Even if you manage to sock away a fair amount in your 401(k) every year, it’s not unusual to worry that inflation may eat away at the value of your retirement portfolio. To reduce the likelihood of that happening, you can boost retirement income by investing in real estate.

You’ll gain the added benefit of increased asset diversity and balance in your portfolio. And depending on which real estate investment option you pick, you could also create a retirement income stream that rises in tandem with inflation.

Let’s look at the pros and cons of common ways to invest in real estate:

1. Purchase shares in private lending pools.

2. Invest directly by purchasing rental property.

3. Buy shares in real estate investment trusts (REITs).

4. Cash out home equity.

1. Investing In Private Mortgage Funds: Pros And Cons


Private mortgage funds lend money to real estate flippers who buy, improve and resell properties. (Full disclosure: I am the CEO of one such lending organization.) Since the pool lends money to hundreds of flippers, risk is diversified across many deals.

As a borrower, you can also avoid risks you’d face if you tried to flip a single property yourself, like buying high and selling low, not knowing enough about renovations to do a good job or taking so long to finish the renovations that holding costs eat your profit.

Private mortgage funds are long-term, fixed-rate investments that aren’t as liquid as stocks and bonds. You typically need to commit to the investment for a set number of years and provide many months’ notice if you want to redeem your investment early. They’re also not traded on an exchange, so it’s important to vet the company offering the investment.

2. Direct Investment In Real Estate: Pros And Cons

Direct investment has many upsides. You can buy with relatively little cash, so it potentially has one of the highest returns on investment (ROI) of the three options. Independent home lenders offer investment property home loans with as little as 15% down, so you could buy a $200,000 property with $30,000 cash down. Let’s say home prices rise 5% next year. Your rental property is now worth $210,000, a 33% gain on your $30,000 investment.

Real estate also tends to move with inflation. As consumer prices rise,…