Hedge Against Inflation With These 3 Real Estate Investment Types

Hedge Against Inflation

Hedge Against Inflation With These 3
Real Estate Investment Types


annual inflation rate in the United States is currently around 7.5%—the highest it has been since 1982.1 It doesn’t matter if you’re a cashier, lawyer, plumber, or retiree; if you spend
U.S. dollars, inflation impacts you.

Economists expect
the effects of inflation, like a higher cost of goods, to continue.2
Luckily, an investment in real estate can ease
some of the financial strain.

Here’s what you
need to know about inflation, how it impacts you, and
how an investment in real estate can help.



Inflation is a
decline in the value of money. When the rate
of inflation rises,
prices for goods and services go up.
Therefore, a dollar buys you a little bit less with every passing day.

consumer price index, or CPI, is a standard measure of inflation. Based on the
latest CPI data, prices increased 7.5% from January 2021 to
January 2022.1 A little bit of inflation
is considered healthy for the economy, but 7.5% in a single year is high.

does inflation affect your
life? Here are a few of the negative impacts:

Decreased Purchasing Power

We touched on
this already, but as prices rise, your dollar won’t stretch as far as it used
to. That means you’ll be able to purchase fewer goods and services with a
limited budget.

Increased Borrowing Costs

In an effort to
curb inflation, the Federal Reserve is expected to raise the federal funds
rate. Therefore, consumers are likely to pay a higher interest rate on new
mortgages, car loans, and variable-rate credit cards.3

Lower Standard of Living

Wage growth tends
to lag behind price increases. According to Moody Analytics, when adjusted for
inflation, average weekly earnings in January were down 3.1% from a year
earlier.4 As such, life is becoming less affordable for everyone.
Inflation can force those on a fixed income, like retirees, to make lifestyle
changes and prioritize essentials. 

Eroded Savings

If you store all
your savings in a bank account, inflation is even more damaging. As of February
2022, the national average interest rate for a savings account is 0.06%, not nearly enough to keep up with inflation. And economists don’t
expect that rate to go much higher.3

One of the best
ways to mitigate these effects is to find a place to invest your money
other than the bank. Even though interest rates are expected to rise, they’re
unlikely to get high enough to beat inflation. If you hoard cash, the value of
your money will decrease every year and more rapidly in years with elevated



So where is a
good place to invest your money to protect (hedge) against the impacts of
inflation? There are several investment vehicles that financial advisors
traditionally recommend, including:


Some people
invest in stocks as their primary inflation hedge. However, the stock market
can become volatile during inflationary times, as we’ve seen in recent months.5


Commodities are
tangible assets, like oil, livestock, and minerals. The theory is that the
price of commodities should climb alongside inflation. But the classic
choice–gold–hasn’t risen consistently during periods of inflation since the
1970s, according to data from Morningstar Direct.6

Inflation-Indexed Bonds

inflation-protected securities, or TIPS, are U.S. government-issued bonds that
are indexed to the inflation rate. Bonds are considered low risk, but the
returns they offer are generally low, as well.7

Real Estate
Real estate prices across the board tend to rise along with inflation and often
rise faster than inflation.8 That’s one of the reasons demand for
real estate is soaring right now.9

We believe real
estate is the best hedge against inflation. Owning real estate does more than
protect your wealth—it can actually make you money. For example, home prices
rose nearly 17% from 2020 to 2021, 10% ahead of the 7% inflation that occurred
in the same timeframe.10

Plus, certain
types of real estate investments can help you generate a stream of passive
income. In the past year, property owners didn’t just avoid the erosion of
purchasing power caused by inflation; they got ahead.



there are myriad ways to invest in real estate, there are three basic
investment types that we recommend for beginner and intermediate investors. Remember that we can help you determine which options are best for
your financial goals and budget.

Primary Residence 

you own your home, you’re already
ahead. The advantages of homeownership become even
more apparent in inflationary times. As inflation raises prices throughout the
economy, the value of your home is likely to go up concurrently. At the same time,
you’ve locked in a set mortgage payment for the next 30 years, so you’ll be
immune to rising rental costs.

If you don’t
already own your primary residence, homeownership is a worthwhile goal to

Though the task
of saving enough for a down payment may seem daunting, there are several
strategies that can make homeownership easier to achieve. If you’re not sure
how to get started with the home buying process, contact us. Our team can help
you find the strategy and property that fits your needs and budget.

Whether you
already own a primary residence or are still renting, now is a good time to
also start thinking about an investment property. The types of investment
properties you’ll buy as a solo investor generally fall into two categories:
long-term rentals and short-term rentals.

Long-Term (Traditional) Rentals

long-term or traditional rental is a dwelling that’s leased out for an extended period. An
example of this is a single-family home where a
tenant signs a one-year lease and brings all their own furniture. 

rentals are a form of housing. For
most tenants, the rental serves as their
primary residence, which means it’s a necessary expense. This unique quality of long-term rentals can help to
provide stable returns in uncertain times, especially when we have high

To invest in a
long-term rental, you’ll need to budget for maintenance, repairs, property
taxes, and insurance. You’ll also need to have a plan for managing the
property. But a well-chosen investment property should pay for itself through
rental income, and you’ll benefit from appreciation as the property rises in

We can help you
find an ideal long-term rental property to suit your budget and investment
goals. Reach out to talk about your needs and our local market opportunities. 

Short-Term (Vacation) Rentals

or vacation rentals function more like hotels in that they offer temporary accommodations. A short-term rental is defined as a
residential dwelling that is rented for 30 days or less. The furniture and other amenities are provided by the property
owner, and today many short-term rentals are listed on websites like Airbnb and Vrbo. 

A short-term rental can potentially earn you a higher return
than a long-term rental, but this comes at the cost of daily, hands-on
management. With a short-term rental, you’re
not just entering the real estate business; you’re entering the hospitality
business, too. 

Done right, short-term rentals can be both a hedge
against inflation and a profitable source of income. As a bonus, when the home
isn’t being rented you have an affordable vacation spot for yourself and your

Contact us today
if you’re interested in exploring options in either the long-term or short-term
rental market. Mortgage rates are expected to rise, so you’ll want to act fast
to maximize your investment return.



Inflation is a fact of life in the
U.S. economy. Luckily, you can prepare for inflation with a carefully managed
investment portfolio that includes real estate. Owning a primary
residence or investing in a short-term or long-term
rental will help you both mitigate the effects of inflation and grow
your net worth, which makes it a strategic move in our current financial

If you’re ready to invest in real estate to build wealth and protect yourself from rising inflation,
contact us. Our team can help you find a
primary residence or investment property that meets your financial goals.


The above references an opinion and is for informational purposes
only.  It is not intended to be financial
advice. Consult the appropriate professionals for
advice regarding your individual needs.



Bloomberg –



Reuters –

NBC News –


Morningstar –

The Washington Post –

Bloomberg –


Leave a Comment