Summary

Ken McElroy, a real estate expert advises against investing in certain areas in 2025 due to economic, environmental, and market risks.

Highlights

•  Overvalued Markets: Avoid areas with inflated home prices that don’t align with local income levels or job growth.
• ️ Climate Risk Zones: Steer clear of regions prone to extreme weather, rising sea levels, or frequent natural disasters.
•  Declining Job Markets: Don’t invest in areas losing major employers or experiencing population decline.
• ️ Over-Supplied Markets: Be cautious in regions with excessive new construction that could lead to oversupply and falling prices.
•  High-Cost, High-Tax Areas: Avoid locations with high property taxes, insurance costs, or regulatory burdens that deter buyers.

If I were starting over in real estate in 2025, these are three areas that I’d absolutely avoid. And I’d say that as someone who’s bought thousands of units, made every mistake in the book, and learned the hard way. Don’t get me wrong, there are definitely deals out there, but in the wrong location, wrong structure, or wrong assumptions.
That’s how investors get wiped out. So, pay attention because I’m going to walk you through exactly what I’d avoid in this particular market so that you can protect your downside and build real lasting wealth. So, one, avoid overbuilt condo properties. So, my very first deal was a 440 unit condo complex in Las Vegas, Nevada.
I bought a two-bedroom, two bath for 105,000 for about 30 grand down. And I thought I was on my way. The problem, I was competing with over 400 other condo owners, all renting out the exact same floor plans, all cutting deals, and undercutting everybody to try to get the same tenants. Every time somebody dropped their rent, I either had to match or sit vacant.
So, I was also dealing with all these unprofessional people that didn’t understand property management, was doing anything to cover a vacancy. And one month of vacancy, that could wipe out pretty much my cash flow for the entire year. If I started over today, I’d avoid these big condo communities with endless supply.
Because when your product isn’t unique, you don’t have any kind of pricing power. Your margins are razor thin and you’re competing with your neighbor on your left, on your right, upstairs, downstairs. You get the idea. Two, stay away from HOA or homeowners association heavy deals. There’s another big lesson from that very first deal.
Avoid properties with volatile HOAs. The HOA at my Las Vegas condo was constantly raising dues and constantly hitting the homeowners with assessments. A new roof, assessment. broken gate assessment. Landscaping upgrades assessment. These are all outside of your normal operating costs, which is what a HOA do covers. When you’re in a homeowners association, you do not control the expenses.
Even worse, many investors don’t model for these increases and then they wonder why their cash flow disappears. So, we’re seeing this happening right now today in today’s market, especially in the Airbnb markets. People are buying in these HOA communities that are governed by these rules and laws and they’re getting blindsided when the HOA bans short-term rentals later.
So, if I’m starting in 2025, I’m avoiding HOA driven submarkets altogether. I want control. I want predictability. And more than anything, I want to know the numbers. And I don’t want to be governed by a board of knuckleheads that have no idea how to run a business. Watch for overs supplied urban core.
So, this one’s a little bit different, but it’s just as important. I’m steering clear of urban cores with heavy new construction pipelines. Why? Because too much supply again floods the rental market, just like in the HOA example. This always drives up concessions and drags rents back because people again have a lot more choices and the deals start flying.
Developers, they’re still building units and finishing units with very low interest rates back from 22 and 21. And those properties, they’re now resetting at today’s rates at 7 8 even 9%. It’s crushing their cash flow. So, they have lots of incentive to mark those down and cut great deals to try to move that inventory.
This means that they have higher debt costs, slower lease ups, and lower cash flow. There’s a problem for not only them, but for the banks, but also great opportunities for either the home buyer or the renters. But if you’re trying to cash flow in those particular deals, be very careful because you have a lot of supply hitting the market all at once.
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So, scarcity is your friend and saturation is your enemy. So, let me give you some perspective. On that first condo that I bought, I was making about $600 a year cash flow on a $30,000 down payment. That’s not a ton. That’s about 2% cash on cash return. And that’s all you have to look at. How much am I putting down versus how much is my cash flow and it was about 50 bucks a month.
I could have made double on that on a treasury bill today with zero tenant headaches and zero management, zero HOA. You get it? So, when you’re looking at a deal in 2025, you better run the cash on cash numbers, and you need to ask yourself, what happens if rents drop by 5%.
What happens if I have a vacancy for one or two months? What happens if property taxes and insurance goes up? What happens if the monthly HOA dues go up or there’s an assessment? These are all things that rob you from your cash flow. Because in this market, deals break. The only way to protect yourself is to buy on fundamentals, not on the brochure.
So, here’s what I want you to remember. Just because the property is cheap, it does not mean that it’s a deal. In 2025, the name of the game is control, scarcity, and cash flow. You need to avoid high HOA fees or poorly managed HOAs. If you’re buying something older, avoid oversupplied condo communities, and avoid cities with runway construction pipelines.
Instead, look for smaller deals in tighter subm markets where you set the rent comps, not your neighbor. And areas, of course, are not your only concern because there are definitely areas that you’re having real estate collapses going on that are catching many investors offguard.