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What is up? What is up, Pro Design Builders? Welcome to another live training. I got something special for you today. And it's been on my mind, and obviously because it's been in the news lately. Tariffs, tariffs, tariffs, tariffs, tariffs. How does tariffs affect real estate developers? Right? So today we're going to be diving deep into what that looks like for real estate developers. How does it affect you? What are the areas that you could do to um prevent some of the uh impact of tariffs? So um with all of the crazy news happening, the news just dropped today that there's gonna be a 90-day uh pause on on tariffs, but doesn't mean anything um to to us just yet. Um and but you do need to know exactly how this is going to change the atmosphere or change the outlook for you if you want to take on some some new projects. So uh I'm Sam, also known as the Pro Design Builder. If you don't know uh my story, uh I'll I'll share it uh just a little bit later. But welcome to our Facebook group, welcome to our live training. This group is specifically for real estate investors that are struggling with knowledge and information to make the transition into real estate development. Uh, I went through this same process, it cost me probably about 12 to 13 years, and because of that, and how I had to scratch and claw to get the information, to get the experience and stuff like that. Uh, I decided to launch this group so I could help others bend that curve. All right, it's something that's really important to me. And like I said today, we're gonna be discussing uh how will tariffs affect real estate developers. But let me just tell you a little bit about my story. It's always good to tell you parts of my story that uh makes the most sense. So uh back in 2011, um my wife had gotten into med school, and right before she was supposed to go to med school, she wrote me the letter and said that I don't want to go, right? Uh I don't foresee us having a family life, I don't foresee us um operating and being the type of family that you know we envision uh as being, and she was absolutely right, right? So I've kind of mentioned to you guys before that uh I'm a foster dad. I adopted uh I'm currently fostering now. I I've also adopted two kids. Uh this is something that you know God has placed on my heart and something that's really important to me, and she's always kind of known that. And we've always been just big family people in general. So when she said that to me, uh I pretty much was like, well, what are we gonna do? Right? Uh at the time I was in the uh car business and body shop business, and uh I had planned to just use the business to be able to kind of pay for her to go to school, and then that's when she handed me a book, and that was uh Rich Dad Poor Dad. And after I consumed that book, it really spoke to me. And then after that, I went to the seminar. I needed one more seminar to kind of get my my uh get my my feet going, and I went to another seminar and I just started taking massive action, and just kind of like a lot of people, I was I was a wholesaler, and then I turned into a house flipper, and on my first deal, right? So everything happened uh progressively on my on my first house flip. Um I hired a contractor, I fired a contractor, hired a second contractor, fired a second contractor, hired a third contractor, and I finally got through the project, but that gave me so much experience. But what it also told me is I needed to run these projects because I have con this business has contractor problems, right? Which is something that we'll we'll we'll touch on um a little later uh as well on why that's important to have the right contractor and building the right team. Absolutely cannot skimp on that particular one. There's uh easily, easily, easily could ruin your life, ruin your project, set you behind the timeline, set you back with banks. Uh, there's a lot of issues that could happen if you don't know what you're doing in that particular arena. So, what it forced me to do is take the bull by the horns. I didn't come in through construction, but I started managing my own projects. I got really good at getting in and out of projects. I also um I got really good at getting in and out of projects, and you know, towards the end of my flipping business, uh, I decided to take this on full-time as a builder. Um, but I had the itch to be a developer, right? So I met with this uh building engineer, and I was like, hey, listen, I want to come to work for you for free, and um you know, I'll do whatever you need me to do, and and this this jerk said, you know, uh pay me 30 grand and I'll teach you everything you need to know. He was like, better yet, make it 40, right? And I walked out out of there, kind of like not defeated, because I I I'm just I'm just I'm a worker, right? I'm gonna figure it out, it's just a matter of time, right? So I started hitting the pavement. I reached out to a friend that was a major developer in Manhattan just to kind of get the perspective of what they're doing and how'd he get started. So I flew up to Manhattan at the time. He had about $600 million in projects going and a couple other hundred million in projects on its way, and I was really able to kind of sit down with him and pick his brain and see his operation and see the type of projects he's doing. He's dealing with you know, Israelis uh for capital. Um uh also he was dealing with um Saudis um to raise capital. Like obviously, when you're dealing with that level of project, these are the type of relationships that you need, all right. Also, institutional capital, right? These are all things that you need to do big big deals, but we're not talking about big deals. We're only we're only talking about one to four units, right? Because you have to get the first one off the ground before you ever even consider going to uh a level like that. So I was able to gain that experience. And and what were what I left with is I needed to learn uh real estate development through construction. It's probably one of the best things I've ever done, right? And as I'm learning how to uh do different things in construction, I'm adding more tools to my tool belt, all right. Um I'm doing full rehabs, I'm doing additions, and then I'm I did a did a few custom homes, right? So as I'm as I'm progressing and I'm doing all of the tasks, it really gave me a systematic um set of lens for the process, right? Which I call the the pro design builder process, right, which is focused, heavily focused on uh pre-construction planning, which actually goes hand in hand with uh how will tariffs affect uh real estate investors. So let's kind of let's dive into today's training and let's see what we can get out of this particular training. All right, so um one of the things that happens when um when tariffs hit, all right, and I'll and I'll give you an example, uh, is higher construction costs. So quite often some of the things that are being tariffed is things like you hear steel, uh aluminum, you hear lumber, right? We get a lot of our lumber from from Canada and aluminum, and uh sometimes we get our steel from from uh Japan and China, right? So these are all partners, you know, in our uh economic system that we need to be able to build certain projects, right? So typically these items are being dealt with by the contractor, but it's important for you to know how all of the pieces connect and how it's gonna affect your particular project. So materials like steel, aluminum, lumber, and and fixtures are commonly subjected to to tariffs. So if a tariff is imposed on imported construction materials, um uh the cost goes up. Alright, so that's just kind of how that's just what it is, right? The cost is gonna go up for the people that are importing it, and then the importers can't swallow the margin, they can't swallow the percentage hike, right? It's naturally going to be pushed to you as the consumer, and you're gonna pay more. Alright, so there was a a post that I made to show you how quickly materials can go up, right? So uh there was a memo on the third, and then on the fourth, I get an email with hey, listen, our prices are going up. On the fifth, a new price list for the material and what the expectation is of the cost, right? That's how quickly it goes up because it doesn't wait. Well, once the tariff is is applied, the importer has to pay it, right? And it has to come from somewhere, and it's gonna come from you as the as the consumer, as the developer, right? So even if developers source locally, this is something that actually sucks, and we don't actually uh people don't talk about it a lot, right? But this is kind of how business is is typically conducted, right? So if developers source materials locally, domestic suppliers often raise their prices to match the market rate. So even though the you yeah, you you're bringing the the product in from overseas, right? Now it has a tariff on it, now the price goes up. Now the domestic guy is like, you know what? I need to be able to match the market rate. So then now I'm going to increase my prices to match the market rate, which sucks, right? You would so so now it's all the way across the board. It's not like you could you could come sh shop and it does it for for them, it don't they almost look at it like it doesn't benefit us to be to be cheaper. Um so let's let's raise the price, let's make our margin as well, and then now it increases the price of domestic material. So uh give you an example. So if a 25% tariff is is on imported steel, this could add hundreds of thousands of dollars to a you know mid-sized commercial project or you know a multi multifamily project, this could uh affect you as well. All right, so we we call it counting sticks and bricks, right? So when uh when an estimator puts together you know the cost for your project that count each sticks, all right? Each sticks, each aluminum stick, you know, exactly what it's gonna cost, and then now you you you uh put that tariff on it at 25% or 50% or whatever the rate is, then you could expect that price to go up uh hundreds of thousands of dollars. So that's how it affects you as the developer. So uh project delays, how does it how does it possibly delay your project? Here's what you should expect, right? So developers rely on imported specialty materials or finishes. Many experience longer lead times due to custom checks or supply chain reorganization, right? So I don't know if you remember what was happening during COVID, but the supply chain had gotten backed up, right? And then there were ships that were off the west coast that couldn't come in to deliver their product, and they were stacked, and then the the their ability to get into the port was congested. So it wasn't able to uh to get into the supply chain fast enough, so that also increased increased prices and kind of derailed exactly what the the process looks like, right? So uh it created delays in permitting financing draws, uh draw schedules, and even tenant move out, right? So how does it affect permitting financing draws and even tenant? So now there's this substantial increase, right? So now you have to determine that the building department is what affects uh the permits, which is which is kind of funny, right? So you're paying for uh the permit fees based on the cost of the overall construction, right? So so something that you might I wouldn't be surprised that that that this happens, that the um the increase happens, and then now they ask for uh uh updated price sheet of the construction costs. Now they send that back to you, then now you have to pay those fees first to be able to process the permit and then they'll hold you up until that that sort of thing happens. Crazy, sounds crazy, but very true, right? On how that could affect you, right? Financing draw schedules, right? So yeah, if anytime there's a delay, your draw schedule is going to be pushed back, right? And anytime that there is a delay, the price is going to increase, right? So, you know, getting in and out of your projects is an art form, and the faster you're able to kind of get in and out of your project successfully, the better it is for you and your business long term. So let's talk about uh profit margin squeezes, right? So if all right, so if you have a I highly recommend you do a fixed price on construction, and the ways that you're able to do that is with great pre-construction planning, nailing down all of the details up front, ordering the the materials, nailing down the cost, ordering everything, storing it, right? So now you're able to nail down at least the finishing product, right? So I'll give you an example. All right, so last last time we went through through COVID and we had supply chain issues, we had several different issues uh happening at the time, but I because I have mentors, right? I had already discussed it with my mentors, what are the things that they're doing? They're ordering materials in advance, they're storing it, and now we have everything that we need, right? There was only one item, which was some baseboards that uh they were there and available, but they had supply chain issues in getting it in, so had to constantly check for weeks on end to see when they're gonna get this stuff in, right? And because I didn't have the baseboard reserve, it was a holdup. Luckily, it was the last thing uh on my list, and I'm constantly checking to make sure all of these things are are uh are on the up and up. So fixed price contracts or commitments um to investors as buyers may leave developers eating cost increases, right? So it is so as the prices were increasing, right? Luckily for me, I had order materials in advance, right? There was a few times that I got caught with my pants down um with with price increases. And what I what ended up happening is uh is a escalation clause uh in the contract, right? That means if if it's a you know whatever percentages, there's 25%, um, then that cost gets passed on to the particular um particular um in this case it gets passed on to the developer, right? You pay that cost, right? But it's not certain that you can increase your your your sales price to meet that threshold. So now this thing's end up squeezing some margin out of you that you weren't initially planning for. So that's kind of how you end up eating costs. So developers may have to value engineer, right? So value engineer is aka cost cut or equally or or find uh creative ways to uh decrease the price, right? Um I'm all for value engineering, right? Value engineering in the design, value engineering in the tile placement, value engineering in every aspect that will allow us to um get a leg up so we could complete our project in a timely, in a timely manner. So um maybe have two options, right? One domestic, one one imported, but if you get it ordered in advance, then you have it, right? If you or or if you have the other option, make sure it's readily available so you could pull a trigger on it, um, things like that. So everything starts with having the right preparation. So um, so another way that it may affect you, which is reduce the development pipeline, right? So one of the things, because I'm I'm very tuned into what's going on in South Florida, and depending on how who you talk to, the you you'll hear for for me, I I've I've been hearing for the last two years, uh the city of Fort Lauderdale has a ton of projects approved. Developers won't put a shovel in the ground. Reason being they won't put shovels in the ground is because they're not sure of of the landscape uh they're going to complete the building in, right? If it's unstable, they're not going to be able to get the price. Obviously, they have high interest rate, they can't close as many at um on the pre-construction side that they want. So for them, a strategy is to not put a shovel in the ground, right? And you need to understand this is kind of how high-level developers are operating. So uh if terrorists, if tariffs are expected to stick long term, developers may slow down new starts or postpone large projects, right? That that's what I that's what I was just describing to you um earlier, right? Uh the postponing of large projects. Reason being is to unravel something that's been built that you can't sell, and then now the date for uh payment is is right on top of you, is a lot harder to solve than just not starting, right? So yeah, you could just not start on the project, and sometimes that's and a lot of times that's the best move to kind of let the landscape kind of smooth out, let you be able to feel the temperature of of the changes that are going to be happening in the future, and then from there you can kind of forecast a better start-stop um date and time, right? So smaller or less capitalized development might uh find it harder to get financing or hit um or hit pro forma targets, right? So uh all these things are set up in a way to make sure that you are hitting your targets as you planned, right? That's the reason the performa is there, is to really kind of map out the landscape. But since the landscape is different with tariffs and and that it's looking different than your performance because you didn't expect it. So, you know, you want to be able to hit your targets because that's gonna ensure that you hit the right profit thresholds uh on your builds. So you want to make sure that uh that's on point. So um market pricing pressures, right? If in a hot real estate market, developers might pass costs on to buyers or or or renters, leading to higher home prices or rents. If soft markets, it may not be possible, which hurts ROI, right? So when the market's good and it's a great rental market, like kind of like how it was uh during COVID, right? So developers are kind of getting squeezed right now, where some offices want people in the office and the areas that were were hot in like in Florida are not as as hot, and people can kind of live anywhere, so there's a uh uh exodus that's happened, you know, in in the area. So, you know, a lot of times developers are able to pass the cost on to um the buyers, but sometimes that that may not be the case, and sometimes you might just want to. Get that stuff off your books. So, you know, in a soft market, you know, uh you may not be able to get the the ROI that that you hope, but sometimes getting it off your books is going to be your best bet. So uh understanding that, right? So a shift in supply chain strategy, all right. Developers might look at alternative sourcing options if tariffs tariff-free countries or invest in local manufactured um partnership, right? You want to probably do this quickly because, like I said to you, when a product gets tariff, the domestic may increase his price to be at market rate, right? So you want to be looking and making those relationships and understanding you know what they may do from a manufacturing standpoint to keep you in the game, right? So as you as the developer and the visionary, you know, it's your job to kind of know the lay of the land and understand exactly how these changes will affect you. Some some might pivot towards modular or prefab construction from uh US-based manufacturers, right? So I know for for us, we don't see as many modular homes or prefab homes because in our particular area, because of the hurricane codes, uh, we see a lot of um block concrete construction, right? Compared to the further north you go, you you see frame construction or you see a combination of the both. You might see first floor block, second floor frame upstairs, right? So, you know, as the construction types change, you might be able to alter your plans to fit a construction method that allows you to save some costs, right? So these are the types of ways that you could put yourself in great position, right? So let's look at uh policy for risk uh awareness, all right. So savvy developers may start um factoring in geopolitical risk and trade policies, volatility in there, feasibility studies and construction contracts, uh have a hedge uh strategy for material costs. So pretty much what it says is if you're going to be walking into a new project, you need to have this variability, right? Um in your plan, right? And the the more projects that you build, the more of a emergency fund that is absolutely important for you to have. And when you have this established emergency fund, it allows you to get through projects and not be as tight. So um those are the best ways um or or or how uh tariffs affect real estate developers. Um let me know your thoughts, right? Let me know what questions you have. Um, we're always looking to bring you the best um uh information possible when it comes to new development and it's not even close. Uh, have a good day.