With interest rates at historic lows and stock markets gyrating, investors are looking at real estate as the best place for their money. But is it?

Where, oh where, can I invest my money?

That's the question I heard repeatedly last week when I did a series of phone-in shows on CBC Radio stations across the country.

The topic was supposed to be RRSPs and retirement but the calls ranged far beyond that as people struggled to find answers to the almost unprecedented investment conundrum they face. Consider:

Interest rates are at historic lows and are likely to stay there for the next couple of years. That means returns on such safe haven choices as GICs aren't even keeping up with inflation.

The bond market, which was up 10% last year, looks exhausted and with yields so low there seems to be little or no upside for bond prices.

Stocks? The very word sends many people running in terror. No wonder, with the wounds of 2008-09 still fresh.

So perhaps it is not surprising that several callers asked about real estate. It's the one area that continues to show price strength and that people understand  or at least they think they do.

"I own land in Niagara-on-the-Lake," said a woman in Edmonton. "Wouldn't I be better to keep it and let it appreciate, rather than sell and put the money into an RRSP?"

"I am considering buying a property, fixing it up, and reselling it," said a lady who called in from Saltspring Island in British Columbia. "Is that I good idea? I've noticed a lot of foreclosure signs lately."

"I've just come out of bankruptcy and don't have much debt," said a man who called from the village of Mannville in central Alberta. "Should I buy a house?"

There were more calls along the same line, but you get the idea. Real estate is where a lot of people's heads are at the moment.

It's understandable. Drive through any neighbourhood in Toronto and you're likely to see a For Sale sign in front of a house with a banner plastered over it: "Sold for over asking". It's reached the point where if a house goes for below the asking price, the sellers are disappointed.

On the other hand, we keep hearing warnings about a housing bubble and a few economists have even gone so far as to say we could experience a U.S.-magnitude meltdown.

So what to do? A lot depends on why you're thinking about buying property right now. Here are three scenarios.

To live in. I have always believed that home ownership is one of the four pillars of financial security. So I would never discourage anyone from buying a primary residence as long as they can afford it.

But buying when markets are high, as they are now, entails the risk of short-term loss. When mortgage rates move higher, as they inevitably will, the market price of houses will fall. That is an historic fact because affordability is a combination of house price and mortgage interest rates. As carrying costs go up, fewer people can afford the payments. So prices must fall to sustain the market.

This means it is almost certain that house prices will stall and perhaps drop in the next few years. Much depends on how quickly interest rates rise. So if you are buying a residence now, be prepared for a temporary loss in equity down the road and be sure you can afford an increase in payments when rates move higher.

For income. Low interest rates make rental properties more attractive because the carrying costs are less. Also, the government allows generous tax write-offs for income-producing property.

But don't lose sight of the fact that costs will probably escalate going forward. Interest rates will rise, property taxes are going up, natural gas won't stay this cheap forever, and insurance rates are moving higher. Don't lock into a long-term lease that does not make provision for such contingencies.

As for buying a property to flip, that falls into the "greater fool" category at this point. It can be a great money-making strategy when prices are dirt cheap as they are in many parts of the States. But when prices are already through the roof it becomes a speculative venture. If you can't unload before the market corrects, you could end up stuck with an expensive property you don't want.

For fun. The bargains that are available in the U.S. south are mouth-watering. You can buy a three-bedroom house in a great area of Palm Springs, California for less than $150,000. Homes and condos in Florida are selling for half (or less) what they would have gone for five years ago. Plus the Canadian dollar is high and interest rates are low. Time to become a snowbird?

Maybe. Prices are low, but they could still go lower. As of December, average house prices in the U.S. were still dropping, losing four per cent in the month. They're now at levels not seen since 2002. So there is plenty of room for some hard bargaining.

But don't be blinded by the low cost of entry. The expenses of carrying a Sunbelt property can be very high, and I speak from experience on this. Depending on where you locate, property taxes may be even higher than at home. Insurance rates are through the roof, especially in flood plains and hurricane or earthquake zones. Then there are costs for pest control, lawn care, utilities, house management, pool maintenance, if you have one, or condo fees if you go that route. Take all that into account before you buy.

The bottom line is that real estate can be just as risky as the stock market, especially right now. Yes, it can be a good investment  but you have to know what you're doing and under no circumstances overpay.