Navigating High Interest Rate Environments

In a high interest rate environment like we're in now, our business actually thrives for several counterintuitive reasons. When conventional banks pull back from construction and renovation lending, private lenders gain market share. Their rates, which historically sit 400-600 basis points above conventional financing, become relatively more competitive when the spread narrows.

The data proves this out. During the 2022-2023 rate hikes, private lending volume for renovations grew approximately 15% according to ATTOM Data Solutions, even as conventional construction lending contracted.

What changes is our lender mix - we see a shift toward more sophisticated operators who understand how to price risk in volatile markets. Our platform becomes more valuable as these lenders need better data to maintain margins while preserving volume.

Near-Zero Interest Rate Scenario

If rates return to near-zero levels, our business model adapts favorably, but the dynamics shift. In ultra-low rate environments, conventional lenders (banks, community credit unions) become more aggressive in construction lending, but they focus on large-scale new construction, not the small-to-medium renovation projects that are our sweet spot (non-bank lending).

The biggest change would be compression in the underlying rates that private lenders charge borrowers, potentially shrinking from 9-12% to 6-8%. This compresses their margins and makes our free technology platform and liquidity solutions even more valuable as cost-saving measures.

Historically, private lending securitization spreads tighten less than conventional mortgage spreads in falling rate environments due to the complexity premium these assets command.

Navigating Real Estate Cycles

Real estate is indeed cyclical, but the renovation segment has proven more resilient than new construction throughout these cycles for structural reasons:

1. Housing stock continues to age regardless of market conditions
2. Deteriorating properties must be renovated regardless of cycle
3. Distressed sales increase during downturns, creating buying opportunities

Our defense against cyclicality is threefold:

1. We diversify across markets. Different regions experience different cycle timings and intensities. Our national footprint allows us to shift emphasis to counter-cyclical markets.

The data is compelling: during the 2008-2012 housing crash, private lending for renovations contracted approximately 40% vs. 80%+ for conventional construction lending. And recovery was much faster, reaching pre-crisis levels by 2014 while conventional construction took until 2017.

Impact of Tariffs and Material Cost Increases

Increased tariffs and the resulting higher material costs would create challenges for the renovation industry, but also strategic opportunities for InstaFi.