Residential investors and fix and flippers had a challenging time borrowing in 2023. Many traditional lending sources dried up as banks continued to repair their battered balance sheets, and a high interest rate environment tested the economics of investment opportunities.

But the future may look brighter for residential developers and investors following the Federal Reserve’s indication of several potential rate cuts in 2024 at its year-end Federal Open Market Committee meeting. A declining rate environment could benefit would-be homeowners and reignite a tepid residential housing market.

The impact of lower mortgage rates could translate to opportunities for investors in the Real Estate Owned (REO) sector as motivated banks seek to shed foreclosed properties they hold on their balance sheets that didn’t sell at public auction. This blog explores both of these scenarios.

Scenario #1: 

If the Fed follows through with its 2023 prediction of three interest rates in 2024, several positive outcomes could occur for fix and flip investors.

Collectively, these conditions create a robust environment for private residential real estate lenders. And a sponsor who pools these senior secured loans into a fund they offer to accredited investors also benefits, as a healthy borrowing environment allows them to populate their portfolio with a broadly diversified range of loans. 

Scenario 2:

If residential investors and flippers show increased interest in the estate-owned (REO) property sector for property acquisitions in 2024, they may encounter a willing seller’s environment. 

As a reminder, the REO market consists of residential properties that have been foreclosed on by the lender (typically a bank) and have been repossessed because the lender could not sell the property at auction for an amount enough to cover the loan. 

Typically, these properties sell at a deep discount. They also often require extensive repairs, which can be a draw for fix and flip investors. REO properties are often attractive to investors for several reasons.

In 2024, if the Fed goes forward with a rate reduction plan and lower mortgage rates create a competitive residential resale market, banks may become even more motivated to sell their REO properties. As homebuyers drive up prices amidst a tight supply of inventory, banks may recognize this is the best time to sell properties at the highest price point they are likely to get.  

Conclusion

2024 holds promise for fix and flip borrowers. The potential rate cuts by the Federal Reserve and the allure of the REO market create a unique confluence of circumstances that borrowers can leverage for substantial gains. As an accredited investor, you can take advantage of these demand drivers fueling strong lending conditions by closely evaluating the potential benefits of our Park Place Real Estate Fund offering.