"Successful investors don’t chase headlines; they build wealth on fundamentals cash flow, diversification, and strategic tax planning adapting to opportunities in any environment."

Rise Capital Investments

A Historic Date and Uncertain Future

What does the new year and the new administration filled with old familiar faces inextricably tied to the January 6 events of 2021 mean for our families and our own financial future that is so tied to our greater community and economy?

Traditionally a day to certify election results, this date now has dual meaning. The first anniversary of sorts 4 years later brings with it political division that for some causes fear, and for others causes hope.

Investor confidence that typically rebounds after an election is soured for many who may feel unsure or afraid, while others feel hope for increased opportunities.

What we can rely on in uncertain times are proactively applying timeless investment fundamentals of adapting, diversifying, and risk management.

As the calendar has flipped to 2025, let's look ahead to what changes to fiscal and tax policy may be on the horizon, alongside what timeless investing principles should still guide our decisions regardless of current events.

Adapting to New Possibilities

What Trump’s Win COULD Mean for Investors

Trump’s prior presidency brought sweeping tax reforms, including deregulation and incentives like 100% bonus depreciation and Opportunity Zones. Can we expect those same policies to be renewed?

As any experienced investor knows, there's a big difference between investing and speculation that relies on guessing, hoping, and interpreting data before enough is gathered to guide low-risk decisions. The same is true when speculating on possible changes in fiscal and tax policies. These campaign promises may or may not come to reality, so base investing options to diversify your risk profile across the entire portfolio.

Key Fiscal and Tax Policy Projections

• Tax Extensions: Renewed emphasis on tax cuts and business-friendly deductions with similar structures or extensions to delay the sunsetting of many 2017 Jobs Act tax incentives.

• Deregulation: Simplified financing rules, spurring market activity. For example, during Trump's first term, changes like rolling back Dodd-Frank provisions made it easier for small and regional banks to lend, increasing access to capital for real estate investors and developers. If similar policies are reintroduced, they could reduce the regulatory burden on lenders and borrowers, accelerating project funding and boosting transaction volumes.

• Infrastructure Renewal: Federal spending may boost demand for residential and industrial real estate. Supply chain changes in key logistics hubs through reshoring or shipping initiatives create public/private partnerships to support these industries and can drive demand for both industrial and residential properties. These policies could be hugely beneficial but are ultimately inflationary, so planning ahead for higher prices and wage expenses is a smart hedge.

Experienced investors see political shifts not as hurdles but as opportunities to stay ahead of competition by adjusting classic strategies for new incentives.

Implications of Trump’s Tax Proposals for Real Estate Investors

1. Bonus Depreciation Returns: Trump has proposed reinstating 100% bonus depreciation, allowing investors to write off the full cost of qualifying assets in the year of purchase. This is a major opportunity for real estate investors to reduce taxable income, especially for high-cost acquisitions like multifamily properties. For those who chose to forgo depreciation in 2024 in anticipation of more depreciation in 2025, this possibility may have been a factor.

2. Pass-Through Income Deductions: The continuation of pass-through business income deductions (Section 199A) could mean significant tax savings for those investing through LLCs or other pass-through entities. Real estate investors should consult with tax and legal consultants to plan on using tax efficient structures.

3. Tariffs Could Raise Construction Costs: Proposed tariffs on imports, including steel and lumber, could increase building and renovation costs. Investors should underwrite higher contingencies for increased costs on new development and value-add projects. The old numbers never work in new deals, so to be conservative in our evaluations we need to plan ahead.

4. Elimination of Green Energy Incentives: Removing tax credits for solar installations and energy-efficient upgrades could make sustainable real estate investments less financially attractive and reduce opportunities to compete in the green niche.

Lessons from the Past

Trump’s previous policies showcased the importance of planning for policy sunsets. Bonus depreciation, for example, accelerated wealth-building for many investors—but also required clear exit strategies as rules changed.

While we don't yet know the full implications of the Trump campaign promises, they will likely have far reaching side effects on many parts of the US economy.

taxfoundation.org/research/all/federal/donald-trump-tax-plan-2024

Since 2018, our family has "collected" depreciation and other losses from owning a real estate investing business that enables us to have unlimited depreciation as real estate professionals, and this carries forward year to year as an indirect source of one our "multiple streams of income." It's a comfort to have that depreciation in anticipation of years where we sell apartment buildings for large capital gains, or earn much of our income from interest on private note lending. Because of laying a foundation of tax planning that we continue to build, we have this carried forward from years we have little income to offset ready for years our income is higher than usual.

Why Fundamentals Matter More Than Politics

Principles That Don’t Change

Political leaders may change, but the core principles of successful real estate investing remain constant:

Cash Flow First: A strong income stream protects against market volatility.

Before we our planned early retirement date, we shifted from growth strategies, prioritizing high returns when we had regular in come and didn't need cash flow. That was accompanied by higher risk and over time performed similarly to other lower-return options with less risk. Once we prioritized cash flow and took an honest look at our overall portfolio performance in good times and bad, it was an easy choice to prioritize higher cash flow and lower risk.

Due Diligence: Understanding markets, operator track record, and deal specifics is timeless.

We often think of "capital preservation" or "lower risk" as boring investments for older people who don't have the time before retirement to invest in aggressive assets. However, there are ways to de-risk investments without sacrificing performance. Behind every passive investment is an active business operator, so choosing a decision maker who knows the niche is essential to maximizing the chances of a successful investment.

Diversification: Spreading risk across asset classes and geographies is key.

No matter how well we prioritize our investments and choose great manager, spreading the risk out is a classic method to reduce risk. It may lower the potential gains in a portfolio, but the simple act of losing money less often usually outweighs that potential. "Diversification ensures mediocrity" is a phrase I usually hear from someone trying to sell me a higher risk growth investment. Spending more time with and befriending truly wealthy and generous people at networking events, masterminds, and putting myself in other places where they are taught me that their key to wealth is working hard and investing the excess income in a lot of boring stuff.

Successful investors make decisions based on fundamentals, not news headlines.

Why We Focus on Private Lending: Stability Amid Uncertainty

Industry standard returns on private lending are consistent 10-12% returns, providing stability when asset prices fluctuate. At Rise Capital, our local expertise ensures that loans are underwritten with precision and care. This creates reliability for our investors, regardless of broader market conditions.

In early 2023, we saw a rapid and unprecedented rise in interest rates that caused severe financial troubles for some of our commercial buildings still on adjustable rate loans typical for properties needing heavy construction. While we suffered some losses during this period, we were hedged with fixed-rate loans on our stable buildings, as well as fixed-rate returns as lenders on our private loans at 12% interest. Our first opportunity to invest in private loans was in 2010 when a friend offered us 10% to loan $100k on a fix and flip. He was very experienced, but we turned him down because that interest rate felt too high and risky to us, only to find out years later the industry standard for these loans is 10-12% fixed for 6-12 months. This rate became something we rely on for passive cash flow during our early retirement despite shifting Federal funds rates.

Fluctuations in bank interest rates demonstrates the lack of control we have over certain aspects of our deal structures, but it underscores the importance of why we increased private loans as part of our wealth plan personally and for our investors. The fundamental so important and repeated it often loses its impact to cliche: diversification.

2025 Strategies for Financial Security

Passive Income Priorities

Most of our investors with Rise Capital are thinking ahead to an early retirement, and that requires income stability through several priorities:

• Public and Private Markets: Stocks and index funds are an important part of any investor's plan to create truly hands-off passive income necessary for retirement at any age. Of similar importance is diversifying into private markets that require more networking and effort.

• Self-Directed IRAs: Traditional retirement accounts are ideal for public market investments, but accessing private markets requires a self-directed account. While private placements offer diversification into passive real estate, IRAs are already tax advantaged and can’t use depreciation to offset gains. That’s why many investors choose to invest their IRAs in assets without depreciation, such as private loans that earn interest income, where the tax advantages of the IRA align perfectly with investments that generate ordinary income.

• Private Equity: Partner on strategic, depreciable assets for growth and tax advantages, sharing in profit potential as well as any losses. For 2025, focus on equity with de-risked downside by letting go of the unsustainable return hopes we saw during the commercial real estate bubble on 2018-2022, instead finding stable, rinse-and-repeat business plans where a lot can go wrong and still turn out right. Depreciation or tax savings are extras, not the main course.

• Private Credit: Lend money to business owners such as real estate rehabbers or "flippers" provide secure returns without partnering on properties. Rise Capital finds experienced borrowers and pays you the investor 10-12% annual returns backed by first lien notes on single family and small commercial properties near our physical locations in high-growth areas.

The Role of Tax Planning

Trump’s administration may renew tax-friendly policies, but real estate investors should prepare now for changes and to continue leveraging existing tax advantages like return of 100% Bonus Depreciation and the ongoing advantages of self-directed IRAs perfect for assets like private loans that lack depreciation benefits.

Tax policy may shift, but proactive planning to adapt to changes with continued reliance on fundamentals ensure you stay ahead.

A Hopeful Look Forward

As we navigate 2025, there are so many ways to invest and build wealth in real estate that it remains a stable and lucrative asset class. By focusing on cash flow, diversification, and proactive tax planning, you can achieve both financial security and growth.

Rise Capital Investments is here to help you navigate changing times with strategies that work in any environment while also utilizing strategies that benefit from thoughtful timing.

From our family at Rise Capital to yours, we wish you a prosperous and fulfilling 2025. Here’s to building a brighter future together!