Can You Still Make Money in Real Estate in 2025?

Many investors wonder how to make money in real estate today — and even if it’s still possible!

When it comes to accelerating wealth accumulation, three primary vehicles can carry us up the mountain:

Capital markets — stocks, bonds, and alternatives.
- Long-term average annual return of the S&P 500: ~9–10%.
Real estate — residential and commercial property.
- Residential real estate (20-year average): ~3.1%.
- Commercial real estate (20-year average): ~6.5%.
Business ownership — startups, acquisitions, and franchises.
- For established businesses (franchises, acquisitions), long-term returns typically fall in the 5–20% range.
- Startups are far more volatile: many fail entirely, while a few deliver outsized returns that can dwarf averages, sometimes 50% or more annually.

At first glance, real estate seems like the slowest path. But it plays by a different set of rules.

What Makes Real Estate a Powerful Way to Build Wealth?

Unlike stocks or businesses, the value of real estate is:

Anchored in physical property — not intangible factors like brand, goodwill, organizational efficiency, supplier relationships or company culture.
Highly leverageable — you can control a large asset with a relatively small amount of your own money.
Tied to interest rates — long-term borrowing costs shape both prices and profitability.
Influenced by economic cycles — especially supply and demand for housing and mortgage loans.

The true “superpower” of real estate lies in its combination of tangible value and leverage.

Think about it: a home’s practical use today is almost the same as it will be in 20 years. Unlike a company that can become obsolete, the shelter value of a property remains constant. This stability is one reason real estate is often less volatile than the stock market.

But add leverage, and the math changes dramatically.

How to Make Money in Real Estate Through Leverage

You might be wondering, “Okay, but how can I make money in real estate in practical terms?” The answer depends on how you use leverage, manage risk, and position real estate alongside your other investments.

Imagine buying a $200,000 property with a 20% down payment ($40,000). If housing prices rise just 3% annually, your return on invested capital can jump to 15% because of leverage (ignoring transaction costs and mortgage principal repayment).

Sounds great — but here’s the catch.

If property values fall 5%, the actual value of your investment (your equity) falls 25%. Similarly, an 11% rise in value translates to a 55% return.

Leverage magnifies outcomes. With it, real estate can outperform stocks — but it can also underperform them by a wide margin.

For house investors, leverage over the long-term is one of the core principles behind how people make money in real estate — not just through simple appreciation, but through controlled leverage and disciplined risk management.

How Wild Can Housing Prices Get?

When we talk about the stock market, most people understand the idea of volatility—prices can swing up or down, sometimes by huge amounts. Housing, on the other hand, feels more stable. But how stable is it, really?

Economists have tried to measure this using something called the standard deviation from trend. That’s just a fancy way of saying: “How far do prices usually wander away from their long-term path?”

Here’s what the research found:

Across many countries, the typical amount prices wander from trend is about 15%.
In plain English: even a 20% swing in house prices isn’t unusual for a given year.
Go out three standard deviations, and you’re talking about nearly 50% price moves compared to trend.

The U.S. has historically been on the lower end of volatility, with about 8% standard deviation. This doesn’t mean housing always moves ±8% each year — it’s an average spread from the long-term trend.

Japan, on the other hand, has seen wild swings—closer to 48%, with France at 25%. Imagine what that volatility does for an investor that’s using leverage!

Two caveats:

Don’t forget: standard deviation of housing prices can vary dramatically even within the same country. Phoenix and San Francisco can be worlds apart on their housing prices, for example.
One big asset bubble event can dramatically change the standard deviation. It’s important to look at the long-term trend like this, but also to look at shorter term trends of what’s happened in more recent history (10-20 years, for example).

So what’s the takeaway? Housing isn’t immune to volatility. While it doesn’t whiplash like tech stocks, it does swing—sometimes hard. This is a good reminder not to assume that real estate always goes up in a smooth line.

Instead, think of housing as an asset that can experience cycles, bubbles, and corrections—and plan your financial strategy with that in mind.

Is Real Estate Still a Good Investment in 2025?

For anyone considering purchasing investment property, affordability and interest rates remain key factors to evaluate in 2025.

Median U.S. home prices are now about 5.3x higher than median household income (2023). For context, that ratio was just 3.2x in 1970. So the affordability challenge is real.

Much of this doesn’t appear to be a classic housing bubble—it’s more about supply and demand imbalances:

Fewer entry-level single-family homes are being built (think 1,400 sq. ft. or smaller).
Construction costs have soared, partly due to supply chain disruptions during the 2020 economic shutdowns.
Higher interest rates discourage existing homeowners from selling, keeping inventory tight.

https://www.freddiemac.com/research/insight/20210507-housing-supply

Despite the challenges, real estate can make sense if approached strategically.

Let’s look at three types of investors:

Investor A: Puts 20% down on an investment property. To balance the added risk of leverage, he ensures his stock portfolio is at least equal in value to the property’s mortgage balance.
Investor B: Puts 50% down. She aims for an equal amount invested elsewhere for diversification.
Investor C: Buys 100% in cash. Diversification still matters, but the proper amount depends largely on her liquidity needs and risk appetite.

In other words, if an investor is going to use leverage on real estate as an investment (it’s different if you’re buying it for personal use), then they should also make sure they have an amount equal to the mortgage balance diversified in other investments, such as the stock market.

Regardless of approach, each investor keeps an emergency fund with 3–6 months of living expenses plus housing costs (including the mortgage payment).

Real Estate Forecast: What to Expect Through 2030

Forecasts suggest U.S. home prices are estimated to grow 2%–3.4% annually through 2030.

Modest on its own. But once you add net rental income and leverage, the potential returns for those who invest in rental property can become quite meaningful. Between appreciation, rent collection, and debt paydown, real estate offers multiple layers of passive income and growth, making it one of the most popular ways to build wealth.

Of course, forecasts are never guarantees, but they help to anchor expectations.

The bottom line: real estate can be a powerful accelerator of wealth, but only when placed in the right context — as part of a diversified portfolio, with careful attention to risk, liquidity, and leverage.

Real estate can also be a great diversifier. Even when leveraged and volatile, real estate often moves independently of the stock market, meaning it may be doing one thing while stocks do another. This mix of asset types can create a healthier overall risk/return profile, even with inherent volatility.

How to Know If You’re Ready to Invest in Real Estate

If you’re seriously planning to invest money in real estate, don’t just ask, “Can I afford this property?” Instead, ask:

How much leverage am I using? (10% down? 20%? 50%? 100% cash?)
How does that leverage amplify both my potential gains AND losses?
Do I have at least an amount equal to the mortgage invested elsewhere to diversify my risk?

Put these numbers on paper. If a 5% drop in property value means a 25% drop in your investment, are you prepared for that? If the answer is no, adjust your leverage or save a bit more in a diversified portfolio before you buy.

Whether you’re exploring how to make money in real estate as a beginner or you’re refining an existing portfolio, the same principles apply: understand your leverage, balance your risks, and keep your strategy diversified.

By running this simple test, you’ll approach real estate with clarity, confidence, and a plan that aligns with your overall wealth expedition.