STRATEGY
RISK MANAGEMENT
O
ne of the biggest challenges for any real estate developer or home builder is managing costs. Land,
Managing Costs in Build-to-Rent
materials, and labor can all fluctuate from a project’s in - ception to completion, which makes predicting final costs a bit of a moving target. If you are building houses to sell, most of these cost fluctuations can be passed on to the buyer, as home sales prices tend to have more elasticity. If you are building to rent, however, the amount you can collect each month does not increase if you have cost overruns. This can significantly affect your bottom line. Managing cost is probably the biggest risk in build-to- rent. Any miscalculation will chip away at your bottom line. This has never been more apparent than in the Covid-19 era, as some material costs have skyrocket - ed. Lumber for example has doubled and has increased by more than $10,000 for an average size house from pre-pandemic to summer 2020. Availability of appliances became a pandemic-relat - ed challenge as well. When manufacturing shut down in March and April, supply chains were disrupted. Even when manufacturing began to ramp back up in spring and summer, it was at a much lower scale. With a scarcity of dishwashers, washers, dryers and refrigerators, prices went up and any project that launched before March 2020
SIMPLE STEPS TO GUARD AGAINST COST OVERRUNS
by Bruce McNeilage
52 | think realty magazine :: december 2020
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