2. Real property held for investment purposes. Increased value in real estate has typically exceeded the rate of inflation. But real estate as an inflation hedge varies from locality to locality. Also, leverage exists with real estate since a high percentage of the investment may be made with debt funds. Down payments are often less than 25%. However, a large capital investment is usually required. Real estate provides capital appreciation or depreciation. Certain real estate investments, such as residential and commercial property, generate annual income. Directly managed real estate income property provides tax deductions in the form of depreciation expense, interest expense, and property taxes.