Real estate is full of investment opportunities, including great ones and bad ones. Staying ahead of the market in 2025 means understanding which homes to avoid and which to buy instead. But how do investors know the best homes to put their money into?
Explore More: 5 Types of Homes Expected To Plummet in Value by the End of 2025
Check Out: How Middle-Class Earners Are Quietly Becoming Millionaires — and How You Can, Too
According to Jacob Naig, a Des Moines-based real estate expert and investor, there are some warning signs of a bad real estate investment. He said, “Recognizing bad investment warning signs distinguishes casual buyers from experienced investors.”
Here’s a breakdown of the five homes that could let you down this year, and smarter alternatives with better potential for long-term gains.
Trending Now: Suze Orman’s Secret to a Wealthy Retirement–Have You Made This Money Move?
Luxury Spec Homes in Expanding Suburbs
Oversized luxury spec homes in far-out suburbs sit empty as the demand for high-end living drops and carrying costs climb. Mortgage rates remain high, and lenders have tightened requirements, making the pool of buyers for jumbo mortgages even smaller. According to Naig, carrying these mega-homes can quietly destroy returns when you factor in taxes, insurance and utilities.
Forbes also highlights that discretionary luxury real estate lags behind mid-tier homes, especially in areas outside traditional hotspots. Instead, see if mid-market homes in established suburbs or urban neighborhoods catch your eye this year. These carry more stable demand, are easier to finance and are less likely to get caught in price corrections, per Forbes.
Read Next: 25 Places To Buy a Home If You Want It To Gain Value
Aging Condo Buildings With Weak Financials
Older condominium buildings with low reserve funds can turn into money pits overnight if roofs or foundations need urgent repairs. Naig calls out how maintenance backlogs can turn into unexpected six-figure special assessments, with owners left scrambling for cash. Condo units in aging or underfunded associations are set to lose value as buyers realize the true cost of neglect.
A safer bet includes newly built or well-maintained condos and townhomes with lower, transparent homeowner dues that fund a meaningful reserve. Naig suggests seeking out associations with clear financial statements and recent upgrades.
Short-Term Rental “Only” Homes in Risky Markets
Owning a property solely for short-term rental in a saturated or regulation-prone market is a gamble. According to Naig, just one change in local ordinances can wipe out expected revenue, leaving homeowners holding the bag.
Veteran investor Bill Faith recommends steering clear of oversupplied or heavily regulated short-term rental zones, such as parts of California and the Texas coast, since these have proven unprofitable for many owners.
Instead, small multifamily properties in steady, boring markets outshine short-term rentals right now. Naig notes that renting to long-term tenants means fewer surprises and steadier cash flow.
Climate-Vulnerable Properties
As wildfires, floods and coast-swallowing storms grow more intense, homes in risky areas carry soaring insurance premiums and falling resale values. Naig explains that these insurance shocks can quickly ruin cash flow math. Forbes reports many buyers now steer clear of properties flagged by FEMA for updated flood or wildfire exposure, with insurers scrutinizing these risks more than ever before.
Opt for homes in safer zones, with up-to-date insurance quotes at hand. Energy-efficient homes built to modern codes are also poised to outperform, as buyers pay up for lower insurance and utility bills and peace of mind.
Pre-1990 Energy Hogs Still Sporting Original Systems
Pre-1990 single-family homes that have not seen major system upgrades quickly lose appeal in today’s competitive market. Naig points to original inefficient boilers, poor insulation and bad wiring as “the new asbestos” since buyers discount these homes heavily or avoid them altogether.
The push for greener, lower-cost living is real. According to Zillow, energy-guzzlers are already losing ground to renovated or newly-constructed homes. Your dollars work harder in energy-renovated, mid-century homes or new constructions with up-to-date HVAC, windows and insulation. These come with government incentives and lower running costs, plus a broader appeal to buyers who value sustainable living.
What To Buy Instead
If you want a safer real estate bet in 2025, Naig’s advice is clear. Mid-priced homes in supply-constrained locations, two to four unit multifamily buildings in stable markets, and new builds or thoroughly renovated older homes are where the smart money flows.
Homes with extra income potential, like those with accessory dwelling units or flexible layouts for multigenerational living, offer valuable risk protection, too, according to Naig. Choosing transparent, well-managed HOAs, thoroughly inspected homes and locations with minimal exposure to new regulations or climate risks reduces headaches and bumps up your odds of long-term returns.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: 5 Homes That Could Be a Bad Investment This Year (And What To Buy Instead)