Does Investing in Real Estate Provide a Hedge Against Inflation?

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The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

As inflation and interest rates rise, many investors are taking a closer look at commercial real estate. 

Commercial real estate is an attractive investment because it’s an asset class that often can provide a hedge against inflation by generating cash flow. 

Inflation — the rate of price increase over a given period of time — is the highest it’s been in more than a decade. One measure of inflation is the Consumer Price Index (CPI), which has gone up 5% over the past year — the highest increase since 2008, according to a report from the U.S. Bureau of Labor Statistics. 

On the residential side, inflation and interest rates don’t appear to have cooled the red-hot housing market.

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index reported a 19.5% annual gain in September, down from 19.8% in the previous month. The 10-City Composite annual increase came in at 17.8%, down from 18.6% the previous month. The 20-City Composite posted a 19.1% year-over-year gain, down from 19.6% in the previous month. 

“If I had to choose only one word to describe September 2021’s housing price data, the word would be deceleration,” said Craig Lazzara, managing director at S&P Dow Jones Indices. “Housing prices continued to show remarkable strength in September, though the pace of price increases declined slightly.”

While housing prices are high, residential real estate generally keeps up with inflation, and you can lock in an interest rate for the length of a loan. Mortgage rates are stable for the moment, but fears surrounding the omicron variant of the coronavirus have amplified volatility on the stock market.

Realtor.com expects mortgage rates to increase to 3.6% by the end of 2022, creating more affordability challenges for first-time buyers. 

Weigh Your Options

Still, investing in either residential or commercial real estate is cost-prohibitive for many people, but there are some ways to add it to your portfolio if you know what investment vehicles are available and whether you qualify. 

Real estate investment trusts (REITs) such as Boston Properties BXP and Simon Property Group SPG that can be accessed through stock market exchanges ensure you have access to your money simply by selling your shares, but you don’t own the real estate itself. 

If you want to own actual commercial real estate without the hassle of keeping the property leased or maintaining it, crowdfunding platform RealCrowd is one example of a service that may hold the ticket. The Portland, Oregon-based company reports that it enables investors to find and passively invest in properties across the country with zero platform fees charged to investors. 

RealCrowd’s website also provides additional educational materials and coursework to help investors understand the fundamentals of direct real estate investing. 

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.