Rising Rates Have Split Real Estate Investors Into Two Distinct Categories

Written by:

Steve Marcinuk

Date:

02 Jan 2026

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Rising interest rates have fundamentally changed real estate investment in Indianapolis, dividing investors into two categories based on access to capital. Donna Kreps, President of Residential Real Estate Services at F.C. Tucker Company, says the old model of individual landlords slowly building rental portfolios has largely vanished, replaced by a new environment where cash is king.

Kreps, who has worked in real estate for 36 years, argues that the impact of higher rates goes beyond making mortgages more expensive. “Most investors are purchasing with cash, or they’re a part of real estate investment trusts where there’s a bunch of cash, because investors are investing into that,” Kreps says. She explains that the traditional strategy—financing one or two houses a year to create a portfolio—has become rare.

Instead, Kreps sees the market sorting investors by capital structure. Those with large cash reserves or institutional backing continue to buy aggressively, while smaller, individual investors face barriers that extend beyond rising mortgage rates.

The Bifurcation: Cash Buyers Versus Individual Landlords

Kreps identifies two main investor types in today’s market. At the top are institutional investors and real estate investment trusts, which have significant financial resources. “They’re financially backed, so they don’t really have to worry about the interest rate,” she says. These buyers, unaffected by borrowing costs, can continue acquiring properties at scale.

On the other hand, individual investors who once built rental portfolios through traditional financing have either left the market or changed their approach. Kreps notes that the challenge is not just higher interest rates, but the overall cost of ownership. “It’s not so much the interest rate that keeps them from getting the mortgage, but they have to look at the taxes, and they have to look at the insurance to ensure that property,” she explains.

When property taxes and insurance costs rise alongside mortgage rates, the rental income that once justified these investments often no longer covers the expenses. This has made the traditional buy-and-hold strategy far less attractive for many individuals.

The New Individual Investor Playbook

For those individual investors who remain active, Kreps says most are shifting away from long-term rentals and focusing on short-term strategies. “Investors are looking at properties they can flip quickly and make money on,” she says. Rather than holding properties for steady rental income, these investors seek quick returns through value-add renovations and sales.

Another option is pooling resources to participate in larger investment groups. “Or they’re looking at big purchases of lots of properties,” Kreps adds, explaining that more individuals are joining syndicates or funds instead of buying properties on their own.

This move away from traditional individual ownership has consequences for the rental market. When individual investors were actively building portfolios, they contributed to the supply of rental housing and offered more options to tenants. As that activity declines, Kreps observes, control of the rental market is increasingly concentrated among large institutional owners.

Geographic Variation and the Indiana Advantage

While these trends are national, Kreps notes that Indiana’s market offers some advantages for individual investors. The state’s stable housing market, along with lower property taxes and insurance costs compared to coastal markets, means some individual investment activity continues. However, even in Indianapolis, things have changed since the era of ultra-low rates before 2022. “I think investors and the current interest rates are really different. They’re opposites,” Kreps says, highlighting how the gap between institutional and individual investors has widened.

Market Implications for 2026

Looking to the future, Kreps does not expect a quick return to the old investment model for individuals. She predicts interest rates will “hold very close to where they are now, maybe slightly lower” through 2026, which would maintain the current divide between cash-rich institutions and sidelined individual investors.

For real estate professionals, this means tailoring services to different client needs. Advice for a large institutional buyer with ample cash differs significantly from guidance for an individual seeking to acquire their first rental property.

The Professional Response: Adapting to New Investor Realities

F.C. Tucker’s strategy for navigating this environment focuses on agent education. Kreps stresses the importance of “educated, well-informed real estate agents who can help them navigate the current circumstances.” This knowledge is critical for advising both types of investors effectively.

With 108 years in business, F.C. Tucker has experienced every kind of real estate cycle, from wars to recessions to booms. “We have experienced every type of real estate market there is,” Kreps says. This historical perspective, she explains, helps agents recognize that today’s split in investor behavior is a response to current conditions, not a permanent collapse of the market.

Whether individual investors will return to building rental portfolios through traditional financing depends on how long current rates and insurance costs persist, and whether new financing options emerge to serve those who have been pushed out. For now, the market remains divided, and understanding these differences is essential for anyone navigating real estate investment in Indianapolis.