What it's like working with Builders while material costs are so high

income & expenses market research new build new construction real estate market Jan 11, 2022

Our experiences working with builders on both personal projects and rental communities. Material and labor costs are high with little promise that they'll come down any time soon. So do you have to change your strategy in order to get a project completed? For backyard projects, absolutely. With build-to-rent developments, it appears so.

I think the moral of the story is it's really hard to commit, you know, we see a big appetite by institutions in the built for rent space right now. They want to buy projects at C of O that they say, we want you to take all this risk and get these units all the way to certificate of occupancy, get them done and ready for lease-up. 

And we will pay you out the nose. If you do that, because to them, they can cap their risk. They sign a contract that X price they're not going to have to ride this wild tidal wave of material. And, and, and. That is so volatile, but guess what risk they're willing to take. Lisa, they're willing to take that because in this environment with costs going up, what's this doing to these poor tenants. 

Sherida Zenger: Pricing them right out of homeownership.  

Steve Olson: Leases or rents are going up. I mean, I think we've seen rents rise like 20% in many markets over the last 18 months or so. So I think that this volatility. That is probably all, ultimately it's the end-user, the tenant, or the home buyer that is going to say uncle and they haven't said it yet. 

Chase Leavitt: How many builders are going for the contract where they're writing it up at certificate of occupancy and I'm sure they're probably putting some sort of a deadline in there, right? Yeah. So is it appealing to them or they're just getting quite a bit more where the cap rate X amount.  

Steve Olson: I dunno. I had an institution ask me for a price that I said, no, you name it. 

Yeah. This is one that I've got under construction, a small build to rent deal. I said, well, we don't know. I said I don't know. Make it, so I don't have to think. Yeah. That's, that's where you are. So everybody wants to take the lease-up risk rents are going up. They're like, I can do that. There's a huge housing shortage.

Finding bodies isn't the problem. Finding bodies that have hammers and nails is the problem. I would actually venture to say that that's a bigger problem than the materials because you know, you can have your materials sitting there, but if nobody can do the work, what does it matter? 

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