The real estate market in 2025 offers a unique blend of opportunities for investors, but also challenges.
Mortgage rates remain high, albeit below where they were this time last year. Between investor concerns, a potential recession and the specter of inflation caused by President Donald Trump’s tariffs, it’s anyone’s guess where rates go from here.
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That said, there are still places with good investment potential. Whether you’re looking to purchase residential properties, explore auctions or diversify with real estate funds, understanding where and how to invest is crucial for maximizing your returns. Here are five of the best places to invest in real estate in 2025, according to experts:
— Vacation-oriented second homes.
— Buffalo, New York.
— Indianapolis, Indiana.
— Properties bought at auction.
— Real estate funds.
Vacation-Oriented Second Homes
Seldom in life can we have our cake and eat it too. But with vacation homes, you may be able to have your cake and generate income on it when you’re not eating it too. The premise is also simple on the surface: Buy a property somewhere you enjoy spending time, then rent it out when you’re not there.
“Vacation locations, as a result of the pandemic, have seen parabolic increases in values,” says Wil Ward, managing director at TwinFocus Real Estate Partners. However, “this is obviously location dependent.”
He says areas that have seen strong value increases include: points to Jackson Hole, Wyoming; Santa Fe, New Mexico; Cape May, New Jersey; Volusia County, Florida; Brunswick County, North Carolina and Jefferson County, Colorado.
Finding a home outside of your primary residence state can also add geographic diversification to your portfolio.
“Since homes tend to be the largest investment for a large swath of retail investors, increasing their exposure to one particular market may not make sense,” Ward says. “While purchasing an investment property in the same town, or the next town over, may be easier to manage, there are potential portfolio-level risks of increasing local exposure.”
You might consider locations with friendly tax regimes. For example, New Hampshire, where there are no income taxes, instead of Maine. “Because people will be attracted to New Hampshire if rates in other states go higher, real estate should be one of the beneficiaries,” Ward says.
Or you can look abroad to places like Portugal or Greece, which have lower income tax and wealth tax than countries like Spain. Both are also a beautiful place to visit, “which will always attract people and the demand for housing,” Ward says. “Plus the exposure to the euro vis-à-vis the U.S. (dollar) is attractive as well.”
Buffalo, New York
Another promising spot for real estate investors in 2025 is Buffalo, New York. The city is seeing an influx of investor interest thanks to its affordability with respect to local income, says Alexei Morgado, a real estate agent and founder of Lexawise, an online site for real estate exam preparation.
“The average homebuyer in Buffalo is not living beyond their means, which leads to fewer defaults and a more stable housing base,” Morgado says. “I have seen an influx of out-of-state investors who are looking to Buffalo specifically for high rental yields in the multifamily sector, which is still priced below the national average.”
Buffalo combines job growth, affordable housing and constrained inventory to make it a favorable city for investors, he says.
The city is expected to be the hottest housing market in 2025, according to Zillow. It was also given the same honor in 2024 (which proved to be true), making it the first city to be crowned as such two years in a row. Home values grew nearly 6% in the city in 2024 and are expected to increase nearly 3% in 2025.
“The city is quietly becoming a long-term hold market for value investors who want cash flow without that speculative risk,” Morgado says.
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Indianapolis, Indiana
Morgado also highlights Indianapolis as an alternative to Buffalo with many of the same advantages. It was ranked the second-hottest housing market for 2025 by Zillow thanks to its home price forecast. It’s the only city ranked by Zillow to have home values appreciating even higher in 2025 (3.4%) than they did in 2024 (2.8%).
“Its core competency has always been its consistency. It is not a boom-and-bust market,” Morgado says. He consistently sees homes available in the “safe growth” category, meaning “modest appreciation, low vacancy rates and a deep bench of good tenants, particularly in those medical and educational markets.”
The city’s other attractive qualities include its investor-friendly nature and zoning flexibility, which allows you to renovate and modernize buildings, he adds.
Properties Bought at Auction
Assuming you now have an idea of where you want to invest in real estate, the question becomes how to buy the property.
“The best place to look for property would be a friend or relative, as they would not normally want to screw you on the price,” says Mark Charnet, founder and CEO of American Prosperity Group. If this is not an option, he says the next best place is through an auction company like Auction.com, Hubzu or Xome.com.
“These auction sites are very good, but you are not normally allowed to see the inside of the property and must make an educated guess as to the repair costs to refurb it for rental or your own occupancy,” he notes. To mitigate this, he suggests tapping your current home’s equity through a home equity line of credit if you don’t have enough cash on hand to cover repair costs.
Real Estate Funds
One of the biggest challenges to real estate investing is getting the funds to make the purchase. This is where real estate funds come into play.
“Real estate funds — both private and publicly traded — offer investors streamlined access to the asset class without the capital requirements or operational headaches of direct ownership,” says Andrew Krei, a chartered financial analyst and co-chief investment officer at Crescent Grove Advisors. “While direct ownership can be financially rewarding, it typically demands extensive capital, time and expertise — and selling can be slow and costly when liquidity is needed.”
Private real estate funds tend to be less liquid and harder to access. They often require multi-year commitments, so weigh the illiquidity against the potential returns before investing, Krei says. “Often these funds will target higher returns by buying properties that have been mismanaged or need capital improvements, allowing the manager to apply their operational expertise to reposition assets, increase rents and sell at higher valuations.”
Public real estate funds can be purchased through mutual funds, exchange-traded funds or real estate investment trusts, called REITs. While these funds are more accessible and easier to sell when you want out, “they tend to be more impacted by broader market swings — especially during periods of high volatility,” Kei says. “Moreover, these portfolios typically skew toward stabilized, income-producing properties that provide predictable distributions to investors but lack the price appreciation potential seen in opportunistic or ‘value-add’ private funds.”
Ultimately, the right fund will depend on your goals, liquidity needs and risk tolerance, he says.
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Best Places to Invest in Real Estate in 2025 originally appeared on usnews.com
Update 04/30/25: This story was previously published at an earlier date and has been updated with new information.
