Fed Rate Cut - What it Means for Investors

All right. Hello and welcome back to the channel. I'm Christian Osgood, your channel host. This is Multifamily Strategy. It is good to see everyone. Now on today's episode, we're gonna be talking about what just happened because this is Wednesday and the Fed got outta their meeting just a little bit ago, a few hours ago. Uh, they only did a quarter rate drop. However, the big news here is that there was a drop. So on today's episode, we're gonna talk about what these drops mean for the economy, what's projected, what actually happened in that meeting. And what it means for the real estate market. As always, we'll open this up for questions here on the back end, so feel free to ask any questions on real estate, creative finance, the Fed, or more. Now, there was some speculation on whether they would actually get aggressive enough to do a half point or quarter point. I've been predicting a quarter point. My friend Michael Zuber's been predicting a half point. We did have one person vote against the quarter rate drop. Of the 11 votes they needed, everyone voted for a drop. One voted for a 50% or a, uh, sorry, a half a point rate drop. Everyone else approved the quarter point drop with an indication that we should expect 2 more quarter point drops this year. The main thing that they are trying to hedge against is it's the balance between inflation, which is slightly higher than they hoped. They try to keep inflation around 2%. It's just under 3. So we're off by just a little bit, which I do want to say is unbelievably better. Than the Biden era where we had inflation at like 9% and really they skewed it. It was really closer to 12 to 15% through a lot of the presidency. So coming in here at a 3% inflation, we're way more under control, but the Fed has been keeping an eye on that. It's not quite where they want it. The reason that they are dropping the rate is they do wanna open up the jobs market. Job growth has slowed. Granted, unemployment's quite low. All in all, this is a big deal because our first rate drop of 2025 and the first rate drop in the last, well, 9 months. Our last one was the very end of last year. So to be back on schedule feels very well or very good. We have seen this already reflected in rates over the last couple of weeks. We've seen rates start to dip in anticipation of this. So I do want to mention the Fed rate and the real estate interest rate are not a one-to-one. The Fed doesn't just drop and drop the interest rate. However, they do influence each other. As you've noticed, when the Fed did their massive rate increases very, very quickly, it caused real estate rates to spike. We went from about 2.9% all the way up to a high of almost 8% in mortgage rates for commercial debt and for residential real estate. So what we're seeing in the short term, I was getting our Fannie Freddie, like direct Fannie Agency debt, we were getting that right above 6%. It's now in the high fives. We're seeing standard interest rates that got all the way up to 7.5%. They're creeping their way down to the high sixes. I'm doing most of my underwriting today at 7% debt if it's conventional bank debt or 6% with an agency. I think that's going to be conservative, but for the market, this is a good indicator that we're back on track. If inflation stays in check, we will likely continue to see these rate drops one at a time, and it likely will have an effect on the real estate market relatively proportionally. I've seen different opinions on this, but ultimately what caused the current rate spike? The Fed rate increasing. That was the, the primary driver was the increase in Fed rate. So as they back off that, I expect that we'll see more of a one-to-one than we necessarily usually see between the Fed rate and the interest rate for real estate. So what does that mean for us? There were a lot of deals out there that were close to working, and in Multifamily Strategy Mentorship, we underwrite a ton of them. So I see a bunch of these deals coming through, and a bunch of them are really close, but they weren't quite where they needed to be for bank debt. What happens as we start to decrease the rate? Banks are going to get a little bit more comfortable over time, so lending is going to loosen up a little bit, one. 2, the debt gets more affordable, of course, as the interest rate goes down. Those deals that were close to working— so people have been trying to sell for a few years but couldn't quite get it done— those deals are going to come back on market. And now the ones that were close are all going to move. So what we should see on the front end, we should see a small wave of multifamily transactions starting to go through. Now, a quarter point is not going to change the universe. Continued quarter point drops, if we see this happen again and again and again, The market should react to that very favorably and rates will drop at a faster pace. If we can get rates back down to 5%, which is probably going to take us, in my opinion, a year. If we can stay consistent, if we can keep inflation in check and we get rates back to the 5s, we are in payday land. There are a lot of deals that people purchased where they worked at these 7%, 7.5% rates. You come down and you can refinance at 5%, you can make a ton of money. I think we'll see the small wave of transactions, and then slowly each, each decrease in interest rate, we're going to see finance— refinance activity. We're going to see new money pulled out of properties to be put back into the market. Also, as the cost of debt decreases, that doesn't mean real estate gets any easier. Short term, the deals that were listed that were close are probably going to sell at the price that people wanted. That's going to last for 90 to 180 days is my best guess. I, I think that there's, there's a lot of logic behind that, but the transactions that need to shake loose will shake loose. If they were close, they're probably not going to go up in price now because they'll go right back to not working, but people can finally get their price. We'll see that happen for the first couple rate drops. After that, as debt gets cheaper, prices just start going up. So if you can borrow cheaper money, you're going to see cash-out refis. So people are going to get loaded with cash, the existing players, and the pricing will start going up as liquidity starts opening up, as debt becomes cheaper. That's just what happens every time we see decreases in rate. So if this holds up, and we do believe that it likely will, and that was what the Fed indicated today, at least for the next 2 rate cuts this year looking very promising, there may be some amazing buying opportunities in that 90 to 180-day timeframe. That's where rates are trending down. If you're finding deals that cash flow today, they likely will continue to cash flow through the next few years. You may be able to refinance into a lower rate in the future, but buy them where they work today. And if you can hold them and rates keep going down, your worst-case scenario is pricing starts getting pushed up, which means your equity in your real estate, your net worth, will start to get pushed. It's around the time that interest rates drop, I would say, probably 2 points from where they were at their high. Is where real estate gets really, really sexy again. What does that actually mean for real estate investors? Prices go up, competition goes up, you have more demand. The supply— I don't see a whole lot of supply coming on market here in the near future. We're at the end of an extended down cycle. It's been a hard time for a lot of developers. So as all the cycles reawaken, it's going to take a little while to get new inventory online as money gets less expensive. You actually hit a difficult time in real estate after that first initial wave of let's get these transactions moved. If you're not in the game right now, my opinion, next 90 to 180 days is the time to dive in and get it done. Score some deals. I'm going to be buying the most aggressively I have ever purchased. We're under contract officially for 144 units. We've just started the capital raise on that. If you are an accredited investor This will be a 506(c), so you actually can participate in that right next to Project Stargate. But we are going to be buying deals like that as aggressively as we can. Abilene, Texas, Stephenville, Dallas. We're looking at a deal in Mansfield right now. If you want to plug— get plugged in, absolutely shoot me a message on our free school community. The link is in the bio of my Instagram. It is also in the— it's in pretty much the notes of every single YouTube video I do. But absolutely free school community, free calculators, community capital raising, deal posting.. It's an incredible space, and we just want to open that up to more people. So, uh, hop in there. But if you guys want to participate, let me know. We are going to be going very, very, very, very, very hard at acquisition here so that if this all stays true and we continue to see a decrease in rates, we get to take full advantage of the forced depreciation in the market, of the increased demand. I will put us in an amazing position. Which is what we're hoping for. Now, anyone's thoughts? If anyone disagrees with me here, anyone has questions, the chat here is open on the left. So I will, I'll take questions here as they appear in the chat, but I'll summarize this while we're waiting for the first few to come in. Quarter-point rate drop, not surprising. Some thought it might be more aggressive. I think a slow and steady drop is the best possible thing for us who are still in the active expansion phase of our portfolio. A rapid drop would cause a surge in demand. The big players are going to come back in. We're going to get wiped out. There's still going to be some market hesitancy, especially before the next couple rate drops. So if there was a time to get in, I would be calling brokers now. I'd be calling owners now. I'd be getting in community with other people now so that you can load up before real estate starts getting, quote unquote, easy again. When it's easy money, everyone looks like a hero. But if you bought a cash-flowing deal when it was hard It's going to just be doing better as rates go down, as demand goes up, the ability to make money. I think my theory, my prediction, I think we finally hit near the bottom. We might have a little bit further to go, but if you were trying to time the market, which I don't recommend, you're very near the bottom. This is time to get in, start buying. If we have no questions this week, which is Perfectly fine and allowed, I suppose. Uh, that means I just rocked the summary here. Uh, you guys can always ask me questions anytime on Instagram or within our school community. We post there all the time. There are deals flowing through that channel like crazy. So there's Multifamily Strategy Community on school, completely free, has free calculators, has deals posted there consistently. You have lenders, you have contractors, you have people who are investing in your market open right there on that community. So highly, highly recommend you get plugged in there. If you're wondering where you start, I just launched a mini course in there and it's completely free. You don't have to be part of the mentorship, you don't have to be part of the course. It is 15 videos on where to get unstuck in real estate. I go over the most common objections I've seen in the last 5 years. I go over the actual steps that it takes to go from no real estate to buying a deal. Like, if you did this same 15 minutes a day that I do you can just follow this. It's in the mini course. It's on school, uh, SKOOL. You can use the phone or the internet, uh, either way. Use the desktop or a mobile device, log into school, Multifamily Strategy Community, register there. We'll see you there. Uh, tons of free resources for people to get started. I want you to be able to buy real estate. I'll be buying real estate. If you want to buy real estate along with me and you're an accredited investor, uh, go ahead and shoot me a message, and we'll see you guys on the Abilene deal, 144 units. Super exciting. Other than that, everyone have a fantastic rest of your week. Enjoy the lower rates. They should only be getting better from here, and we'll see you all on the next episode.