Pandemic-induced supply chain woes are plaguing homeowners and fix-and-flip investors

If one of your clients has tried to facilitate a home remodel or fix-and-flip project, you know that the supply chain has created significant delays and higher costs. Even the most prepared homeowners are being set back by months due to shipping delays and material shortages. The COVID-19 pandemic caused a surge in home renovation projects which, coupled with supply chain issues, has led to notably higher renovation and labor costs.

To try to stay ahead of price surges, there are things that homeowners and contractors can plan for in advance. In their advisory roles, mortgage originators can help homeowners and fix-and-flip investors — as well as referral partners such as contractors — to navigate these issues. This type of support will go a long way toward building the long-lasting relationships needed to thrive in the mortgage business.

Projected timeline

Building a realistic schedule based on the current remodeling environment is one of the most important things to do for any project. A schedule helps to organize contractors and materials to produce a more accurate project timeline.

A schedule also forces your clients to think about the projected timeline for permit approval and requirements, which is another common hurdle for remodels. During the early stages of making this type of schedule, advise your clients to consider having an in-depth home inspection performed.

Many remodeling delays are due to unexpected maintenance issues, so the more that your clients find and deal with early on, the faster their project will be completed in the long run. To this point, if your clients are considering a do-it-yourself project, advise them to be honest with themselves.

They’ll need to ask whether they have the time needed to complete these tasks correctly. They’ll want to have a contingency budget for inevitable errors or cost overruns. These are things that need to be accounted for in any remodeling schedule and budget. It is essential to be as accurate as possible when accounting for delays, DIY learning time and permit approvals. The more your clients accurately account for their time, the more purposeful they can be with it.

Material shortage

No matter how much planning is done, your clients are going to hit inevitable delays due to supply chain shortages. One of the most significant shortages and pricing surges involves lumber, which is arguably the backbone of homebuilding and remodeling.

With lumber prices hovering around $1,200 per thousand board feet, the National Association of Homebuilders estimated that the rise in prices had added more than $36,000 to the cost of a new single-family home as of April 2021. This is a textbook definition of something that was under-supplied, which then triggered a surge in demand and prices.

It’s an interesting predicament in that lumber manufacturers aren’t the people who thought that homebuilding would stop or even slow; the issue is that factories shut down along with the rest of the world in the early stages of the pandemic, which kick-started the shortage still being experienced today. This, combined with historically low interest rates, made the housing market more appealing than ever and increased the demand for lumber.

These circumstances stressed the supplies and labor tied to homebuilding and renovation activities, which has caused unprecedented price spikes. The lumber industry is struggling to hire enough workers and the current labor shortage further prolongs the return of a normally functioning lumber market for the buyer.

Along with lumber, the primary homebuilding materials that are currently in demand include appliances, engineered wood (a product often used in flooring that is made of wood pieces that appear to be solid wood), insulation, drywall, windows and doors. One approach to circumventing high-demand materials is to explore substitute materials.

Some examples of this are the use of fiberglass insulation, plastic roofing or concrete planks. Structural substitutions typically wind up being more expensive (but have shorter wait times) than standard materials because contractors have to learn and get creative with their solutions. Drywall alternatives are a relatively simple substitution to accommodate. Instead of drywall, homeowners can consider using stone veneer, faux brick, exposed brick, acoustic panels, cork or exposed concrete. These types of alternatives allow the buyer’s creativity to shine through in the design of their home.

Financial return

One thing that additional time and delays allow for is more research. The Plan Collection, an online home design platform, reported in its 2022 design and building trend forecast that with extra time, owners and investors can plan for upcoming trends so that their house reflects modern-day trends. Buyers are likely to be attracted to curves, including arched openings, rounded furniture and curved walkways.

An increase in the building of concrete homes and the use of metal roofs over the past decade is expected to continue due to the significant rise in lumber prices. The Plan Collection’s forecast also highlights kitchen redesigns. White countertops are being replaced with warm and neutral hues, although granite remains popular.

Those in the fix-and-flip business will want to focus on renovations that add the most value to their home in this unique market. According to an annual ranking of projects in Remodeling Magazine, four of the top five projects that offer the best return on investment (ROI) focus primarily on exterior enhancements.

A garage door replacement offers an average ROI of 93.8%, followed by manufactured stone veneer (92.1%), a minor kitchen remodel (72.2%), new siding (69.4%) and new windows (68.6%). A garage door replacement can significantly increase curb appeal while stone veneer adds texture to traditionally plain, exterior facing walls. Kitchen remodels can be beneficial, but their value lies in the buyer’s personal style.

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If your clients have the time and budget, these delays can be a good thing. Some borrowers will appreciate the extra time to design and plan the details of the project. If your clients are going the DIY route, these delays provide more time to learn about and execute personalized projects.

This, in turn, is leading more people to find and develop their dream homes. Owners have the time to honestly consider the functionality of their home and put thought into each renovation decision. While a home renovation project is a bit of a bumpy, windy road right now, the people who have made it through to the end have made one thing clear: It’s worth it.

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