With rising interest rates, taxes, insurance, gas, and materials, not to mention dropping a couple of C-notes every time you go to the grocery store, the next time someone asks you to attend a real estate meet-up group, no one would blame you for saying, “That’s OK, I’ll sit this one out.”
Is there a viable way to invest in real estate in the current market? Let’s take a look at the factors at play and how to come out ahead.
Interest Rates
The biggest detriment to buying leveraged real estate is high interest rates. As of Aug. 13, Bankrate reported that the average 30-year fixed mortgage rate had risen to 6.74%. Inflation, fueled in part by the Iran war and the Federal Reserve’s reluctance to drop rates in light of economic uncertainty, means that borrowing money remains the single greatest impediment to making cash flow on a rental.
With median home prices at $434,100, near a record high, according to the Wall Street Journal, a 20% down payment would make the principal and interest payment $2,260 on a 30-year fixed mortgage at a 6.78% interest rate—not including taxes and insurance. Depending on your location, your monthly payment could be in excess of $3,000/month.
Meanwhile, according to Zillow, the national average rent, as of May, was $2,291/month. Clearly, the numbers, using national averages, don’t add up, and it doesn’t look like that’s about to change.
“There is no reason to think that mortgage rates are gonna come back down again. So they’re just saying I have to get on with my life, and that’s what they’re doing,” Brad Case, chief residential economist at Homes.com, told the Journal.
House Prices Aren’t Coming Down Fast Enough
According to Fortune, simply blaming the Fed for the affordability crisis doesn’t tell the whole story. The U.S. is still chronically undersupplied when it comes to houses. A Bank of America estimate cited in the article suggests that housing starts would need to reach 6 million annually to absorb that demand. Meanwhile, house prices rose by 40% in the 18 months following the pandemic, when rates were low.
Taxes and Insurance: The Hidden Villains
The rapid increase in house prices means that taxes have increased with reassessments. To add insult to injury, insurance costs soared between 2018 and 2024—at a much faster rate than inflation.
According to a report by the National Association of Insurance Commissioners, cited by CNBC, average premiums in the Northeast have risen by 18%, by 25% in the Midwest, 27% in the Southeast, and 43% in the West over the seven years up to 2024. Premiums have risen by another 7% since the beginning of 2025, according to the Bureau of Labor Statistics’ producer price index.
The report’s coauthors, Jeffrey Czajkowski and Paula Harms, wrote:
“The data tells the story of a homeowner’s insurance market that is overall operationally robust but nonetheless under pressure and exhibiting signs of stress. These trends support consumer sentiment that coverage is becoming more expensive and harder to find or keep in some places.”
Your Tenants Are Dealing With Inflation, Too
Passing on the increased costs of owning rental property to your tenants isn’t going to fly. They are feeling the pinch too.
To make matters worse for landlords, while expenses have gone up, rental prices have been inching down for the last three years, though they are still 17.2% higher than before the pandemic as of May.
A Softer Job Market Has Many Tenants Fearful
Employment has always been the wild card as far as landlords are concerned. Should a once-stable tenant unexpectedly lose their job, chaos can ensue.
The job market has been volatile in recent weeks. It was widely reported on Aug. 7 that the U.S. job market lost 23,000 jobs in July, while previous months’ gains were revised down.
Rental Strategies for Landlords in a Turbulent Market
If you are considering sitting out a turbulent real estate market, you are not alone—which is why you should consider jumping in! I know, it sounds a little preposterous, but as legendary investor Warren Buffett advised in a 2008 New York Times opinion piece, “Be fearful when others are greedy, and be greedy when others are fearful.”
Being contrarian and finding ways to invest in difficult markets is where profits are made, so let’s roll up our sleeves and take a look at a few safe investing strategies that could help you add to your portfolio and snag some deals in a down market.
Revise the BRRRR
A recent Bigger Pockets podcast explained this in great detail. In some affordable markets, buying a property under $300,000 doesn’t mean dodging bullets, where the job market and rents are decent, allowing landlords to cash flow. Combining these facts with a low-cost cosmetic BRRRR will allow you to get the maximum bang for your buck, recycle your cash, and keep it moving.
Combine a house hack with low-cost government financing and the 2-out-of-5 capital gains tax exclusion
An FHA mortgage (there are other low-down payment assistance programs in different states) is an affordable way to buy a home, requiring a 3.5% down payment. It can also be used on a small multifamily (two to four units), allowing you to house hack: live in one unit and have your tenants help with the mortgage payment.
If you live in the home for two out of five years and sell it, you will not have to pay capital gains taxes on the increased equity of $250,000-$500,000 (depending on your marital status). Combining these strategies is a bulletproof way to get you through a turbulent market.
Increase the cash flow
This might sound easier said than done, but increasing the cash flow on your rental doesn’t mean jacking up the rent on your existing tenant but rather incorporating a different rental strategy entirely.
Whether it’s adding ADUs, renting by the room, or pivoting into medium-term rentals, there are numerous ways to increase your cash flow, depending on how hands-on or labor-intensive you want to get.
Live only on your W2 income and invest in small, affordable rentals
By investing your profits back into your buildings and then paying off your portfolio, you can cash flow with a minimum of stress. This BiggerPockets podcast outlines the strategy.
Final Thoughts
A tough real estate market means that passive investing might become less passive. It means looking harder to find deals and thinking out of the box to make them work. Also, notions about quitting your W2 job might have to be put on hold, as the stability of a paycheck is gold dust in turbulent times.
However, investing now has an upside: fewer bidding wars and more realistic pricing. A high-interest rate climate isn’t lost on sellers, who are more inclined to price their homes accordingly. A clear-minded, methodical approach to investing based on solid strategies, rather than speculation and hype, will keep you in good stead in today’s market.
When things eventually turn around—which history has told us they will—refinancing to a lower rate will allow you to emerge with cash flow and equity.
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