How to Hedge Against Inflation with Real Estate Investments

Real estate values and rents not only tend to keep pace with inflation but drive inflation itself. As a result, they often rise faster than the official CPI inflation index. 

In the third quarter of 1991, the median US home price was $120,000, per the Federal Reserve. Yet home prices in the third quarter of 2021 reached a median value of $404,700 — over three times higher than 1991, despite inflation only accounting for a fraction of that rise. 

Because real estate is, well, real, it's a physical asset with intrinsic value. Regardless of the currency, people need and want it and adjust their offers to buy or rent it as is necessary to secure it. 

Mark Twain famously put it like this: “Buy land, they're not making it anymore.” 

As with rental properties, land has intrinsic value. We need it for farming, building homes on, building commercial properties on, or simply for recreation such as fishing and hiking. 

You don't have to buy real estate directly to invest in it. There are many types of real estate investments, some of which are entirely passive. 

You can buy publicly-traded REITs (real estate investment trusts) with a regular brokerage account. By law, these funds must payout at least 90% of their profits in dividends, making them a reliable source of passive income. But not necessarily a great source of growth, and therefore inflation protection.