Today we recommend reading an article from The Wall Street Journal Investors Buying Real Estate to Beat Inflation May Find Tactic Backfires. This article details a fairly straightforward premise about real estate investing: Though many think real estate is an inflation-proof investment and a better hedge against rising prices than other assets, including stocks, reality isn’t so clear-cut. “Office and retail leases often last for 10 years or more, and unless they include inflation-related rent increases, landlords see their real income shrink. Rising inflation also typically leads to rising interest rates, which pushes up the yield for risk-free bonds and weighs on property values by making their yields look skimpier in comparison. If landlords can’t raise rents enough to compensate for that, inflation makes them poorer.” Beyond that, because real estate’s value is tied to its location, it is tough to diversify. An investor’s ability to raise rents depends on the specific conditions the property faces, making it critical for investors to do their research and due diligence. While we aren’t for or against most investments (save for non-traded REITs and deferred annuities), we think investors have other, more liquid ways to help their portfolio outpace inflation—e.g., owning stocks.
