In the ever-shifting landscape of the U.S. construction industry, the Trump administration’s tariffs have introduced a new layer of complexity, leaving investors grappling with uncertainty. While the tariffs fluctuate, their impact on the real estate sector is undeniable, with higher prices trickling down to consumers and affecting everything from lumber costs to renovation expenses. This volatility has sparked a critical question among investors: is now still a good time to invest in real estate?
The answer, according to industry experts, lies in strategic adaptation. Bo Belmont, CEO and founder of Belwood Investments, highlights the significance of lumber in construction, noting that the U.S. heavily relies on Canadian imports. “New home builders and developers are going to see significant cost hikes as tariffs take effect,” Belmont warns. This reality necessitates a shift in investment strategies. Belmont suggests that investors should consider “fix-and-flip properties” as an alternative to new builds, which are likely to incur higher costs due to tariffs.
Ryan Dossey, founder of SoldFast, echoes this sentiment, advising investors to focus on properties that require only surface-level updates rather than extensive renovations. “I always prefer newer [and] cleaner properties to stuff from the 1800s needing six figures worth of restoration,” Dossey says. This approach not only mitigates the impact of rising material costs but also allows investors to capitalize on properties that were recently renovated with pre-tariff material and labor costs.
Derrick Barker, CEO and co-founder of Nectar, a platform for real estate operators to access capital, offers another perspective. He recommends investing in properties with long-term, fixed-rate debt, which can provide stability amidst the tariff-induced volatility. “Tariffs will make it more expensive to do renovations and construction. It will make it more expensive to operate properties that have high maintenance costs because their systems are old,” Barker explains.
However, there are potential silver linings. Belmont suggests that high tariffs could lead to lower interest rates, creating new opportunities for investors. “It could pave the way for lower interest rates, which would create new opportunities to buy homes ripe for renovation and offer lower carrying costs for fix-and-flip investors,” he says. This scenario could offset some of the increased costs associated with renovation and restoration materials.
Modular construction, both in residential and commercial real estate, may also benefit from this high-tariff environment. Barker points out that modular construction could gain favor due to its potential for lower costs and faster building timelines, which could mitigate some of the tariff impacts on traditional materials. However, he cautions that these benefits may come with trade-offs.
On the other hand, sectors reliant on international trade, such as retail, office, and warehouses, may face challenges. Higher production costs could lead to increased vacancies in these sectors. To mitigate these risks, Barker advises investing in cash-flow-positive assets or properties that cater to growing markets with a low basis, ensuring returns despite higher construction and labor costs.
Dossey’s approach involves shifting business to local supply houses to save on costs. “Sherwin Williams is headquartered in Ohio, and it’s where we get most of our paint [and] flooring. I would suggest hitting up local supply houses over the big-box stores. Recently, I had a window quote from Home Depot for $55,000 and the same product at a local supply house was $37,000. Lastly, we’ve always loved the Amish for cabinets,” he says.
Tax strategies can also play a crucial role in navigating this high-tariff economy. Barker suggests utilizing cost segregation studies to maximize depreciation and reduce taxable income for investment properties, as well as exploring opportunity zone investments that come with tax deferrals and securing financing that locks in favorable rates.
Investors who can adopt a long-term view may find tremendous opportunities in the coming years, despite the current risks. Barker assures that with strategic planning and adaptability, the construction industry can weather the storm of tariffs and emerge stronger. The key lies in embracing innovative solutions, leveraging local resources, and maintaining a keen eye on market trends. As the industry adapts to these challenges, it will continue to shape the future of sustainable and resilient construction, ensuring that the built environment remains a cornerstone of economic growth and community development.
