With today’s interest rates, real estate investing has become a tighter game. Whether you’re thinking about a rental property or a vacation home, the numbers just don’t work the same way they did a few years ago.
When rates were near zero, you could borrow at 2% and earn 5–6% on the property. That spread made the investment attractive. Today, the return on real estate—maybe 6% or 7%—is roughly the same as your cost of borrowing. That’s a problem. There’s no margin left to work with.
So what would make a deal work?
Only two things can really move the needle:
- More cash flow, typically through higher rent
- A better purchase price
We’re seeing rents slowly rise, but they don’t adjust overnight. Unlike grocery prices, rent can’t every month, so inflation takes longer to filter through. At the same time, home prices haven’t come down much yet, especially in markets that saw rapid price increases during COVID. In places like Florida, some of that pullback is beginning, but it’s early.
If you can’t get more income and you can’t get a great deal on price, it’s tough to make the numbers work.
What about tax benefits?
Yes, you do get some help from tax treatment. Depreciation, passive loss deductions, and other write-offs can help pad your returns. But even with that, it’s still a tight environment. You really have to run the math.
What if I want exposure to real estate without buying property?
There are options: real estate syndications, private REITs, and publicly traded REITs. But there’s a catch. The further you move from direct ownership, the more you lose the very things that make real estate attractive: tax advantages and diversification.
With REITs, especially public ones, you’re often just buying another slice of the stock market. You lose the benefit of owning something that behaves differently from your other assets.
The reason real estate can deliver strong returns is because it’s an inefficient market. You might know of a local property that’s a great deal—and nobody else is bidding. That’s the edge. You don’t get that with syndicated or public real estate investments.
In Closing
This isn’t a blanket “no” on real estate—but the bar is higher. If you’re going to buy, it needs to be a really good deal. You’re looking for either a great price, strong cash flow, or ideally both. That might mean passing on most of what’s out there today—and being ready to move quickly when the right opportunity comes along.
For more perspective on real estate investing in today’s market, listen to the full podcast episode here.