Self-directed retirement plan – real estate can be your hedge against inflation

November 18, 2022


The pandemic shutdowns would have caused a significant dent in the economy, but government stimulus packages salvaged the situation. However, what one can’t help but think about is inflation – a hot topic since 2020. Rents, building material costs, and others have drastically increased. In such an atmosphere, it’s natural for investors to wonder whether the real estate can act as a hedge and protect their hard-earned money from eroding. When discussing opportunities in real estate, financial experts recommend multifamily apartments for consideration. Many perceive this as a safe investment because of the stable cash flow and higher return possibilities despite the inflationary environments.

Factors showing why real estate is worth your attention

You can use a self-directed solo401k account for this kind of transaction. There can be certain conditions that you need to know well. Nevertheless, when you invest in a property during a strong market condition, rents usually grow by 2-3% yearly. Since the inflation rate also has a similar pace, you can avoid or manage the effects better. In 2021, a short supply of lumber led to a 400% hike in the material cost while affecting the housing supply. If you keep your money in a regular savings account, the buying power only takes a hit. Suppose your savings account adds about one percent interest while inflation stands at 5%. It means you face a setback in your purchasing power by 4% a year.

For more clarity, let’s consider a scenario – paper currency can reduce in value due to oversupply, and essentials like natural gas and oil allow people to exchange them for other things. Bonds and stocks kind of soft assets cannot maintain their intrinsic value, but hard assets, such as real estate, always retain their value because of the demand and supply gap. However, properties’ inherent value depends on the basic needs of inhabitation and shortage issues in the market. The number of vacant lands is reducing, and affordable housing also has a severe market shortage. Due to these reasons, property prices have increased.

The future of real estate as a hedge

No matter the interest rates, real estate stood protected against inflation. Going back to the 1970s to 1980s, you will find that rents had increased despite the high inflation. The financial advisors feel that multifamily homes can protect you more from inflation. Landlords can set their prices high as per the contract with tenants. Opting for stable leases can be the best decision if you want a smooth go. You can expect steady returns. 

Most millionaires usually invest in real estate for consistent income through rent and the potential for a significant jump in their investment value. You can depend on this asset class to create and build your wealth. It’s been one of the traditional and most trusted ways. So you can rely on its contribution to your investment portfolio. Choose the right location, study the neighborhood and demand, and take steps. Your self-directed retirement plan account can help you with the transaction. Some retirement account providers can lend up to USD$ 50 000 without charging any tax. So, look for favorable options to benefit more.

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Andi Perullo de Ledesma

I am Andi Perullo de Ledesma, a Chinese Medicine Doctor and Travel Photojournalist in Charlotte, NC. I am also wife to Lucas and mother to Joaquín. Follow us as we explore life and the world one beautiful adventure at a time.

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