I continue to preach to my marketing and coaching clients about how there is even more to consider than the numbers when it comes to making the important decision about whether or not to pursue a specific property transaction. Supply chain and material cost uncertainty has some real estate developers reconsidering new projects whether property acquisition costs go up or down.
A property deal might look solid upon running the numbers. However, my emphasis is turning to what could happen upon completing the acquisition or sale. It is possible that the reason you are getting a favorable deal is that the seller knows that upcoming construction or renovation needs are the real reason for selling. This situation, and projections for rising costs, make it essential to more effectively plan and anticipate prior to committing to an acquisition. Suppose you are acquiring a property and projecting $50,000 for renovations within the first two years. Those same renovations may wind up costing $90,000 based on pending material and construction price increases.
Using this example, you need to look into whether or not the "additional" $40,000 cost still makes this a good deal for you. It may or may not. Sometimes this involves additional market research and data, while other times it is simply a matter of costs to consider and the eventual impact on the bottom line. When it is a client or associate of mine, I like to go with both because I make it a point to explore any and all possible outcomes.
This part of the process, which I call "Running the Future Numbers" should come after running the numbers and upon completing your due diligence. If new or additional construction or renovations would be needed in the foreseeable future, projecting your costs is becoming even more important.
https://www.bdcnetwork.com/home/news/55266288/slower-construction-spending-rate-foreseen-for-next-four-years
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