Why Construction Costs Are Fluctuating and How They Impact Real Estate

ICG Real Estate Investments
 
One of the things that seem to concern a lot of investors these days is the rising cost of building materials and new constructions in general. My clients and some of those who attend our seminars often ask me whether they should change where they plan to buy, or even reconsider their plan of investing in real estate altogether. Here’s what I tell them – where you invest doesn’t make a difference. And over the long term, it’s still going to make you money despite the rising costs. There are other factors to consider while choosing where and how to buy real estate.

Construction costs are rising.

Take lumber – the costs have fluctuated greatly in the last couple of years alone. There are a few reasons for this: the wildfires we’ve had in California, Oregon and so on, is one of those reasons. Then there is the fact that prices of lumber coming in from Canada have gone up as well. Canada has had to deal with the bark beetle infestation that has impacted millions of acres of wooded areas. All of these reasons have caused shortages of lumber, which in turn has caused the prices to increase rapidly.  They have come back down to an extent, but are still much higher than they used to be. So yes, construction costs have gone up because of price rises in lumber.
And right now everything is costing more. There’s sheetrock, PVC and other raw materials that now cost more. Plus builders and developers have to deal with permit costs going up. So overall, real estate prices are rising. I’ve also been speaking about rising inflation because of the enormous amounts that the government has been pumping into the economy. So rising prices are almost unavoidable right now. But should that impact your investment decisions?

Rising prices should not change where you’re investing.

A lot of people have asked me recently if they wouldn’t be better off investing where real estate prices are comparatively low right now. And I tell them it doesn’t matter! The fact is that prices are going up across the board – regardless of which geography you decided to invest in. So this is not a relevant criterion.
What is relevant is what you buy and how. At the risk of repeating myself, I have to say that single family homes are still your best choice. Not only do you get great returns over the long term, your real estate investment generates a passive income right away in the form of rent. And again, you cannot go wrong with the 30-year fixed-rate loan. It is this that has the potential to be really life-changing for you.
Check out my latest episode to know more about why higher construction costs right now are not germane to your real estate investing decisions. In this short video, I crunch some numbers and explain why other considerations are much more important when making a decision.