Hello, everybody, and welcome to the Financial Samurai podcast where we help you achieve financial freedom sooner rather than later. I'm your host, Sam Dogan. With me today, I have the founder and CEO of Fundrise, Ben Miller. Welcome to the show again, Ben. Thanks for having me, Sam. Hey, so it was great catching up with you in San Francisco over some steak dinners at Harris' Steakhouse.

I learned something about you during that dinner, and I learned that you don't eat rib eye. No, is it rib eye? No, prime rib. Is that right? I don't know exactly what you're talking about, but I loved dinner. It was great. It was fun to actually hang out. I'm not a big fancy dinner person, honestly.

Yeah, yeah. That was funny because I was like, "Oh." Because I always get rib eye and prime rib confused. Like rib eye, it's pretty marble-y. It's really good. You said you cook your own rib eyes, but then the prime rib is like that slow roast cut, and you weren't quite familiar with it.

I was like, "Oh, really?" Because I've been a prime rib guy all my life, and I was like, "Oh, I love prime rib." Yeah. I do cook a lot of steaks at home. I try to. I have kids, and I feel like it's good for them to get some protein.

But yeah, I don't think I've been to a steak restaurant in so many years. So I was like, "What's a prime rib?" You thought that was crazy. Well, because I'm thinking like New York City, like the best prime ribs. But you're in the D.C. area, and I think about Capitol Grill and Washington D.C.

power lunches. So that's why I was thinking like East Coast prime rib rib eye, that's like a staple. So that was an interesting surprise. Yeah. I try to avoid that scene as much as possible. Right, right, right. So in this episode, I really want to talk about interest rate cuts and what it means for the future of real estate.

Because we're at the cusp of the Fed cutting interest rates for the first time in four years in September. And expectations are for up to 100 basis points in Fed rate cuts by the end of 2024. And up to 200 basis points of cuts or 2% of Fed funds cuts by the end of 2025.

So to me, this sounds quite bullish. But on the flip side, it also means that the Fed is seeing weakness in the labor market and in the economy, and it wants to ensure that the employment figures don't get too bad. So what are your thoughts, and how is Fundrise, and how are you thinking about investing in real estate going forward over the next 12 months to 24 months?

Yeah. Well, let's start with basics that interest rates are the biggest driver of real estate prices. And so when interest rates went from zero to five and a quarter, five and a half percent, that dampened real estate prices, depending on the asset class, by a decent amount. At least in apartments, or self-storage, or industrial, prices probably came down 20 to 30%.

So now, as you're saying, the rates are going to fall, and so expectations are the opposite, is that as rates fall, it's cheaper to borrow, and real estate prices should rally. And if they fall 2%, as you said, Fed Funds moves from five and a half, three and a half, which I think is reasonable expectation over a year and a half or two years on a conservative basis, that's almost a 50% move.

And so it should spark a real estate bull rally. And then the countervailing force, as you said, is will there be a recession, and how does that affect the broader market and real estate? And so just the first point is that, yeah, falling interest rates should be very positive for real estate.

I think the second point, which is, okay, how does a recession affect real estate and how does it affect the broader economy? I've been pretty consistent. I think there will be a recession. I don't think that we'll avoid one. I think it's a question of how severe it's going to be.

In a mild recession, I think that actually would probably be bad for stocks because the forward earnings forecasts are assuming close to what they call a no landing or no recession. And I think that's unrealistic when we talk about how to reason that out. And then how does it affect real estate?

And real estate is a big asset class, right? It's as big as a stock market, so you have to look at different parts of it. And so some of real estate's pro cyclical, as in it goes with the cycle, some of it is more counter cyclical. We mostly own apartments, rental apartments, and those are more counter cyclical.

Consumer staples like groceries and shelter end up doing pretty well in a recession comparatively. And so I think that a recession, a mild recession with falling rates would be really good for fund rises real estate. We would think we would outperform relative to most of the market if that's what happens.

Can you talk about a little bit more counter cyclical? So what does counter cyclical actually mean in real estate, what you're referring to? And also how would you rank the best performing commercial real estate asset classes in a declining interest rate environment? What would the top three best performers be?

Well, so after the 2008 financial crisis, which I went through, a lot of people went back and looked at what happened, which asset classes did better and worse in 2008. We can talk about how that would probably be different than the recession that may happen in 2025. But what happened in 2008 was that there were a lot of foreclosures, there was a lot of unemployment, there was a lot of financial instability because a lot of banks went bankrupt.

And a lot of people moved from owning houses to renting apartments, and it was focused on affordability. And so the reason why rental apartments do well is that when people can't afford to buy, they rent. And so that's why it ends up being counter cyclical because you end up with more renters and less homebuyers.

So you end up with more demand for rental product. And that's what happened to an extreme extent in 2008 because the housing market collapsed. In this case, I don't think it's as extreme, but generally, yeah, when people are trying to pinch pennies and be more cost conscious, they usually end up renting over buying.

That makes sense. And then so residential, what would the second subcommercial class be that would perform quite well? Because how do industrial, commercial properties or office perform in a declining interest rate environment? Yeah. So like I said, the other extreme, notoriously office is the most pro cyclical. So it does really well when the economy is hot and really poorly when the economy is cold because companies that previously were renting more space and expanding and hiring now start to contract and lay people off and are more conservative and reduce their space demand.

So office, which in this case now is obviously already pretty bad, would actually do even worse. And so I think office, this is what I'm expecting with office for a while, is that you have two things happening in any point, any part of the economy, you have cyclical drivers and you have some permanent or secular drivers and office has a permanent decline in demand because of work from home, that decline is somewhere between 30% to 50% less demand than previous to pandemic.

And now you have a cyclical decline. So office, I think it's just going to get really beat up even worse. And I feel like that's still, I think one of the things you see consistently with financial investors is they really struggle with when norms break, they really don't know how to forecast when the past is not a good predictor of the future.

And I think that's true with office and that makes it an opportunity and a risk. So I think office is the worst. Industrial is somewhat more pro-cyclical because obviously companies lease spaces when there's stuff moving through the economy where industrial is essentially about the economic flows of goods. And so industrial is not as resilient as apartments.

And so then in the middle, there's retail can be very pro-cyclical, but grocery, grocery anchor chains. And so you get into it and it starts getting nuanced and then also nuanced by region because a lot of times regions have very different impacts from recessions. You could see Southern California could be, parts of Southern California are really driven by the aviation and defense industry and so you could see a lot of demand for defense driving that part, Orange County has been on tear.

So you really, with real estate location, location, location, so you need to look at these big macro drivers like interest rates, but then you got to get into the specific like Texas has been about oil and fracking and that's obviously not going to go away. And so, yeah, but the most important point is that interest rates have a much bigger impact on value than operating income.

So if you have apartment building that has 3% rent growth or 5% rent growth or 0% rent growth, that still won't have nearly the price impact as interest rates moving from a 5.5% fed funds rate to a 3.5% fed funds rate. That's a massive move and so even if incomes are hit by the recession, it's still not going to be as consequential as rates.

Got it. So in that case, why wouldn't more funds or more firms invest a lot more in real estate in 2023 and 2024 when we know that rates are going to come down and things are going to turn around because eventually rates have to be cut because inflation is going to normalize back to 2%, 2.5% so you can't have the fed funds rate so far above that because that would be quite restrictive.

Can you remind us how much has Fundrise deployed in capital over the past 18 months and logically why wouldn't more funds invest more capital during depressed commercial real estate pricing when they know that rates are going to come down? I think a lot of people didn't know rates were going to come down and that there were very clear moments when people started arguing they wouldn't come down and you saw it happen twice in the last 18 months.

Happened in October 2023 when the treasury rates got it to 5% and Bill Ackman and a few other people were saying that treasuries might go to 6% or 7%. Inflation was a norm. I think that I never thought that was true but I definitely recognize that the market for...

It happened again in Q1 where we had a re-acceleration inflation, Q1 of 2024 and in both cases treasuries went close to 5. As you said, now treasuries have fallen to I think 3.8% and probably still falling, the 10-year treasury. Yeah, there was no consensus that rates would come back down so funds were not deploying, that's one.

Two, is there's kind of an idiosyncratic dynamic of how funds make decisions where you have somebody who does the analysis, an analyst, they take it to the investing committee, investing committee signs off on it. A funny attribute of investment committees is they really don't want to buy real estate where there's negative interest rate ARB, where the interest rate is higher than the purchase price.

Real estate is priced on yield and so you'd say, "Okay, I can buy a real estate deal at a 5.5% yield," and somebody says, "Yeah, but I can get a mortgage, the mortgage is going to cost 6% or 6.5%," and that's negative, it's literally the mortgage is more expensive than the yield, that's called negative carry.

And essentially the entire real estate industry investment committee almost entirely can't get that through investment committee, it just looks really bad on paper. Even though that's a static situation and we're about forecasting the future? Yeah, as I said, it's idiosyncratic and I like to tell the institutional establishment that like, "Look, in 2021, the exact opposite was the case, right?

Interest rates were close to zero and you were buying a yield of 3.5% and you had positive ARB, right, because the interest rates may have been 2.5% and you were buying 3.5%, it looks smart, but in retrospect, right, prices moved so much that you lost money." And that was everybody who was in the game saw that in 2021, nevertheless, when the opposite is true, but prices are low, but negative carry is high, you can't get it through investment committee.

It's just like very... Almost no investment committees will green light negative ARB, negative carry. But that's like one of the reasons why funds didn't deploy. And then lastly, the fund is not actually the source of the money, right? The fund is an agent of the LP, of the pension funds and the true capital sources in the market.

And most of these funds, they have to raise the next fund by liquidating the last fund and because what happens is the structure of the market, so there's structural reasons. So if you are a fund, let's say you're KKR, Harbor Group, some big fund manager and you have a...

Let's say I'm just going to say round numbers, a billion dollar fund and you're fund five, you go back to your... And usually you have the same investors in every fund, there's probably not that much turnover, let's say 80% same investors every time. And they've allocated 1% of their portfolio to KKR.

And so that 1% is already invested in funds one, two, three, four. When you go to raise fund five, they need you to liquidate an earlier fund to fund the next fund. It's just like, there's kind of like a cycle. And without liquidity, which is what's happening in venture capital too, it's happening across the whole private markets.

Without IPOs, without sales, without turning over capital, the LPs just don't have liquidity for the next fund and they don't want to increase their allocation today. They actually may want to decrease their allocation because they can now put their money into bonds and credit at high rates. So there's just a lot less money in the market in real estate and in venture than there was before.

And that drives prices down and makes it a good time to buy. Got it. Can you remind investors and listeners how much Fundrise deployed in capital? Because I know you guys also got a line of credit from one of the big banks to deploy capital. How was your thought process behind that and how much did you deploy over the past 12 to 18 months?

It's more than a billion dollars. The lesson I keep learning and I have to relearn it is that whenever the market goes left, you need to go right. It's really the market reflexivity, as they call it, is that doing the opposite of what the market is doing is such a consistently good strategy.

And in 2021, we were conservative but not conservative enough. The whole market was so bullish and I was not as bullish, but I should have been more bearish. And now the market is bearish and I've been more bullish. So to get good returns, you really have to move counter-cyclical or counter to the consensus.

And the consensus was to not deploy, and we deployed pretty aggressively across our strategies, which is built for rent and industrial. And also we do a lending to, it's called pref lending to multifamily. So yeah, I mean, a billion was good. I wish we could have done 5 billion.

I think it's great in retrospect, but it's right now, there's been no material markups because it's still like, you can't really show the results of that until it's clear in retrospect. And I think it's not going to be clear for, as you said, end of next year, where I think we'll really see what you sort of presumed at the beginning, rates are going to fall a lot and the market is going to be in a different environment.

What is a 1 billion as a percentage of total investments, roughly speaking? It's a pretty decent percentage. It depends on the fund. The flagship fund in the income fund, which are the newer funds are more aggressively deploying now. So it's sort of a bigger percentage of those funds. Okay.

Yeah. How does it work in terms of getting the line of credit? Do you basically pull the line of credit, pay the interest rate, invest in a property and then hope to make a better return than the cost of the credit? Yeah. I mean, so as I said, we went left when the market went right.

And so about a year ago, we closed a $770 million line of credit with JP Morgan. That line was designed to allow us to go buy, build for rent communities. So those communities are typically 100 to 200 homes that we build and then rent, kind of like apartment buildings, horizontal apartment buildings.

And so, yeah, and the rate was negative. The yield on the debt is higher than the yield on the acquisition price. Same with industrial. We went out and bought a bunch of industrial buildings and typically when you're doing build for rent or you're doing a new industrial, it's vacant, right?

It's leased up. You had to lease it. So there's a negative carry. And we did that because you could get really good basis, like the price per square foot, the price per unit, it was really low. So we were one of the few, I mean, we must've been, there's a very short list of people who are out there active at that scale.

So I think it's going to pay dividends, but it's going to take a little bit of time to see if that was right, that basically prices do recover, rates come down and sort of the COVID inflation spike ends up being sort of like ancient history by end of next year.

You know, it's interesting you talked about the investment committee not getting these deals through the investment committee during a negative carry situation. So once there is a neutral carry or positive carry, and this sounds to me like a lot of these deals will go through and then there's going to be a boom cycle again.

So no wonder why there's a boom bust cycle in real estate and other investments, because it seems like people don't invest until it's clear that there could potentially be a positive return and then it just goes crazy again. Yeah, there's these virtuous and vicious cycles. And so let's paint a picture of what it would look like for it to start to boom again.

So today, Fed funds at five and a half, and typically you're borrowing from a lender at let's say 200 bps or 2% to 3% higher than that. So you're going to be borrowing five, six, seven, seven to eight and a half percent. And somebody looks at that and gets sticker shock and nobody wants to pay 8% on a mortgage until they don't buy anything.

Okay, so now let's say rates fall 200 basis points or 3.5% and you add 200 bps to that, you're buying at 5.5% interest rate rather than a 7.5%. And so all of a sudden, most of the market is pricing real estate at about 5.5% to 6% on the class A sort of high quality, industrial or multifamily.

And so the market doesn't clear, like nothing, transaction volumes fall in 80, maybe 90%. So all of a sudden, there'll be a moment where either the interest rates will be par, is it neutral, or it'll be really clear, like imminent. And then the entire market will probably clear overnight, clear, like transactions will just skyrocket.

And then all of a sudden, fund three will, as I said, the earlier funds will get liquid, they'll turn the money over and that money will then flow back into the market again. So yeah, this is always the way the markets work, right? They happen in these sort of like waves, just like we saw, I remember we went to short the market in February, 2020, because they were looking at pandemic and you're like, well, this is crazy.

But it's peaking February, 2020. And then overnight, the market woke up to the pandemic. So like, I think overnight, the market will wake up to low interest rates. And once that's clear, we'll see a wave of transactions and then pricing will start to move. I think that's exactly right.

I think there's a lull right now in the residential real estate market. Because I think individuals, well, first it's summer time, depends on when this publishes, we're going to be after summer, obviously. But I think a lot of people are waiting for the Fed to finally cut for the first time to see the actual result.

And then I think a lot of individual home buyers are going to be like, okay, this is go time. We got a green light signal because once the Fed cuts, generally cuts multiple times over a long period of time, one or two years. And so it does seem like the horses are in the stable right now, huffing and puffing and ready to go.

But people are just holding back, holding back. So in this regard, what is the right strategy at the very beginning of the Fed funds interest rate cut cycle? You said you wanted to – you wish you invested five times more than you guys did. But we're still at the beginning.

So does that mean there's still opportunity? Yeah. I mean, there are some assets that are interest rate sensitive, right? So you saw, if you kind of look at the extreme, the long-dated 30-year mortgages that bankrupted Silicon Valley Bank, you saw treasuries fall 50% in value, the long-dated in October of 2023, almost a year ago.

That's how much the duration on interest rates were just crushing value. So interest rate sensitive assets are like how you play moving interest rates. And so real estate is interest rate sensitive and so is debt, right? So it's like bonds and if you have a strong view on it, you want to get duration.

So real estate is obviously a long-dated duration and so are other kinds of bonds. So that's typically how you'd play and then you'd have to get more tactical in terms of like where, what. And so I'll tell you what we've been doing. We try to boil things down to simplicity.

I feel like simplicity is underrated and so population growth is the biggest driver of real estate. And so the population growth continues to be in only like four or five states. And it's wild to me, those four or five states last year had millions of people added. I mean, Texas, Florida, North Carolina, South Carolina, Georgia, Arizona, added potentially like, I mean, depending on legal and illegal and migration, I mean, it could be three to five million people.

I mean, just astronomical. That is, think about how many apartment units there has to be built. Think about it like this. And that's one year, one, and it's probably next year, it'll be another million, 2 million. So that is just such a driver of real estate. It's not really priced into the market.

It's really opaque. It's really hard for people to understand what's happening with immigration and migration. But if you get to simplicity, you know that drives demand for real estate. And so we've been focused on built for rent and apartments and industrial in those markets. We bought a big industrial building in Charleston, South Carolina.

We bought one in Tampa, buying and building housing in Atlanta and Savannah. So it's like, to make great returns, you want to hit as many sort of growth drivers as possible. One is interest rates. One is population. You're going to get really micro in terms of which neighborhoods are going to get more growth versus others.

And so that's how we've been playing. That's sort of our expertise. I'm sure that people have other views in terms of the bond market. We have been buying a lot of asset-backed securities actually too, or FASB, FASB securitizations, which is another way to play it, which is a little bit more obscure probably for most people.

Yeah. Well, tell me about demographic shifts, because one of the reasons why I started investing in private real estate and in Fundrise is because I live in San Francisco, I'm stuck in San Francisco or Honolulu, very expensive cost of living area, but I like it and I want to diversify my real estate assets into the Sunbelt, the Midwest, higher rental yields, good demographic shift towards lower cost areas of the country, thanks to technology, work from home, all that good stuff, and illegal and legal migration trends.

But the one thing that I do worry about, which is what I did worry about before 2016 when I started investing, is the endless amount of capability to build the supply side of the equation, whereas in San Francisco, New York City, Seattle, Washington DC, it's very hard to build.

So how does one look at on the one hand, the positive of the demographic growth, job market, market valuations, and then the ability to build ever amount of new housing to meet that demand? Yeah. That was a concern for us and it really didn't play out, it didn't see oversupply until 2021.

So we've been investing in that Sunbelt for almost a decade and finally in 2021, when interest rates went to zero and there was all stimulus, you saw a spike in new supply of particular rental housing, and then particularly in the Sunbelt, and then in particular, in these sort of like super dense locations like the Gulch in Nashville, like Austin, Nashville, it became really concentrated in certain markets where there was very little zoning constraints.

You could build high density and money was cheap. And so we ended up, I think a lot of people who think about real estate think about zoning as the primary barrier like San Francisco versus Houston, but actually the cost of money was even more important and the cost of money got so cheap in 2021 that you saw this massive number of starts and those starts began delivering in 2024 and there was a concern that rental rates would collapse.

And what surprised everybody in the housing business is that they didn't. And so two things are what sort of tactically what happened in the near term, and then we talk about the long term, tactically in the near term, what ended up happening is there was millions of immigration, illegal migration, whatever you want to call it, and that drove more demand.

That was a surprise and it was mostly in these markets and drove housing demand. And second is that rates were so high, to buy a house last year, mortgage rates were high sevens, 8%. So they rented. It drove up rental demand. And so we ended up absorbing that, absorbing that rental influx of new supply.

And that ended up being not as problematic with a couple exceptions. Let me just go with the longterm and we can come back to exceptions if you like. The longterm, now if you try to build an apartment building, you're going to be paying 9% interest rate probably. And so starts or new construction has fallen off a cliff.

And so you look at the back half of 25, 26, and essentially supply is going close to zero. I mean, it's fallen off the lowest maybe in decades. And so we're likely to go into an environment where you have low supply, high population growth, high migration, low interest rates.

And so apartments are probably going to go into a really bullish environment in the back half 25. And so I think apartments are likely to be a huge winner of this sort of like – coming out of this environment and so then see a huge price run. Got it.

No, that makes sense. Again, it sounds a lot again like boom bust, supply, low supply, no supply, boom. Whereas demand seems to continuously rise relatively stable – in a stable fashion. I'm curious to know your thoughts on the coastal city markets, especially since there's innovation fund, you're coming to San Francisco more, you're meeting a lot of these companies that are based in the Bay Area or maybe based in New York City.

Does your view of the coastal city markets change? Does it become a little bit more bullish based on what you're seeing out here? Yeah. I mean, I've been bearish on coastal markets and it's why we shifted – I've been real estate for 20 some years and we were all coastal investing in like 2011, '12, '13.

That was where the growth was. And we shifted away from New York, San Francisco, LA, DC around 2015, '16. The reason we did is it got unaffordable. The prices were just outrageous and I just thought that over time that would matter. What's happened is that it's gotten more affordable relative to – or actually the Sunbelt has gotten more expensive and so the affordability gap has closed a lot.

It's still more affordable than Sunbelt by far, but it's not as big a gap. I mean, just to give you a sense of – we were buying apartments in the Sunbelt for like $90,000 a unit in 2016 and now it's $200,000 a unit. Okay. That's a big move. What does it cost to buy housing in San Francisco?

Apartments are probably $500,000 a unit. So the relative affordability I think is less and I think that's important. And there's still very little supply, which is keeping the rental market actually in some ways has been better in the blue cities. But it's so challenging when you look at what's happened with office.

The collapse of office, there's been a lot of second order consequences and the biggest second order consequence in my opinion has been the collapse of downtown cities. And so you just take – I mean, I'm going to do New York as an extreme. With New York, there's a trillion dollars of real estate in New York City, right?

DC, 50 million square feet is probably – I mean, I don't know what the number is, but you're talking about that real estate has lost half its value and that means that the city's tax bases are gored, it means nobody's down there, it means a lot of foreclosures. And so that negative cycle is going to hit cities, hit crime and it makes it really hard.

I think that my experience is that you can keep it simple. You just want to be where the tailwinds are and where there's headwinds, maybe the price is worth it, but usually my experience is like it's so much easier to make money when there's a tailwind. And so there's the headwinds in the blue cities and I just – that's – I think that makes it tough.

It's not – I mean, you can do it, but you have to really be good at sailing into the wind and that's like a lot of tacking and skill and some luck because you could see an environment like – so let's do some black swans. There's a recession and cities are hit harder and there's – this is what happened in '08, a lot of cities end up having like real maybe bankruptcy risks and things like that.

Chicago could go bankrupt. Another one is Trump gets elected and he really passes policies that are bad for blue cities. That could really be problematic. So – and I think technology and work from home is not going to slow, I think it's going to accelerate. I think people are underestimating the technological impact of virtual reality, AI, driverless cars that I think will make working remotely even more attractive over time, over a decade, which I think is a headwind for downtown cities, blue cities.

So all things being equal, it just doesn't seem like the uncertainty is worth it on a sort of global basis. Interesting. The way I look at it is two ways. One is you can move your money to the Sunbelt, Midwest, cheaper areas of the country to invest for higher yields, more passive income.

The second way is if you live in a coastal city, a blue city, San Francisco for example, you just live in a place and take advantage of the region in the city that's farther away from downtown that's cheaper. So you invest for example on the west side of San Francisco, which is near the oceans, a lot more parks, a lot more space.

It's less expensive and then you just buy up as much real estate there and it is downtown which is on the east side. Will it recover? It is recovering, maybe slower than expected and then you just kind of wait it out and see what's there. So there's like a micro geographic arb and a bigger picture, bigger country geographic arb which is being held by platforms like Fundrise which invest in those areas.

Yeah, it's the same principle. It's just like I work from the top down to say, "Okay, we're in the nation, we're in the region, we're in the state, we're in the city." And you just want to look for that arb, that growth arb where it's less expensive with more growth and then affordability is like gravity.

People flow to where it's affordable and nice. An interesting question is how much is policy, national policy, the election, how does that affect real estate? Because you have two policy platforms that are both actually fairly populist and just like Kamala Harris has $25,000 down payment assistance policy plus actually credits for builders who build entry level homes.

There's worlds where that kind of policy could end up stimulating a ton of housing demand and housing supply and so that could be really consequential. And then Trump's policy, at least his platform is high tariffs, 10 to 60% tariffs on imports and so that could be really consequential to real estate as well.

So there are definite uncertainties around the policy landscape that could really matter. Yeah. It really does seem like there are two things, Fed funds and straight cuts and the election. Those two things, everybody is just waiting because people are thinking, "Well, we're almost there. Might as well just wait to see what happens and then whatever happens, then we can plan accordingly." And I think for the presidential side, it's interesting because I don't think the president really moves the needle too much from our day-to-day lives or how we invest and it depends on checks and balances with what happens with Congress.

But from Harris' point of view, if you provide a $25,000 credit for first time home buyers, the economist in me says, "Well, that means first time homes are going to increase in price by $25,000 immediately." Of course it's going to be gradual but I think the logic is, "Well, you have $25,000 more to spend on a home.

I'm going to raise my price by $25,000 or at least by something because we know you have more money in your pocket." Does that make sense? Yeah. I went and read the policy and there's not enough detail to really be able to unpack it and have a good forecast.

I think there's, as you said, there's like I think two or three possibilities and they're not mutually exclusive. I think it increases prices. Draws in demand, could increase prices more. But it could also like you're seeing actually today is there's no supply of existing homes and one of the reasons prices haven't fallen for single family homes is that there's no supply and prices set by supply and demand and so high interest rates lower prices for institutional real estate because real estate in institutional world is priced by yield but that's not how home prices are priced.

And so there's a world where interest rates fall and that drives up supply a lot and then you could see prices fall actually. So, if you could bring more demand to market actually there could be kind of really dynamics there that are more complicated. And then the second is that we're fairly active in the home building business.

We lend to home builders, we build homes, we have 10,000 lots that we own that we supply to the housing industry like the big home builders. And so I was sitting with our team trying to game out like kind of a scenario that would surprise people and they just give this scenario to you because I thought it was interesting.

So, I know that a home builder if they wanted to could build a entry-level home for $200,000 which they don't today because it's not profitable and the market is not there. And so, but they could supply $200,000 homes to market and with a $25,000 tax credit to home buyers for first-time home buyers.

And then I think there's inner plan tax credits for home builders for first-time or for entry-level homes. There's a world where you could see $25,000 to the home builder and $25,000 to the home buyer on a $200,000 home. And so you could see like, I mean, that would be a 50% profit margin to the home builder.

And so you could see a world and this is not, I mean, this is not necessarily what I'm forecasting. You could see a world where there's just like a huge incentive to build that product. And then, I mean, they would build it if there was demand for it. And I think what ends up being the limiting factor is actually they would need to be building it in the exurbs.

So it depends on where you are, but it's probably like 45 minutes to an hour away from the city. And so do people want to live 45 minutes to an hour, hour and 15 minutes from the city? No, unless there's a technological breakthrough. So there are some constellation of events where Facebook introduced the virtual reality or something.

It's a thing. This is not what... The reason why it's interesting to think about this is that these sort of surprises is how you make a lot of money and you own 10,000 lots and all of a sudden they're twice as valuable because of these sort of like two or three things.

This is what happened with AI. This is what happened with pandemic. These shocks have these huge, I mean, look at Nvidia, right? Huge consequences to value. And so it's not because I think it's likely, but because I think it's asymmetrical and it's impact. Got it. No, that makes sense.

Well, Bet, it's been great chatting with you. It sounds to me like there are a lot of tailwinds and the main tailwind is fed funds cuts and mortgage rate declines over the next one to two years. So I think I'm bullish. No, I know I'm bullish. And if I had $5 and I had to split it between investing in stocks or real estate, I would invest $3.5 in real estate versus $1.5 in stocks right now.

How would you split that $5? I'm very worried the stock market is overpriced. So I would do real estate and bonds and venture. I just think the stock market at the moment is pricing no recession. And I think that chance of a no recession is low, but I'm not in the consensus today.

Okay, that's good. So $0 out of five in the stock market. So out of the $5, how much of that in real estate versus bonds? I mean, I'm splitting it across venture, fixed income or credit, and real estate, I don't know, third or third or third or something like that.

They're all tailwinded today. And so I'm not saying that any one is that much better than the other. I think the stock market potentially has... If there's a recession because interest rates are coming down, that's the thing, typically interest rates come down before the stock market collapses. And the reason those interest rates come down is because there's a recession and the equity market is pricing no recession and the credit market is pricing a recession.

So they have two different markets with two different opinions and the credit market is actually the much bigger and usually the more predictive market. Yeah. But the credit market has been wrong for the past 18 months. Totally. Right. So again, this is my view and it's possible that the equity market is right, but there's just like – I think the downside in the stock market is much more than the upside today.

Yeah. I agree with that. Well, in terms of where I'd allocate my capital between real estate and stocks, yeah, okay. Maybe it's $4 to real estate, $1 to the stock market. I can see that. All right, Ben, well, it's great chatting with you. Let's catch up again maybe after all the cuts start and see what happens.

Yeah. Okay. All right. Excellent. Thanks, Sam. Thanks. I hope you enjoyed my interview with Ben Miller, co-founder and CEO of Fundrise. If you want to invest in Fundrise, go to financialsamurai.com/fundrise or click in the show notes below. I have personally invested over $270,000 in Fundrise to gain more exposure to Sunbelt real estate.

I believe in the long-term demographic trend of people moving out of expensive cities to lower-cost areas of the country thanks to technology and the internet. Also, I believe in private growth companies and particularly in artificial intelligence. It is the technology of our lifetimes and I want to gain exposure.

Finally, you can join 65,000+ readers and subscribe to the Financial Samurai newsletter at financialsamurai.com/news. Take care. (whooshing)