How Supply Chain Challenges Can Impact Your Property
A System Under Extreme Stress
Every month seems to bring more news of labor shortages, growing inflation and supply chain disruptions. Although institutional builders such as D.R. Horton, PulteGroup and Lennar Corp have been experiencing extensive lead times and sharp price increases for nearly every type of material used in new home construction, investment property renovations and improvements have been impacted even more.
Smaller builders and contractors have struggled mainly due to their inability to leverage the scale larger builders have, prohibiting access to what they need to start and complete projects. They often feel “last in line” to receive materials or access skilled labor which adds to the delays and ability to compete for contracts.
There are a multitude of factors at play ranging from access to capital, logistics and competitor demand to politics and high tariffs impacting where goods are sourced. Regardless, if you are a real estate investor, you’re looking at above-normal time frames as well as increased costs to renovate or upgrade your property for tenancy.
Whether you’re a fix-and-flip or a buy-and-hold investor, your investment strategies require more due diligence than ever. In addition, the demand for investment real estate is at an all-time high and finding the perfect property to add to your portfolio comes with its own set of challenges, let alone what you’ll need to do to improve that property to make it as appealing as possible to tenants.
Buckle Up For a Rough Ride
The supply chain disruption, transportation backlog, rising costs of materials and labor shortages are a difficult reality we’re facing today and likely will be for some time. Here are a few tips to help you navigate this turbulence whether you are a real estate investor with a large portfolio of leased properties or getting started with your first property.
Study your market—Observe regional trends and research where and what materials and labor are being impacted before you make a decision to renovate, repair or upgrade a property. For example, you may discover exterior house painters are plentiful but plumbers are not. Follow real estate industry association trend reports to learn about the impacts on your region and asset class.
Reassess improvements—Instead of buying that four-unit multifamily that needs a complete renovation and could possibly require lead or asbestos mitigation, invest in a property that has less improvement needs and can still be attractive to tenants. You can delay making improvements and incentivize tenants to renew with the promise to improve at a future date.
Expand your network—You may have relied on a handful of contractors to work on your properties when they needed improvements or repair, but due to demand their availability has diminished while their labor costs have increased. Find more contractors, suppliers and tradespeople to bring into your network.
Use retention models—If you have multiple units that require ongoing maintenance and improvement and you don’t have a property management company, consider retaining contractors on an ongoing basis to provide you priority service, volume pricing or other forms of incentives.
Review your budgets—Your improvement timelines may need to shift as well as the budgets for those improvements. Reassess your renovation and maintenance costs and recalibrate your budget for increased pricing, different suppliers or labor impacts so when you can get the work done, you have the budget.
Brainstorm and innovate—Depending on your specific situation, think of some creative solutions to the improvements or investments you want to make in your property. For example, if you want to add a bedroom to an existing property but contractors are at capacity and are six to nine months out, is there an alternative solution to make your property interesting to prospective tenants that has less financial and labor challenge? Innovate temporary solutions that allow you to market your property in a new and appealing way or help current tenants fall in love with their space with improvements that are unique to their lifestyle like adding a window box or cold frame for tenants with green thumbs.
Collaborate and partner—Network with other landlords or find ways to collaborate with others in similar situations to discover ways to partner, share or leverage resources. A contractor may prefer working a ten-unit project brought together by several distinct property owners versus dealing with ten individual owners and ten individual properties.
Show Your Appreciation
Tradespeople as well as those in logistics are under great stress and overworked. Show your appreciation to those who do show up for work, get the job done, and help your property get leased and grow in value.
Express appreciation for your current tenants as well. Communicate with them more frequently about any delays in improvements or cosmetic repairs they may have anticipated that you’ve not been able to deliver due to supply chain issues and labor shortages.
We Feel Your Pain
Throughout our companies, Empire Property Management and Empire Property Construction in particular, we have been experiencing the supply chain, material, logistics and labor problems ourselves. We are actively developing new models to help us insource more skilled labor and services to help our owners and investors continue to grow successful real estate portfolios.
If you’re experiencing issues getting your improvements done, reach out to us. We’re here to help.