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Tariffs may raise construction costs and slow down new builds.
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Mortgage rates could climb—consider locking in now.
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Rental demand may rise, but plan for higher expenses.
Tariffs may seem like a distant political issue—but for real estate investors, they can have very real, on-the-ground effects. Whether you’re flipping homes, investing in rental properties, or developing new builds, it’s essential to understand how global trade policies and economic shifts might impact your business. While some changes are still hypothetical, being proactive and informed will help you make strategic decisions.
In this post, we’ll walk through the potential effects of recently proposed tariffs, especially as they relate to construction costs, labor shortages, mortgage rates, and long-term investment planning. We’ll also provide key recommendations to help you stay ahead.
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What Are Tariffs—and Why Should Investors Care?
A tariff is a tax imposed by a government on imported goods. The goal is usually to protect domestic industries by making foreign products more expensive, which can shift demand toward locally produced goods. However, tariffs also tend to increase the cost of imports across various industries—including the construction industry.
For real estate investors, this matters because many materials used in building and renovating homes—like lumber, steel, and aluminum—are imported. When tariffs are added to these goods, the prices go up. This can have a ripple effect on construction costs, project timelines, and the overall housing supply.
Tariffs also influence the broader economy. They can contribute to inflation, disrupt supply chains, and affect investor confidence—factors that indirectly shape mortgage rates and real estate market conditions.
Why Tariffs Matter to Real Estate Investors
While the proposed reciprocal tariffs are currently on a 90-day hiatus at the start of Q2 2025, investors should prepare for the changes that could follow if they are enacted.
1. Increased Building Costs
Many construction materials—such as lumber, steel, and aluminum—are imported from countries that could be subject to these new tariffs. If enacted, tariffs could raise the cost of these materials significantly, which would:
- Increase the total cost of new home construction
- Make rehabs and renovations more expensive
- Lengthen timelines due to material sourcing delays
These added costs could discourage builders from starting new projects, reducing the overall housing supply and tightening the market even further.
2. Potential Labor Shortages
Political shifts and immigration policies may also result in labor shortages across the construction industry. Reduced availability of skilled labor can:
- Slow down project timelines
- Increase labor costs due to higher demand
- Limit the number of new builds and major rehabs
This is particularly important if you’re actively managing fix-and-flip projects or planning new developments. Build in additional time and costs for labor when underwriting new deals.
What This Means for Buy-and-Hold Investors
For long-term investors, especially those holding rental properties, there may be a silver lining. A slower pace of new home construction and increased purchase prices could push more people into renting, boosting demand for rental units.
However, it’s not without challenges:
- Maintenance and repair costs may rise due to more expensive materials
- Fewer homes on the market could drive up acquisition prices
- Delays in renovation projects could affect your leasing timeline
Recommendation:
If you are planning on buying some turnkey or buy & hold real estate, be conservative in your analysis. Include higher assumptions for rehab costs, longer hold times, and more moderate appreciation projections. Planning for less optimistic outcomes will put you in a stronger position if conditions tighten.
Mortgage Rates & Tariff Implications
Interest rates are another critical factor to watch. Mortgage rates are closely tied to the 10-year U.S. Treasury yield, which fluctuates based on investor demand for U.S. bonds.
When demand for bonds increases (often during times of uncertainty), yields drop, and mortgage rates typically follow. But if foreign governments (who currently hold over 30% of U.S. debt) pull back on their purchases, yields could rise, pushing mortgage rates higher. And that’s exactly what we’re seeing amid tariff-related volatility.
Recent tariff threats have sparked sell-offs in both the bond and stock markets—an unusual occurrence that points to deep investor uncertainty. This behavior is important because:
- Higher Treasury yields lead to higher mortgage rates
- Higher rates reduce affordability for homebuyers
- Demand for purchases can fall, slowing price growth
Recommendation:
If you’re currently in the process of closing on a home with a mortgage, consider locking in your rate now. With increased volatility, there’s a real risk that rates could spike quickly. Locking in can help you avoid sudden increases that could raise your monthly payment or affect your loan eligibility.
Final Thoughts: Stay Proactive and Informed
As a real estate investor, your ability to adapt is one of your greatest strengths. While tariffs and economic shifts are beyond your control, your response to them isn’t. By preparing for higher costs, longer timelines, and rate fluctuations, you’ll be better positioned to protect your investments and seize new opportunities as they arise.
Investor Action Steps:
- Monitor material and labor costs closely
- Underwrite deals with conservative estimates
- Stay informed on mortgage rate trends
- Lock in financing when possible
- Focus on long-term value and sustainability in your investments
Why Now Can Still Be a Smart Time to Invest
Despite uncertainty around tariffs and rising costs, there are still compelling reasons to invest in real estate today. Strategic investors who stay informed and plan carefully can position themselves for long-term success.
1. Less Competition from Builders
If construction slows due to increased costs or labor shortages, it may reduce competition in certain markets. This could give current investors an edge, especially in areas with already limited housing supply.
2. Opportunity to Negotiate
In uncertain markets, sellers—including developers, banks, or individual homeowners—may be more open to negotiation. This creates opportunities to acquire properties below asking price or with favorable terms.
3. Long-Term Appreciation
Real estate remains a long-term play. While appreciation may slow in the short term, well-chosen properties in growth markets can still build significant equity over time—especially if purchased at a discount during a temporary slowdown.
Bottom Line: Challenges in the market often create opportunities for those who are prepared. By staying conservative in your deal analysis and strategic in your acquisitions, you can take advantage of today’s market conditions and build wealth for the future.
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