Is investing in residential real estate still a good bet?

Part I — Is The Market Stable?

No one wants to buy a lemon.

Many of us still carry the scars of the 2008 meltdown, which was both a loose banking law crisis and a morally corrupt ratings system. Banks began offering loans without verifying income or assets and requiring little or no down payment. Anyone with a pulse and an ID could get a loan. This flooded the market with buyers, much like prospectors heading west during the gold rush, seeking their fortune and driving up competition and values along the way. The result was a very unstable market hidden beneath false “A” paper ratings. When loans started defaulting, the housing market suffered.

To prevent this from ever happening again, the Ability-to-Repay/Qualified Mortgage (ATR/QM) rule was passed in 2010. It made it unlawful to fund a mortgage without first making a “reasonable, good-faith determination” of a consumer’s ability to repay. In practice, this meant documentation, verification, and a standardized set of underwriting factors.

The bottom line: ATR/QM removed the oxygen that fed the 2006–07 exotic lending bubble known as subprime, which is one reason broad delinquencies and foreclosures remain low today. (For a plain-English statutory summary, see the CFPB’s original rule brief.)

In the short term, regardless of future appreciation, most homeowners today can actually afford their homes. Before the bubble, it wasn’t uncommon to see restaurant workers making $36K a year owning five rental properties—often with no money down. Why not? All you needed was a signature at the bottom line, and even closing costs could be rolled in.

That changed in 2010, when ATR rules took effect. No longer would someone’s word, even a CPA’s, be enough. Since then, borrowers must demonstrate how the mortgage will be repaid—whether through income, assets, or a rent roll on residential investment property.

The result: the underpinnings of today’s real estate market looks very different from 2008.

It’s true that in recent years we’ve seen the return of more “creative” products, like the DSCR (Debt Service Coverage Ratio) loan. But these still follow the essential rule: proof of repayment via rents received, often with a larger down payment. That keeps the market far more stable than it was in 2008.

There’s also much more to understand about how today’s market differs from 2008: housing starts have not kept up with demand, demographics point to steady demand growth over the next decade, and the potential for lower rates in the next 12–24 months could further improve affordability and drive prices higher.

Stay tuned for our November post—it will be full of charts and graphs exploring the history of real estate dynamics in more detail.

What About the New Tax Benefits with OBBA – Does It Help InVestors Today?

In July 2025, Congress enacted the One Big Beautiful Bill Act (H.R. 1).

Among its business provisions, Section 70301 makes permanent 100% bonus depreciation under IRC §168(k) and sets effective dates tied to acquisition on or after Jan. 19, 2025 (with a one-time election allowing reduced percentages for assets placed in service in the first taxable year ending after that date). Congress.gov

This does mean you will need to have a cost segregation completed—which needs to be completed by a professional. In the process, components that typically get depreciated in 20 years or as few as five, such as appliances, dedicated electrical, certain cabinets/finishes can be deducted in the first year, and site/land improvements like fencing or paving from the 27.5-year depreciation can be moved to the 5-, 7-, or 15-year classes. The IRS’s Cost Segregation ATG sets the classification logic and defines “residential rental property” (27.5-year GDS; 80% of gross rental income from dwelling units). Day-to-day rental rules (depreciation, passive loss limits, recordkeeping) are in Publication 527, for your reference.

What does this mean in practical terms? – If you can offset a tax bill or at least what you owe on your Schedule E income, you don’t have to wait.

Just a note as not to be confused with commercial property:

• QIP, “Qualified improvement property,” are not residential by statute; residential interior work does not become QIP just because it’s “interior.” Acceleration in rentals comes only from bona fide residential property and land improvements identified in a cost segregation for residential property.

Practical Upshot:

2025 is unusually friendly to front-loading depreciation on rentals—if the fundamentals pencil first. Cost segregation amplifies a good deal; it won’t rescue a bad one. So, read on about markets and what to look for if the tax break sounds appealing. (For a current, plain-English policy read, see Tax Foundation’s September analysis.) Tax Foundation