By 2019, Robert—a retired landlord in San Francisco—had followed the playbook to perfection.
He worked for decades, bought a six-unit multifamily property in a prime location, paid off the mortgage, and held on. Rental income provided steady cash flow. The property appreciated significantly. On paper, it was the ideal real estate retirement plan.

More importantly, Robert believed his real estate investment would protect him from inflation—a belief shared by millions of investors.

Historically, real estate has been praised as one of the best inflation hedges: a tangible asset, producing monthly income and appreciating over time. But by 2025, that narrative had begun to unravel.

The Hidden Risk: When Rent Control Erodes Retirement Income

Although rents looked solid on paper, San Francisco’s rent control laws capped annual increases. Between 2019 and 2025, Robert’s rental income grew by just 15%. Meanwhile, his operating expenses—including insurance, taxes, utilities, and maintenance—soared over 30%. Cost of living in the Bay Area jumped nearly 20% in the same period.

Despite owning a debt-free, high-value property, Robert was falling behind financially.

This is the inflation risk most real estate investors don’t see coming: not a decline in property value, but a steady erosion of purchasing power due to capped income and rising costs.

Why Real Estate Isn’t Always an Inflation Hedge—Especially in Regulated Cities

Economists often describe income-producing real estate as a natural hedge against inflation. But that assumes one crucial factor: landlords can increase rents in line with inflation.

In cities like San Francisco, New York, Los Angeles, and Portland, rent stabilization or control laws restrict how much landlords can raise rents—even when operating expenses skyrocket.

These aren’t just market fluctuations—they represent structural challenges for landlords relying on rental income to fund their retirement.

The True Threat of Inflation: Eroding Real Income, Not Just Higher Prices

In 2019, Robert’s rental income covered his $120,000 annual lifestyle. By 2025, he needed $143,280 just to maintain the same standard of living—but his net rental income had only reached $134,136.

That shortfall of over $9,000 per year meant he had lost more than $40,000 in purchasing power over six years, even as his property’s market value increased.

This underscores a critical lesson: Equity doesn’t pay for healthcare, groceries, or retirement travel. Income does.

A Better Strategy: How 1031 Exchange into DSTs Creates Passive Income and Defers Taxes

For real estate owners in high-cost, low-yield cities, there is a smarter way to realign income with retirement needs.

One increasingly popular strategy is to use a 1031 exchange to defer capital gains taxes and reinvest the proceeds into a Delaware Statutory Trust (DST). DSTs allow accredited investors to gain fractional ownership in large, professionally managed commercial properties across diversified markets.

By moving from active management to passive real estate income, investors can:

• Access properties in more landlord-friendly, high-growth markets
• Eliminate day-to-day management responsibilities
• Diversify their holdings with potentially lower risk
• Maintain monthly income streams, often with 5%–6% targeted annual yields
• Defer capital gains taxes through 1031 exchange into DSTs

Is a DST Right for You?

DSTs are not liquid and not suitable for every investor. But for property owners nearing retirement—or already retired—the tradeoff between control and stable income can be worth serious consideration.

If you're sitting on a valuable property but watching your monthly income decline, a 1031 exchange into a DST could offer the right mix of income protection, inflation resilience, and tax deferral.

Rethinking the Hedge: The Takeaway for Real Estate Investors 

Real estate can be a powerful tool for building wealth and generating income—but the context matters. In regulated markets, the traditional “real estate as an inflation hedge” narrative is breaking down.

If you’re a long-time property owner like Robert, ask yourself:

• Are my expenses rising faster than my income?
• Is my rental property truly serving my retirement goals?
• Could I benefit from a more diversified, passive approach?

Sometimes, the best way to protect your financial future isn’t by holding tighter to the familiar—but by shifting toward smarter, more adaptable strategies.