Is Buying Rentals in 2025 Still Worth the Risk?
With interest rates still high and sellers not budging much on pricing, I’m curious how investors here are approaching rentals this year. On one hand, the math just doesn’t work in a lot of markets (especially if you’re putting 20–25% down). On the other hand, rents are still strong and if you’ve got the patience to hold long-term, the appreciation + tax benefits might balance things out.
For those who’ve been in the game longer—are you sitting tight until rates drop, or still finding deals worth pulling the trigger on? And for the newer folks—are you rethinking rentals altogether and shifting toward flips or even out-of-state plays where numbers look better?
Investors are navigating a tricky landscape in 2025, and the decision to buy rentals depends heavily on strategy, market, and risk tolerance. Here's what the most helpful WSO content suggests:
Interest Rates and Cap Rates: High interest rates are making it challenging to justify buying properties with low cap rates. Borrowing at 5% or higher while purchasing a 4–5% cap property often means relying on rent growth or future appreciation, which can be risky. Some investors are waiting for cap rates to rise alongside interest rates to find better deals.
Rents and Supply-Demand Dynamics: Rents remain strong in many markets, especially where population growth outpaces new construction. However, in some areas, renters now have more choices due to increased supply, leading to rent corrections. Investors are advised to analyze local supply-demand trends carefully.
Long-Term vs. Short-Term Plays: For long-term investors, the combination of appreciation, tax benefits (like 1031 exchanges), and potential rent growth can still make rentals attractive. However, patience is key, as transaction volumes are low, and sellers are reluctant to lower prices unless forced by loan maturities or other pressures.
Alternative Strategies:
Caution on Overpaying: Many experienced investors are sitting tight, waiting for better opportunities. Sellers are unlikely to offload at discounts unless they have to, so patience might be rewarded as the market adjusts.
Ultimately, whether rentals are worth the risk in 2025 depends on your ability to find deals where the numbers work, your willingness to hold through potential short-term pain, and your confidence in the long-term fundamentals of your chosen market.
Sources: A Discussion on Interest Rates/Macro Fundamentals (Long OP), Is Real Estate fucked for 2022?, What is Your ADDITIONAL Reason to invest in Multi-Family?, I'm long office properties, Buying assets in a rising interest rate environment
If the numbers don’t work you either need to wait or adjust strategy. Instead of buying a deal that doesn’t work - go find a deal that does at current rates with the correct financial structure.
I do duplex and triplex rentals. I live in a tier 1 market, so real estate is very expensive here and it is nearly impossible to find a cash flowing property where you are net positive after paying opex and debt service. The way that I make it work is by renovating and PMing them myself. I actually just completed the renovation of a duplex yesterday and had it already pre-leased a month ago. I purchased the property for $1.15mm, put down 20% (initially I was thinking about living in one of the units, so I got a homeowner loan. Normally I would get a construction loan where I need to put down 25%, but can get 100% of the construction costs financed. Rate is about 1% higher though). I put in about $200k into the construction and monthly carry. I have each side rented for $5k, so total rent roll of $10k. RE Tax, Insurance, and water are about, $600/month, mortgage is $5.8k. I will net about $3.5k for a CoC of 10%, not bad but next time I would use a construction loan to reduce my equity. Will probably sell in 2-3 years since this is way more equity than I wanted to invest into it; however, i am now seeking a LoC for $300-400k, so the property will provide me with some liquidity should I need it.
Doing the PM/DM work yourself to clip 10% YoC is not great imo, but I assume you get a good amount of cap rate compression?
Honestly, I think it is definitely worth it. I GC the project, I don't actually get on my hands and knees and do the work. I just coordinate my framers, electrician, plumber, drywall/plaster guy etc... and order materials. The only real physical work I do is keeping the project tidy and moving materials into the property. Also, my project is only about 4-5 months long and it's only the last 1-2 months that requires a lot of work because that is when they do the finishes. I need order materials and tell the contractors how I want things to look. Also, that 10% return is basically tax free after depreciation. Lastly, there have been 2 comps that recently sold for $1.9mm and $2mm respectively. 1 of the properties was in similar condition as mine and the other one in worse condition and both of those comps generate significantly less rent than min. So all in all, for 4-5 months of work where I don't go to the site until about 10-11 everyday and stay until 1-3PM, I think it's pretty solid and am definitely looking to do more. Also, this one is on the "worse investment" side of the spectrum. Normally I look for triplexes which i can generate ~15% CoC typically. As for the PM, i own 2 other triplexes, I receive a text or phone call about an issue prob every 3-4 months. Most of the time it's pretty simple stuff. If it's anything urgent or too complicated, I have to hire someone anyways, so PM work is really not that taxing. I also have like 3 handymen that I can call.
Even though you do the work yourself; what about R&M, management fee, G&A, utilities? How much does that eat into the COC you’re referencing?
When I say PM, i mean R&M as well. For large institutional firms, I understand why they split up PM, R&M, etc.. because each of those items can actually be decently significant when you are talking about a 500 unit building. But for 2-3 units, you don't really need a property manager, you need a handyman. All "PMing" is at this scale is taking phone calls or answering texts every so often from tenants. Like I said before, I receive a call or text from tenants every 2-4 months and 99% of the time it's something minor that I can handle myself. The most common issues are the disposal jamming which usually just require me to stick my hand into the disposal, pull out whatever was jamming it, and reset the disposal. In rare cases if the disposal is actually dead, then I pay my handyman to replace it. Another common issue, esp with ladies as tenants, is their hair clogging the shower drain. In this case, all i do take a plunger and plunge the drain like a toilet and pull the hair out. Other times it's just having a screw gun or screw driver and screwing things back into place. Recently, one of my units turned over and the previous tenants drilled a bunch of holes in the walls to hang shit. I decided to save the $300 and buy puddy from home depot to fill in the holes and then touch them up with paint. In hindsight, I prob should have just paid $300 for my guy to do it because it took me half a saturday, but it's not like it was complicated, just tedious. Anything more complicated than these items, and I hire my handyman or a professional. For the most part R&M doesn't really eat into my monthly cost that much because usually the most expensive part of R&M is labor and I handle most of the minor items myself and the material costs are typically 0 or negligible. Honestly, on average, i don't even think I spend $50/month on R&M a year, but also remember that I do a pretty comprehensive renovation each time, so almost everything is brand new. As for getting units rented, I tell 10 different rental agents that I have a vacancy coming up and then they will list the unit for me and get it rented.
No management fees because I self manage (aka pick up the phone). I'm not sure what G&A costs you're referring to. I own these properties under my own name, but if you own them under an LLC then thats $500/year to renew your LLC. As for utilities, tenants pay for electric and heat, I pay for water/sewer which usally runs about $35/head/month
How does Bill Pulte feel about your mortgage fraud? Asking for a friend
He said it was fine.
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