{"id":189082,"date":"2026-08-21T13:00:09","date_gmt":"2026-08-21T19:00:09","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=189082"},"modified":"2026-08-21T13:00:13","modified_gmt":"2026-08-21T19:00:13","slug":"2026-vibe-check-what-investors-can-do-about-rising-costs-and-a-shaky-economy","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2026-vibe-check-what-investors-can-do-about-rising-costs-and-a-shaky-economy","title":{"rendered":"2026 Vibe Check: What Investors Can Do About Rising Costs and a Shaky Economy"},"content":{"rendered":"

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, \u201cThat\u2019s OK, I\u2019ll sit this one out.\u201d\u00a0<\/span><\/p>\n

Is there a viable way to invest in real estate in the current market? Let\u2019s take a look at the factors at play and how to come out ahead.<\/span><\/p>\n

Interest Rates<\/span><\/h2>\n

The biggest detriment to buying leveraged real estate is high interest rates. As of Aug. 13,<\/span> Bankrate<\/span><\/a> reported that the average 30-year fixed mortgage rate had risen to 6.74%. <\/span>Inflation, fueled in part by the Iran war and the Federal Reserve\u2019s reluctance to drop rates <\/span>in light of<\/span> economic uncertainty, means <\/span>that<\/span> borrowing money remains the single greatest impediment to making <\/span>cash flow<\/span><\/a> on a rental.<\/span><\/p>\n

With median home prices at $434,100, near a record high, according to the<\/span> Wall Street Journal<\/span><\/a><\/em>, a 20% <\/span>down payment<\/span><\/a> would make the principal and interest payment $2,260 on a 30-year fixed mortgage at a 6.78% interest rate\u2014not including taxes and insurance. Depending on your location, your monthly payment could <\/span>be in excess of<\/span> $3,000\/month.\u00a0<\/span><\/p>\n

Meanwhile, according to Zillow, the national average rent, as of May, was<\/span> $2,291\/month<\/span><\/a>. Clearly, the numbers<\/span>, using national averages,<\/span> don\u2019t add up, and it doesn\u2019t look like that\u2019s about to change.<\/span><\/p>\n

\u201cThere is no reason to think that mortgage rates are gonna come back down again. So they\u2019re just saying I have to get on with my life, and that\u2019s what they\u2019re doing,\u201d Brad Case, chief residential economist at Homes.com, told the <\/span>Journal<\/span><\/em>.<\/span><\/p>\n

House Prices Aren\u2019t Coming Down Fast Enough<\/span><\/h2>\n

According to<\/span> Fortune<\/span><\/a><\/em>, simply blaming the Fed for the affordability crisis doesn\u2019t tell the whole story. The U.S. is still chronically undersupplied <\/span>when it comes to<\/span> 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.<\/span><\/p>\n

Taxes and Insurance: The Hidden Villains<\/span><\/h2>\n

The rapid <\/span>increase<\/span> in house prices <\/span>means that taxes have increased with<\/span> reassessments.<\/span> To add insult to injury, insurance costs soared between 2018 and 2024\u2014at a much faster rate than inflation.<\/span><\/p>\n

According to a<\/span> report<\/span><\/a> by the National Association of Insurance Commissioners, cited by<\/span> CNBC<\/span><\/a>, average premiums in the Northeast <\/span>have risen<\/span> by 18%, <\/span>by 25%<\/span> in the Midwest<\/span>, 27<\/span>% in the Southeast<\/span>, <\/span>and 43<\/span>% in the West over the seven years <\/span>up to<\/span> 2024.<\/span> Premiums have risen by another 7% since the beginning of 2025, according to the Bureau of Labor Statistics\u2019 producer price index.<\/span><\/p>\n

The report\u2019s coauthors, Jeffrey Czajkowski and Paula Harms, wrote:<\/span><\/p>\n

\u201cThe data tells the story of a homeowner\u2019s insurance market that is overall operationally robust but <\/span>nonetheless<\/span> 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.\u201d<\/span><\/em><\/p>\n

Your Tenants Are Dealing With Inflation, Too<\/span><\/h2>\n

Passing on the increased costs of owning rental property to your tenants isn\u2019t going to fly. They are feeling the pinch too.\u00a0<\/span><\/p>\n

To make matters worse for landlords, while expenses have gone up, rental prices have been inching <\/span>down for the last three years<\/span><\/a>, though they are still 17.2% higher than before the pandemic as of May.<\/span><\/p>\n

A Softer Job Market Has Many Tenants Fearful<\/span><\/h2>\n

Employment has always been the wild card <\/span>as far as<\/span> landlords <\/span>are concerned<\/span>.<\/span> Should a once-stable tenant unexpectedly lose their job, chaos can ensue.\u00a0<\/span><\/p>\n

The job market has been volatile in recent weeks. It was <\/span>widely reported<\/span><\/a> on Aug. 7 that the U.S. job market lost 23,000 jobs in July, while previous months’ gains were revised down.<\/span><\/p>\n

Rental Strategies for Landlords in a Turbulent Market<\/span><\/h2>\n

If you are considering sitting out a turbulent real estate market, you are not alone\u2014which is why you should consider jumping in! I know, it sounds a little preposterous, but as legendary investor Warren Buffett advised in a <\/span>2008 <\/span><\/a>New York Times<\/span><\/a><\/em> opinion piece<\/span><\/a>, \u201cBe fearful when others are greedy, and be greedy when others are fearful.\u201d<\/span><\/p>\n

Being contrarian and finding ways to invest in difficult markets is where profits are made, so let\u2019s 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.<\/span><\/p>\n

Revise the BRRRR<\/span><\/h3>\n

A <\/span>recent Bigger Pockets podcast<\/span><\/a> explained this in great detail. In some affordable markets, buying a property under $300,000 doesn\u2019t mean dodging bullets, where the job market and rents are decent, allowing landlords to cash flow. <\/span>Combining<\/span> these facts with a low-cost cosmetic <\/span>BRRRR<\/span><\/a> will allow you<\/span> to get the <\/span>maximum<\/span> bang for your buck, recycle your cash, and keep it moving.<\/span><\/p>\n

Combine a house hack with low-cost government financing and the 2-out-of-5 capital gains tax <\/span>exclusion<\/span><\/h3>\n

An FHA mortgage (<\/span>there are<\/span> other <\/span>low-down payment<\/span> assistance programs<\/span><\/a> in different states<\/span>) is an affordable way to buy a home, requiring a 3.5% down payment.<\/span> It can also be used on a small <\/span>multifamily<\/span><\/a> (two to four units), allowing you to <\/span>house hack<\/span><\/a>: live in one unit and have your tenants help with the mortgage payment.<\/span><\/p>\n

If you live in the home for<\/span> two out of five years<\/span><\/a> and sell it, you will not have to pay <\/span>capital gains taxes<\/span><\/a> on the increased <\/span>equity<\/span><\/a> of $250,000-$500,000 (depending on your marital status). Combining these strategies is a bulletproof way to get you through a turbulent market.<\/span><\/p>\n

Increase the cash <\/span>flow<\/span><\/h3>\n

This might sound easier said than done, but increasing <\/span>the<\/span> cash flow on your rental doesn\u2019t mean jacking up the rent <\/span>on<\/span> your existing tenant <\/span>but rather incorporating<\/span> a different rental strategy entirely.<\/span><\/p>\n

Whether it\u2019s adding <\/span>ADUs<\/span><\/a>, <\/span>renting by the room<\/span><\/a>, or pivoting into <\/span>medium-term rentals<\/span><\/a>, there are numerous ways to increase your cash flow, depending on how hands-on or labor-intensive you want to get.<\/span><\/p>\n

Live only on your W2 income and invest in small, affordable <\/span>rentals<\/span><\/h3>\n

By investing your profits back into your buildings and then paying off your portfolio, you can cash flow with <\/span>a minimum of<\/span> stress. This <\/span>BiggerPockets podcast<\/span><\/a> outlines the strategy.<\/span><\/p>\n

Final Thoughts<\/span><\/h2>\n

A tough real estate market means that passive investing might become less passive. <\/span>It means looking harder <\/span>to find<\/span> deals and thinking <\/span>out of<\/span> the box to make them work.<\/span> 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.<\/span><\/p>\n

However, investing now has an upside: fewer bidding wars and more realistic pricing. A high-interest rate climate isn\u2019t 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\u2019s market.\u00a0<\/span><\/p>\n

When things eventually turn around\u2014<\/span>which<\/span> history has <\/span>told us<\/span> they will\u2014refinancing to a lower rate will <\/span>allow<\/span> you <\/span>to<\/span> emerge with cash flow and equity.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

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