Following a tough year, the real estate market now appears to be in transition as mortgage rates stabilize, inflation moderates, and a rise in home prices slows down. All those changes may have you asking, “Is real estate a good investment in 2025?” Challenges do remain, but the outlook for the second half of 2025 offers compelling reasons for you to invest.
This article breaks down the key reasons why real estate remains a good bet for the right investors as it delves into the challenges they may face and explains where you might find opportunities in the year’s final two quarters.
What’s Happening in Real Estate in 2025?
Near-record-high home prices and hovering mortgage rates have kept many potential homebuyers out of the market, pushing up rents as they sign leases instead.
Just 35% of average buyers consider homes to be affordable. The national median price of a home was $422,800 in May. On July 9, 2025, the average fixed rate on a 30-year mortgage was 6.82% and 5.84% on a 15-year mortgage, while FHA mortgages carried a rate of 7.55%. The same high mortgage rates that keep buyers out of the market are keeping owners from selling because they have a much lower mortgage rate.
The real estate outlook through early 2026 appears driven by local market trends rather than national trends. While homes in some regions are selling within a week and well above their asking price, homes in other regions remain listed for two months or more.
Even though new construction outpaced demand last year, the 1.4 million new homes built still fell short of demand by 3.8 million units.
The low housing supply supports long-term appreciation, which could create a ripe environment for certain investors.
Shifting market dynamics may present other opportunities as millennials seek to buy homes, Gen Zers look to rent and remote workers move to suburban and rural areas. A softening supply of multifamily housing is also keeping upward pressure on rents.
Key Reasons Real Estate Remains a Strong Investment
- Tangible asset with intrinsic value: No matter what the market is doing, a home is valuable because it provides shelter.
- Inflation hedge: Property values and rents typically go up when inflation rises, guarding your wealth from the eroding effects of inflation.
- Rental income potential: Rental properties generate passive income, which helps fund additional investments.
- Appreciation over time: The value of real estate typically appreciates over time, and you can benefit by selling the property for more than you spent.
- Tax benefits: If your real estate investing is a business, you can deduct mortgage interest, depreciation, property taxes and other operating and maintenance expenses.
Risks and Challenges to Be Aware Of
- High interest rates: Rates ranging between 6% and 7% remain well above pre-pandemic levels, and interest expense can eat into your profits.
- Affordability crisis: Median home prices continue to climb in most U.S. regions, albeit at a slower pace, but renters are cost-burdened, spending more than 30% of their income on rent and utilities.
- Liquidity: Turning your real estate into cash can take time since you have to list the property, find a buyer and close the deal.
- Geographic dependence: If your properties are concentrated in one location, you expose yourself to local market fluctuations and property-specific risks.
How to Invest in Real Estate in 2025
The real estate market forecast for the remainder of 2025 and beyond is cloudy as mortgage rates remain elevated, the growth in home values moderates, and demand for rental and commercial spaces evolves. But there are potential real estate investing strategies you can use to cut through the haze.
Buy-and-Hold Rental Properties
A stalwart among real estate investors, the buy-and-hold strategy entails purchasing properties in high-growth areas — cities with strong job and population growth — to target steady cash flow and appreciation over time.
REITs for Passive Income
Consider a real estate investment trust (REIT) for a more hands-off approach. You buy shares of a company that owns, operates or finances residential or commercial real estate that generates income. A REIT trades like a stock, and you receive a dividend or interest quarterly or annually.
Short-Term Rentals
Through this strategy, you invest in a short-term rental in a hotspot for vacations and business travel. Consider that you must stay up on local regulations for these types of properties.
Real Estate Crowdfunding and Fractional Investing
Crowdfunding and fractional investing can significantly lower the cost of investing in a property. Real estate platforms for crowdfunding pool money from many individuals to invest in large projects. Those for fractional investing allow you to buy a share of a property with other investors.
Who Real Estate Investing Makes Sense For Right Now
Investors have long pursued real estate to build wealth. If you’ve been asking yourself, “Is real estate a good investment in 2025?” one way to answer that question is to look at who real estate investing might best serve.
An investor with a long-term horizon might benefit from real estate, which typically appreciates over time. Short-term fluctuations might occur, but over the long term, properties tend to gain value.
Investing in real estate can provide you with passive income from rentals, and it is an asset class that can help preserve capital because the value of real estate tends to grow with inflation.
If you have access to capital or a partnership, real estate investing can provide a steady stream of rental income, offer long-term appreciation and diversify your portfolio. Also keep in mind that real estate is an asset with little to no correlation with stocks or bonds, so it can help to safeguard your portfolio from the volatility of a single asset class.
Final Thoughts: Is It Worth Investing in Property in 2025?
The previous two years have been tough for real estate, and this might lead you to ask, “Is real estate still worth it?” As you read above, real estate can still be a good investment in 2025. However, you must have a clear strategy and a long-term view, and you must remain aware of changing market conditions. Consider your circumstances, risk tolerance and financial goals before jumping into real estate investing.
Frequently Asked Questions
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The best time to invest in real estate will always depend on your circumstances, goals and tolerance for risk, but continued high home prices and mortgage rates have many would-be homebuyers sitting on the sidelines. As an investor, that means less competition for buying rental houses and a potentially larger pool of tenants looking to rent your home, although your margin of error is narrower.
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Real estate investing in 2025 still offers clear benefits, but risks and challenges make due diligence and market analysis crucial. Investors face interest rates between 6% and 7%, high home prices, potential market volatility and price corrections, increases in property management and maintenance costs, economic and geopolitical uncertainty, and potentially higher insurance costs from climate risks.
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Becoming a homeowner — and paying off your mortgage quickly — is considered a good way to begin investing in real estate. While you must consider your circumstances, risk tolerance and financial goals, other ways to invest include buying a rental property, flipping a house, purchasing a real estate investment trust (REIT) or adding real estate-based exchange-traded funds or mutual funds to your portfolio.
