Hedging a Leveraged Real Estate Portfolio
Does anyone have suggestions for methods for non-institutional investors to hedge against falling rents and/or real estate prices?
I'm considering investing in a leveraged inverse ETF to hedge against potential declines in rent and home values as a means of protecting my equity if another recession were to occur. One such leveraged ETF that I'm considering is the Direxion Daily Real Estate Bear 3X (NYSE: DRV). It seeks daily results of 300% of the inverse of the price of the MSCI US REIT index (which includes equity in a broad array of REITs that generate most of their income from real estate rental operations).
I figured that, because my real estate investments tend to be leverage between 70-80%, a leveraged ETF of this nature would help counterbalance rental income and pricing fluctuations.
Others have mentioned purchasing puts on companies that tend to decline in depressed real estate markets, such as home builders.
There's also the possibility of selling short futures contracts based on the S&P/Case-Shiller Indices. There are 10 major cities from which to choose (or I could choose a National Composite Index (CUS) that represents the stock-weighted average of all 10 cities).
All of these options seem like a broad-based solution to a potentially localized situation. While I realize that the local markets in which I'm invested may react differently from these larger national markets, I'm unable to find a method that permits me to create a leveraged hedge against my local markets (mainly Columbus, OH and Ithaca, NY). It seems to me that the benefits of the leveraged transaction outweigh the possible deviation from a precise inverse relationship to my local market.
I would greatly appreciate any and all input on the subject.