Fed Rate Cuts Effect on Real Estate Investing and Why You Should (or Shouldn't) Care
Emma Powell
? BUSINESS: Passive Income Real Estate Fund Manager Who Actually Retired Early on Passive Income, Ask Me How ? PERSONAL: Fulltime Travel Homeschool Mom of 6 ? FAMILY BUSINESS: Pitch Deck Designs for Investor Attraction
Predicting the Future
Now that we as investors have had a few weeks to observe how the recent Federal Reserve rate cuts are beginning to affect residential and commercial real estate markets, we can reflect on potential opportunities and challenges in our specific areas of expertise.
When looking into my real estate "crystal ball," I often think of Mark Twain’s famous saying: “History doesn’t repeat itself, but it often rhymes.”
Predicting the future is a favorite past time for many economists and analysts, despite it being a waste of time. While attempting to time the market is futile, balancing keen observation of patterns without over interpreting is key to help us avoid the worst cycles of the market by focusing on macro versus micro trends. But beware, it may also cause us to miss out on the best opportunities: use history as a guide, not a religion!
With the Fed’s recent rate cuts are stirring echoes from the past, this signals potential buying opportunities for investors who are paying attention.
As rates drop, real estate markets react—sometimes in surprising ways—and that creates unique advantages for a fund like ours.
Historical Context and Current Trends
In the middle of last month, the Federal Reserve began lowering interest rates, marking a significant shift in monetary policy. Historically, it takes about 1.5 to 3.5 years for commercial real estate to rebound after such rate cuts. Looking back at the Great Recession for patterns, we saw sales began to fall in 2007, but after 2.5 years of decline, they started to rise again in 2010.
Fast forward to our current cycle where prices peaked at the end of 2021. If historical patterns hold, we could see an uptick in sales and property valuations by the end of 2025. This suggests we may be approaching the bottom of the market cycle—a point where observant investors can seize excellent buying opportunities.
How Our Fixed-Rate Lending Fund Is Insulated from Rate Cuts
While traditional loans from banks may see their rates drop as the Fed cuts interest rates, the private hard money loans that we provide are not directly tied to federal rate movements, so our rates remain unchanged at 10-12% interest. This creates a unique opportunity for our investors:
As banks lower their rates, our fund continues to provide 10-12% returns on short-term real estate rehab projects on both residential and small commercial properties. While traditional loan rates may fluctuate, our rates remain steady, giving an income advantage. Even in a falling-rate environment, investor returns stay high.
Why Fed Rate Cuts Matter for Real Estate Investors
One way rate cuts don't matter is in the hard money industry as our private lending rates remain unaffected by federal rate cuts. But one way Fed cuts still create ripple effects that benefit the overall real estate market are from lower rates leading to cheaper borrowing for buyers and investors, fueling increased transaction activity in the real estate sector.
1. Reduced Risk from More Favorable Market Sales Conditions
As banks lower their rates and make borrowing at lower monthly payments more attractive, borrowers' properties in our portfolio are more likely to sell at better prices. Lower mortgage rates mean a broader pool of buyers can afford to purchase, which helps improve liquidity and property values. This translates to reduced risk for our loans, as the assets we lend on are more likely to sell quickly and at better prices.
While borrowers struggling to sell a property after renovations are completed mean more payments to us in the short term from extension points and monthly interest, our borrowers' long-term success is more important to ensure repeat business with experienced rehabbers.
Increased demand can help drive property values higher, which benefits our borrowers who are rehabbing and selling properties. As property values rise, our loans carry less risk because the collateral is more likely to sell faster at a higher price. This in turn creates word of mouth referrals through our borrower success, and experienced rehabbers who return to us for more loans.
2. Reduced Risk of Defaults
With lending, we hold no equity in the project meaning we do not share in profits or losses. Our biggest threat is default. When market conditions improve due to favorable selling conditions, borrowers are more likely to successfully complete and sell their projects, reducing the likelihood of missed payments, loan restructures, or defaults. This allows us to maintain our high returns while operating in a safer lending environment. This reduced risk gives more confidence to our pool of private lenders, enabling us to originate and collect on more loans safely.
Our Strategy Moving Forward at Rise Capital Investments
In summary, at Rise Capital Investments, we’ve positioned our fund to capitalize on the advantages created by this dynamic environment. Our hard money loans provide consistent high returns to our investors, even as the broader lending market adjusts to rate cuts. Here’s how we’re moving forward:
1. Maintaining High Returns:
Despite the falling rates in traditional markets, our private loans continue to deliver 10-12% returns. Our investors benefit from the steady, predictable income while enjoying the safety of lending on real estate-backed assets.
2. Reducing Risk Through Improved Market Liquidity:
As market conditions become more favorable for buyers, we anticipate stronger sales for the properties we lend on. This lowers the risk of defaults and strengthens our portfolio, allowing us to continue offering high returns while minimizing risk.
3. Capitalizing on Low Bank Rates to Facilitate Property Sales:
Our borrowers may find it easier to refinance or sell their properties due to lower bank rates, which can lead to faster project completions and quicker loan payoffs. This cycle further reduces risk and allows us to redeploy capital into new opportunities more efficiently.
What This Means for Our Investors: Seizing the Opportunity
For our investors, this means the best of both worlds: higher, stable returns from our private hard money loans, paired with reduced risk thanks to improved market conditions spurred by federal rate cuts. While traditional investors may see their returns diminish with falling bank rates, you’ll continue to benefit from strong, predictable income while taking advantage of a market that is becoming increasingly favorable for sellers.
The Fed’s rate cuts are setting the stage for new opportunities in the real estate market in the near term. Since the partners at Rise are significant investors in each loan we extend, our own skin in the game helps align investor interests with our own priorities to create successful borrowers who reliably repay loans.
Subscribe to continue to receive insights and updates about financial freedom through smart, strategic real estate investments.
领英推荐
RESOURCES AT RISE!
Rise Capital Investments Fund specializes in real estate hard money loans with occasional equity partnerships for passive investors. Accredited investors can review all our open deals on our private investor portal, make soft commits, fund, monitor, and receive distributions all in one place.
EDUCATION
We offer free events every week, and free info to get you onto the path of changing your life through real estate investing.
Speaking of learning to trust others, there are some ways to get started building a relationship anonymously without getting on an email list or other (annoying) follow up campaign.
Check out the free articles on our blog as a way to learn about investing and learn about us before reaching out.
Every Monday night, we host a FREE joint venture investing club where investors analyze deals, learn how to invest in commercial real estate, and invest either passively or as a group to manage actual deals.
We have open networking at our NEW TIME from 5-5:30pm MT, followed by group deal evaluation or an occasional speaker 5:30-6:30pm MT.
Join us to get started or pivot in commercial real estate with a lower barrier of entry! We've helped dozens of investors get into their first large commercial deals.
Every Tuesday, we release a podcast episode chronicling the Passive Income Adventures of our host Emma Powell and guests as they share their stories of changing their lives through entrepreneurship and investing. We just wrapped up Season 01 at the end of 2023, so feel free to binge listen to all 52 episodes!
Listen, rate, review, and subscribe and all that anywhere you listen to podcasts for a weekly dose of inspiration and education on how you can join us in #financialfreedom or #earlyretirement!
Every other Thursday we host an online learning event or workshop.
For lunch and learn style, join "Relax With Rise" on a LinkedIn and YouTube LIVE event sharing strategies and stories on how we've retired early on passive income.
The third Thursday night of each month we hold an online class "After Hours with Rise" on techniques to build wealth and retire early: you can register for event reminders on our site.
FIND US ON SOCIAL
Emma Powell i s @passiveincomeadventures on YouTube and Chief Investment Officer
ZASHA SMITH, P.E. is @investwithzasha on Instagram and Director of Marketing
Lais Keese is @momabundance on Instagram and Director of Investor Relations
Raquel Rigby Director of Operations and Compliance
Troy Powell Director of Technology
Harmonie Borden Operations
BOOK A CALL at PARTNERWITHRISE.COM when you're ready to talk about scaling your wealth with private real estate lending and equity.
(The sooner you start, the sooner you'll wish you'd started sooner!)
I help top-earners and property owners maximize their ROI through strategic design.
3 周Emma, great insights! The current climate is definitely a mixed bag. While it’s true that rate cuts can lead to more inflation, they can also open doors for strategic investments. At the end of the day, it’s about finding stability amid the chaos. I’ve found that focusing on reliable, steady returns can be a game-changer—especially in times like these. I'm curious, what specific strategies do you think will be most effective for navigating this evolving landscape? ??
Follow for content about healthcare, investing & my entrepreneurial journey | Pulmonary and critical care doctor | Over 1000 units and $96M AUM ??
3 周It's indeed important to stay informed about the current economic climate and how it might impact real estate investing, Emma.
25 Years Finance, Accounting, Private Investment Management | ?? 9-Figure Track Record | Real Estate Investor | Numbers Nerd ?? | Car Enthusiast ?? | MBA & CPA
3 周Emma Powell, you might even be able to borrow against the fund's loan portfolio at low rates to boost returns to your equity investors.
Former Caseworker Turned Real Estate Investor | Empowering Military & Medical Pros to Build Stress-Free Wealth
3 周Appreciate the insights here! It’s refreshing to see a grounded approach focused on stability amidst market shifts. Emma Powell
Day Job: I invest, develop, and manage over $1bn properties at @primior Side Hustle: I make free content showing how I do it.
3 周Spot on. Beyond just rate cuts, it’s worth tracking how other macro factors - like supply chain dynamics and asset-specific performance - affect the real estate market. Stability is about seeing the whole economic picture, not just rates.