In fact, real estate could be a great investment in an inflationary environment because if all prices are rising, then rents and overall property values are rising, too.
Most retirement investors aren’t real estate speculators, of course, so it’s unrealistic for everyone to go out and buy a few houses nearby and rent them out. However, investors still have options to take this approach via publicly traded rental companies or diversified funds.
Real estate investment trusts, or REITs, are a special class of corporation that focuses on large real estate holdings. There are timber REITs like Rayonier (RYN) that own swaths of forest and sell the trees for wood and pulp, there are healthcare REITs like Senior Housing Trust (SNH) that owns elder care and senior living properties, and there are commercial REITs like Simon Property Group (SPG) that manage retail locations and malls.
As property values and rental rates rise, so do REITs. And best of all, their special tax designation mandates that 90% of taxable income is returned to shareholders via big dividends. Senior Housing Trust, for instance, yields over 6% annually at current levels!
If you’re not comfortable picking individual REIT investments, consider a diversified fund like the Vanguard REIT ETF (VNQ), SPDR Dow Jones REIT ETF (RWR) or the iShares U.S. Real Estate ETF (IYR) that hold a variety of real estate investment trusts to increase your diversification and lower your risk.
Just remember that the underlying businesses do matter, and that these are stocks as much as real estate plays. Even if inflation picks up, a bad balance sheet for your REITs could result in you losing money anyway.