Do any of you have any good ideas on inflation hedges?
I think inflation is going to be with us at least through the middle of next year, maybe longer. I’m looking at different options and was curious if you all had any good ideas you were pursuing.
I have recently made some investments in farmland via Acre Trader. That’s only like 2-3% of my portfolio, definitely good inflation hedge, but 5-10 year investment horizon, so I’m looking for other ideas with more liquidity.
i do repe via crowdstreet. just invested in a 9m trailer park in colorado and a 100m luxury apartment in arizona. i figure if inflation rises, they raise rent and valuation, but debt is fixed. i browse a few other sites, realcrowd, equity multiple, and arbor crowd. but they havent posted ■■■■ since covid hit. these are honestly the only deals out there. but even their acquisition cap rates are below 5%.
Commodities, TIPs, REITs, and Co’s that can pass along costs are decent bets. Real estate is a good pick in general, though really depends on property type (e.g. short-duration leases are better in an inflationary environment). Also prefer areas that are chronically supply constrained.
I’m a little skeptical of crowd funded CRE since I’ve generally found fees to not be LP friendly and structure a bit shaky (over-leveraged, over-valued at LP entry, inexperienced developer / manager, lofty pro-formas, and/or misaligned incentives / control structure). There are so many well-run public REITs that own some of the best real estate in virtually any property type; just think that is the better route unless you have unique deal access, can be your own GP, and/or ability to invest in solid REPE groups.
Thanks both. I’ve been putting more $$ into alts primarily, including some “alt-alts” like NFTs. I now have 6-7% of my portfolio in commodities due to appreciation vs my strategic allocation range of 3-5%, so if anything I’ll be trimming that back a little over the next quarter.
I have a little bit in REITs but I’m a little reluctant to put much more in, as I am not sure if rising interest rates will be a favorable environment for real estate.
I’m almost entirely out of fixed income since I view it more as “return free risk” than risk free return… just have a little in convertible bonds and some iShares in 1.5yr corp bonds.
So I’ve mainly been playing around the edges, pushing into Alts and I have also put more into value stocks as I am heavily Growth weighted. Some CPGs like Proctor & Gamble who I think will have pricing power might be good for a higher inflation environment.
the issue with public reits is they are underlevered. their returns are not juicy enough as you are not buying it at book value. lets take a curesory look at avb for example. they have 80k units with a 40b ev so you are essentially buying each units at 500k a unit. thats expensive. even at the dividend level its only at 2.8%. LTV is usually 20% though. but again total return cagr is 10%. and avb is no simp. id say they are the gold standard.
meanwhile in one of my investment. i purchased a unit at 250k per unit with a net dividend yield of 6%. when it comes to terms, they vary. fees are relatively low in crowdstreet and arbor specifically sinc ethey cherry pick only the best deals. the sponsors typically have experience in excess of 10 years. have 10% skin in the game. and typically have an average Net IRR of 20% plus with most having a minumum return of 10% historically. ltv is usually 70% though. but at least you have limited liability if things go south. and you dont gotta manage it.
higher rates a good point. in terms of an exit, it’ll be harder. refinancing as well. but high rates typically imply higher inflation which mean higher rents which often offset valuation. check out real estate returns during 1970s for example.
Buy a property with a fixed rate loan?
REITs are underlevered because many blew-up or nearly did in '08 so their investor base generally doesn’t like to see a lot of leverage. That’s just a difference in preference of risk and so you’d need to assess whether you’re getting appropriately paid for the extra risk and liquidity lock-up. $500K/u (sounds more urban in-fill) might be expensive vs. $250K/u (suburban / exurb), but hard to say without knowing the differences in relative location, quality, and demographics.
Rising rates are generally seen as bad for REITs, but it depends on whether rising rates are due to better macro-growth (that should be good). Moreover, you’ll typically only see a big correction in REITs from an unexpected and drastic rise in rates.
Probably the biggest benefit of lock-up CRE vs. REITs for many investors is simply keeping yourself invested in the asset class and stop the temptation of trying to time things, which most people cannot do consistently well.
interesting. im not that knowledgeable on the reit blow up in 08, keep in mind im talkign stricty apartment reits. i dont touch the retail, hotel stuff. but i hear you. always gotta be on hte lookout for that survivorship bias. i’ll look it up and see what i find.
im stagerring in about 25k to 50k per year in residential repes. and then i’ll reevaluate in the next 5 years if i will renew they as they come due. it’ll be a function of other alternatives. fixed rates, market valuation. for the most part, i plan to dedicate my excess taxable cash either in REPE or BRK.b, or regular real estate if prices tank. But i feel like it’ll be hard for me to lever due to the student loans im inccuring. its roughly 60k per year lol.
Maybe we can work out something that helps all of us… we finance your student loans in return for 10% of your future gross earnings in perpetuity?
my private student loans is 1% interest rate, even at 5% id prefer student loans over that.haha