferences, I can do investor relations. You tell me what you need, and it's a win win.

It's been super rewarding. I mean, it's just been the highlight so far of my career.

And so today, as director of investor development, I just helped develop investors again, helping articulate what syndications are, why they're beneficial, you know, how they can help you achieve your goals, whatever those are. So in a nutshell, that's been the journey and the story so far.

That's 2.7 billion in assets under management for Ashcroft Capital. By the way, I might mention for the listeners, is that up to date? It may not be. Give it a couple of weeks. It'll be a lot higher, I'm sure.

So a lot to unpack there. I'd like to talk about how do you pick, you're in 50 different deals with different operators.

I want to talk about how you think as an LP in terms of your underwriting and finding the right partners. But you also touched on diversification.

And I think that I kind of have five components to the way that I view diversification, and I'm not going to say what those are until I hear what you have to say. But I'm really interested in what's your version of that for you.

And I love the fact that in your role that you are in investor relations, but you approach it as investor education. And that's the same way that Neil and I talk about it, is our job is not to sell anyone on our deals. Our job is to educate.

We educate on what we do and syndication as a whole, and that it's that person's decision as to if it fits in with their goals and what they have, their future. I love the way that you approach that. When youre teaching on diversification for Ashcroft and as an individual.

Whats your take on that and how do you lay that out?

Trey? Well, I would start by saying this.

As far as investing goes, the first experience that I had was with single family real estate before I was ever into the stock market and other things. But there was a short period where I went and I worked for a very large brokerage firm here in the US.

And so I did the whole Wall street thing and I got licensed series 763, stuff like that. And I just wanted to be a little more well rounded. I didn't want to be a one trick pony.

I didn't want to be so overly biased towards the only thing that I know how to do. And I just wanted to explore the other asset types. So in the stock world, it's a lot different.

You're told about diversification among stocks, bonds, mutual funds, ETF's, but really they're all somewhat tied together and cyclical. Right. If markets are generally just going down like we saw in zero 80 910, then your portfolio is probably down.

So I ended up going back to real estate. And let me give you a couple case studies. I'll share some of my own experience to articulate what I've learned about diversification.

And the first is that there is no one asset type that's just going to be the clear winner for the rest of your life. And it's not going to go through any market cycles, and there's never going to be volatility or disruption. It just doesn't work that way.

That's just going to slow us down again. So one thing to think about is the national multifamily Housing Council has recently come out.

I always think about that in terms of stocks, right? You could own some random company that sells, I don't know, soda or something, but it's just, to me, not necessary.

If it just didn't exist, we would all just move forward and be fine. But we've got to have housing. So, long story short, I'm an advocate for invest primarily in what you know and understand.

You know, multifamily's got thousand plus year track record as compared to like the latest trend and the new things that are popping up left and right. And then you can diversify, as I mentioned earlier, in different geographic regions, which is one huge perk to syndications over single family.

At least in my case, everything I owned was like a 30 miles radius. I love syndications, where I can be in all the forecasted growing states and markets across the US.

But here's a quick example of why or how you could niche diversify. So let's say I wanted to do two multifamily deals. Well, I'll just give you two examples.

We had some pause distributions, right? There's disruption that happened from that. And rate cap purchases went up ten x in that instance.

So that what's holding up strong, we just simply don't need to sell. In today's environment, there's no reason to sell and we don't have to.

So you can again diversify different debt terms, different asset classes, different geographies.

But at the end of the day, what my real passion is, the real thing that I've learned, even though we're talking heavily about multifamily, is just to focus on stabilized cash flowing assets. And there's so many that you can do even outside of the world of real estate.

One of my nephews right now, I just got him started with a vending machine business and it has nothing to do with real estate, but he's cash flowing every single month with very limited time and effort that he has to put into it.

And I've got him started with a brokerage account with just some dividend paying stocks and stuff, just to show him that compounding effect over time. So again, to me, it's all about living a life on your terms, using passive income to help you get there.

We can certainly dive more into kind of the due diligence side of that, but from a high level, that's my take on it.

I love that you hit on all of the five components that are part of my personal strategy, and that's I'm looking for different assets, different geography, different operators.

And the thing that I think a lot of people missed that you mentioned is I think that you need to look at different debt structures, fixed versus variable rate, because otherwise you may have different assets, different geography, different operators. If theyre all on the same floating rate debt. Your entire portfolio was just really exposed over the last 18 months.

So I think the debt structure is really important. And then also the time component, like youre focusing on monthly cash flow up front.

I think that its a good idea for me in the long run to sprinkle in some equity deals that are going to have larger payouts down the road. But the most important thing right now is obviously that cash flow and getting that upfront so thats exactly the same five things that I agree with.

And im glad you unpacked that very eloquently, by the way. Talk to us about the due diligence and picking the operators. You're in 50 different lp positions.

How many operators is that and what's the most likely way that you find an operator that you want to invest with?

Yeah, it's been an evolution over time and so one of the best resources that I can provide to folks is I ran 200 episodes under Joe's best ever podcast, passive investor tips and the actively passive investing show at the end of those. When I retired from that earlier this year, I made a book called Passive Investor Tips.

And it's just 48 really quick chapters that are two to three pages in length that kind of go over what we're talking about here. Due diligence, underwriting, how to choose different sponsors. It has a lot to do with a lot of different elements.

But anyway, that was kind of my gift back to the world. I donated all those profits back to the best ever community to help them grow the education side over there.

But to answer your question, I first started by recognizing that I didn't know what I didn't know, right. I couldn't just automatically know the best groups to work with and what would resonate well with me. So I started to hyper diversify early on.

But I kind of look at it this way. There's really three primary risk categories to think about.

You have the operator who you're actually going to work with, what's their track record experience, what do they specialize in? Then you have the market. Markets are extremely important and I'll explain that more in just a minute. And then you have the deal itself.

And I think what I had wrong in the beginning and what a lot of LP's have wrong, in my opinion, is the deal gets put first. You know, show me your deal. How good is the deal? What's the cash flow on the deal? I would say first look at who are you working with?

How do you know that they found a great deal and what's their track record of success again and that kind of stuff. I'll give you one other practical story case here. I invested with a new operator. It was like their second deal that they'd ever done.

They've taken zero deals full cycle. I decided to take a chance on them. I knew them personally.

And then they realized, well, we had the wrong property management group, the wrong contractors, we didn't budget correctly, all kinds of problems. They had to stop distributions. It was a nightmare. But they had bought a good deal and a good market at a good time.

And so we were all profitable in the end as LP's, but we were about 50% less profitable than we could have been with someone that really knew what they were doing.

So I put about a 50% emphasis, not just because of that case, but a lot of different examples in my experience on the operator, 25% on the market, 25% on the deal.

And the fact is, if you're working with an experienced operator that knows what they're doing, then they're probably researching very heavily markets and deals in the first place. A great operator is great for their own reasons.

They're not going to go do a crappy deal and potentially lose investor money and stuff like that goes on their permanent track record. So that's how I approach it. I went to some real estate meetups, I joined some online forums. I've done a ton of conferences nationwide.

I'm the first to just tell everybody listening. That's not for everyone. I don't necessarily advocate for that.

It's been huge in gaining knowledge and exposure, but just starting, simply just starting in general, listening to this podcast and other podcasts, reading books, not necessarily just my book, but other books on syndication and just educating yourself and then taking a little bit of action. Just do one deal, perhaps, you know, and see how it goes like I did when I started.

I want to unpack that. I'm going to come back to that point here in just a second, but I want to ask a follow up question.

As an LP, how do you balance doing that deep due diligence on an operator or a deal with how do I put this nicely? Not becoming such a burden with your due diligence that the operator just goes, hey, listen, we appreciate it. We don't need your money.

Yeah, word of mouth referrals go a long way, testimonials go a long way. You kind of have to know a little bit about yourself.

I mean, that really helps anyway, just to know, like, for example, some investors, and I'm speaking from my experience and dealing with lots of investors over the years, communication is so critical to some, right. They send an email, and if you're not responding in half an hour, they're upset. Now they're calling you.

You know, if you're not answering now, they're calling the CEO.

So if you just know that, then you want to look for groups that are great about communication and perhaps look for deals that maybe do monthly distributions and reporting as compared to quarterly or multiple years in some cases with development. And then you said something earlier, I want to circle back to real quick. And that is your standard value add. Syndication has kind of a trifect to it.

You can potentially have monthly cash flow, you can have potentially equity upside on the deal, and you can have tax advantages. Right? So that's huge for a lot of people.

If you just think about all the investment types out there, especially like thinking about traditional investments, how many really offer you all three inside of a tangible asset that's highly in demand, that has a thousand plus year track record. So I know that's just a little side note there, but here's my practical answer to you.

I start with, I attend all the information that's put out by the operator. So let's say they do a webinar. I watch the entire webinar. Let's say they have a CiM or a slide deck. Okay. I read through all of it.

I just kind of write down on paper maybe what's missing or what's still unknown that I feel like I need to know. And the reality is, again, in my opinion, you don't need to know 100% of everything to take advantage of a deal.

If you can just know 70, 75%, that's, to me, good enough. The others get filled in as you go.

I think this is where too many people, including myself from time to time early on, got so caught up in analysis by paralysis.

You just think, gosh, there's so many deals, so many operators, all these numbers, all these terms, to know again, just to create a little momentum, just to start with maybe one deal and just go from there and then keep bouncing back to your education and then balancing that with taking action is kind of the solution I found to be most effective.

So I know that youre very bullish, especially on apartment investments and multifamily. So give me some of the reasons why right now is a really good time for Ashcroft and for investors to be leaning in instead of staying out.

Yeah, heres a few things to think about in 24. So its not such a vague statement or it doesnt seem like just bias because thats what I do.

So the first thing is when the Fed came in in early 22 to aggressively raise interest rates, with that came cap rates being raised. Now, cap rates, if your audience isn't familiar, is a primary way that you can find the value of commercial real estate.

You take the net operating income, you divide by the cap rate, which is different in every market, and you get a potential valuation. So when cap rates go up, valuations come down.

Now, this is a lot different than single family because single family debt, it has a lot to do with debt.

I is what, a 30 year fixed rate mortgage or a 15 year fixed rate mortgage in the commercial space you've got so many short term debt structures and bridge loans and adjustable rate. And if someone says long term debt, they might be talking about five year debt.

So that's why valuations come down, because you think about $100 million property and putting a $70 million loan on it, and then that loan going from 3% to 7%. That's a big deal. That's a huge deal. Right.

So in order for the next buyer to take advantage of that opportunity and be profitable themselves, they're going to have to get a discounted price because the debt is so much more expensive. So back to real quick, this deal that we're buying in Orlando, it's our 6th Orlando deal a few miles from where I live.

And we've been putting fixed rate agency loans on our latest acquisitions. There's a case to be made for adjustable at this point because the forecast is for rates to come down.

But I'm not going to get too much into the crystal ball forecast. But I do write a quarterly report called Market Insights on behalf of Ashcroft.

And I'm pulling the sources from Costar and CBRE, and Marcus and Millichap and Urban Land Institute and the US Census Bureau and the U Haul stats.

I'm encompassing all that into a ten to 15 page quarterly report with very little commentary as to opinions, so that you, the investor, can figure out where do you think we are in this market cycle, and where do you think the opportunities are going to lie? I already talked about supply and demand. We need millions more units built, and meanwhile, builders are just pulling back.

So that puts us more in a supply demand imbalance, which is really good for valuations this year.

In 24, we're already seeing huge mega groups like Blackstone, which, by the way, is the world's largest commercial real estate owner, putting 10 billion plus into multifamily apartments. You're seeing JP Morgan do joint ventures to buy multifamily.

You're seeing Jeff Bezos, the founder of Amazon Back, a real estate company, to buy residential real estate nationwide through almost like a crowdfunding type platform. So you're seeing the smart money, if you will. I hate to call it that. I like to think all of us retail investors are the smart money.

But you're seeing the big institutions jump in with billions of dollars this year to scoop up these deals, to buy the dip, to take advantage of this stuff. And the last thing I'll say to not be so long winded on 24 is right now in the United States.

We have the largest gap in us history between a new mortgage payment and multifamily rents. Nearly $1,000, in some case, in many markets, more than $1,000 a month differential.

So a lot of people are just simply priced out of the single family home market. Most markets have continued trailing up in price despite these interest rates. And now mortgages are two to three x what they were in 21.

It's totally insane.

So, to me, when I look at crypto hitting maybe close to an all time high, and the stock market hitting close to an all time high, and single family continuing to go up, and then commercial on sale at the tune to 25% to 30% office space, perhaps even more. In some markets, that's the opportunity when one thing's on a drastic sale and nothing else is.

To me, that just makes sense, because your risk goes down as prices go down, and your risk goes up when prices go up. And we can't forget that.

Not to get into the crystal ball as well but to this week, the Fed's releasing a lot of key economic indicators in the betting markets. As far as the rates are going.

Say they think it's a 96% chance that we do not see a rate cut in the next three months, but a 96% chance that we see a rate cut in September.

And there's a lot of people that believe that feds maybe waited too long to raise rates last time, and they kind of feel like the Fed's waiting a little too long to lower rates at this point.

And again, a lot of people are sort of sitting around go, well, I'm going to wait until the Fed starts to move before I make a move on housing or whatever. Well, once that happens, Katie by the door, I think that you're going to see housing prices start rising again. And I don't know.

Yeah, it's interesting. I was just watching a short little interview with Barbara Cochran from Shark Tank.

She's been in real estate so many decades, she's a huge advocate for don't wait. To your point. And she's talking about single family primarily.

She's saying, okay, that $500,000 house right now with a 7% mortgage and the forecast of rates coming down, if you're saying, I'm going to wait till mortgages are 5% now, it's 575,000 for that house. So your payment's really not going to change. You can always do a refinance later.

Anytime there's turmoil or markets, even when the stock market falls, it affects real estate indirectly with investor sentiment, people saying, whoa, this is scary, what's going on?

Maybe I shouldn't be investing right now, but if you look back at every single major dip that we've seen over the past several decades, that's always been the best time to get in. So you have to kind of fight your psychology a little bit.

One thing that's really helped me over the years is subscribing to a dollar cost average mindset, which a lot of people do and they think about in the stock world, right?

Maybe it's your 401k, where every two weeks you're putting money into the stock market, your dollar cost averaging, and not paying attention to the ebbs and flows or index funds or whatever in a brokerage account. Not many people talk about that in terms of real estate. But even though I was skeptical in 21 with prices and rents skyrocketing the way they did.

I still made a good handful of investments that year. I still made about the same in 22 and 23 and now in 24. Hopefully I can do a little bit more this year, but you're going to get the long term average.

And he was serious and he was true and he didn't do new acquisitions. I took a different mindset and was like, well, maybe, maybe not. I didn't necessarily subscribe to that.

You don't know what the Fed's going to do, what the government's going to do. You don't know the election, who's going to win, what's going to pass, what's not going to pass, recessions and so on.

So just stay consistent with it. And then if nothing else, recognize that it's very rare that commercial real estate goes down as much as it's gone down over the last two years.

And now we're either at the bottom, near the bottom, or about to bottom. But in general, think about your average hold period in a syndication is like five years.

All right, to tie this all up and to tie your point and clints point together about diversification, I think youre really hammering home the idea of diversifying across time with dollar cost averaging. So many people like, well, im going to sit tight and wait to go, go big into the market and try and time it just right.

Whereas you're saying, like, listen, you're never going to do that.

If you just focus on diversifying across asset class, geography, operator, debt and time, and just sit there and go, okay, like, you know, where do I think the opportunity is this year? I'm going to invest somewhere and I'm just going to keep doing it. Spread the seeds around that in the end, you're going to come out on top.

Exactly. Yeah.

And so I would see the psychology that's like, well, in the last few months, I've only seen deals that cash flow, 6%. I'm going to wait on the sidelines till I find one that's 8%.

Well, if you think about that logically, and it takes you six months to find a deal with 2% more cash flow, you just lost out on half a year's worth of cash flow. It would have been better to do that deal six months ago than to wait six months for something with a little higher potential return.

So, yeah, just don't wait. I mean, that's the biggest thing that I've learned. Travis.

Well, listen, Travis Watts, I have thoroughly enjoyed this conversation. I know Clint has. It's always great chatting with you, my friend. One of our listeners want to find out more about you, Ashcroft.

Where would be the best place for them to do that?

I've got a landing page for your listeners called speakwithtravis.com and it's got my calendar link. I'm always happy to connect with anybody and everybody. Accredited, non accredited, interested in Ashcroft. Not interested. Doesn't matter.

Happy to be a resource in the industry. And then also there's some investment trackers on their current offerings and opportunities, like Orlando deal and lots of stuff.

So speakwithtravis.com, be happy to connect and help you out.

Well, it's been great. Thanks, Travis.

Thanks a lot, man. Appreciate your time.

Thanks, Neil. Thanks, Clint.

Thank you so much for listening and watching the truly passive income podcast.

If you liked the show, if you think it would be useful for someone else, the greatest compliment that you could give us would be to share the episode, leave a comment down below or leave us an honest review. If you have any questions, don't hesitate to let us know down below.

And remember, with truly passive income comes freedom of time, place and the freedom to pursue your higher purpose.