Interest Rates:
Should I Buy Now or Wait??
Interest rates play a role in shaping the rental real estate market, especially when it comes to investor financing and tenant affordability. In 2025, average 30-year fixed mortgage rates have been trending downward since late spring, recently reaching an 11-month low. However, this is only one of the factors that should be considered when looking to purchase rental properties.
The decision to buy a rental property now should not be based solely on interest rates but on a strategic evaluation of specific deals.
Define your buy box: Clearly outline your investment criteria, including your target cash flow, budget, and desired return on investment (ROI). Only purchase properties that meet your standards.
Focus on cash flow: Given the potential for slow appreciation, prioritize properties that offer a strong and immediate cash flow.
Research local markets: Drill down beyond national trends to find markets with strong local demand, job growth, and favorable economic conditions.
Buy for the long term: Rental properties are a long-term play. With a long-term perspective, you can ride out market fluctuations and benefit from both equity growth and cash flow.
Secure financing: Work with a financial advisor or mortgage broker to explore all your lending options and secure the most favorable terms possible.
Manage risk: Create a financial cushion to handle unexpected costs like maintenance or vacancy. Perform thorough due diligence and inspections to avoid costly surprises.
Opportunities for rental property investors in 2025
Persistent rental demand: With high home prices and elevated mortgage rates making homeownership challenging for many in 2025, the demand for rental properties remains strong. Younger generations (Millennials and Gen Z) are also increasingly choosing to rent.
Higher potential rental income: The cost to own a home can be significantly higher in 2025 than the cost to rent in some areas. This keeps rental demand high and gives landlords leverage to raise rents, helping to offset higher ownership costs.
Property value stabilization: After a period of rapid appreciation, property values have leveled off in many areas, though they continue to rise modestly in others. This moderation creates a more balanced market for buyers and reduces the fear of overpaying.
Future rent growth: Experts predict rents will continue to rise steadily in 2025 and 2026, though at a slower pace than during the pandemic. This is largely due to strong demand and a projected slowdown in new apartment construction (all positive signs for real estate investors)