There’s no denying it—real estate investing in 2025 feels different. Material prices are unpredictable, construction timelines are stretched, and developers are feeling the squeeze. One big reason? Tariffs. They’ve quietly crept into every line item on a budget and are now shaping everything from project planning to investor returns.
At first glance, tariffs might seem like something that only affects trade deals or global headlines. But look a little closer, and you’ll see how they touch every corner of the real estate investment world. Whether you’re developing a multi-family complex from the ground up or investing passively in a syndication, tariffs are likely part of the equation.
So how exactly are tariffs influencing real estate investments—and what can investors do to stay ahead?
What Are Tariffs and Why Should Investors Care?
Tariffs are taxes placed on imported goods. Governments impose them for a variety of reasons—mostly to protect domestic industries or respond to international politics. But regardless of the reason, the cost of tariffs eventually trickles down the chain.
In real estate, those costs show up in the form of:
- Higher construction expenses
- Supply chain disruptions
- Delayed timelines
- Increased holding costs
- And ultimately, tighter margins
If you think those numbers only matter to contractors, think again. They hit syndicators, developers, and passive investors alike. And when the margins move, the returns shift too.
Tariffs and the Spike in Construction Costs
Let’s not dance around it—construction has gotten expensive.
Over the past few years, tariffs on items like steel, aluminum, lumber, drywall, appliances, and even tile have contributed to skyrocketing material costs. For example, a 25% tariff on imported steel means every rebar tie and steel beam used in a building is now significantly more expensive than it was just a few years ago.
Even if you’re investing in a stabilized asset and not building from scratch, your operating budget can still take a hit. Need to replace a roof? Renovate a unit? Install new appliances? Expect to pay more.
Chart: Tariff-Driven Construction Cost Increases (2019–2025)
| Material | Avg. Price Increase (%) | Key Impact Areas |
|---|---|---|
| Lumber | +42% | Framing, finishes, repairs |
| Steel | +30% | Structural work, HVAC, roofing |
| Appliances | +18% | Unit upgrades, leasing appeal |
| Drywall | +16% | Interiors, remodels |
| Plumbing Parts | +20% | Renovations, repairs |
With numbers like these, it’s no surprise that many developers have started reassessing the feasibility of their pro forma estimates.
Delays and Disruptions: Tariffs Meet the Supply Chain
Tariffs don’t just make stuff cost more—they also complicate how and when that stuff shows up.
When tariffs are slapped on a certain country, companies often scramble to find new suppliers. But that takes time. In some cases, it means forming new shipping contracts or rerouting distribution channels entirely. All of that creates a ripple effect:
- Material shortages
- Backordered components
- Extended construction timelines
- Budget overruns
And in real estate, time equals money. Every delay adds holding costs, pushes out rental income, and compresses returns. Investors expecting a 24-month project timeline may find themselves holding for 30 months—or longer—if supply issues aren’t planned for.
Tariffs and Housing Affordability
Here’s where it gets even more real: increased costs don’t just affect developers and sponsors—they impact tenants too.
When it costs more to build or renovate a property, rents often follow suit. If a developer is spending 15–20% more on a new multi-family project, they’ll likely increase projected rent prices to maintain margins.
This leads to:
- Reduced affordability for renters
- Increased risk of vacancy in softer markets
- More pressure on tenants to qualify for higher rents
For investors, that translates to a narrower tenant pool, longer lease-up periods, and a potential hit to occupancy rates.
How Tariffs Influence Interest Rates and Lending
Indirectly, tariffs can even impact lending.
When tariffs spark inflation—which they often do—central banks may respond by raising interest rates. In the U.S., that means real estate loans get pricier. And when you combine rising construction costs with higher borrowing costs? That’s a double whammy.
Suddenly, the same deal that looked like a no-brainer a year ago starts to feel a bit tight.
Some lenders may even grow more conservative in response to global trade tensions, pulling back loan-to-value ratios or raising reserve requirements. That means sponsors and investors must bring more equity to the table—or pass on deals altogether.
What Real Estate Investors Should Watch in 2025
With tariffs playing such a big role in the 2025 real estate market, investors need to stay informed and strategic. Here are a few things to keep your eyes on:
1. Monitor International Policy Changes
Trade negotiations are fluid. One day, there’s a tariff on Chinese aluminum; the next, there’s a shift to Mexico or India. Investors who stay updated can anticipate material cost swings and supply chain bottlenecks before they hit the spreadsheet.
2. Understand the Build Cost of Each Deal
If you’re investing in a development project, ask detailed questions:
- Where are materials sourced from?
- What percentage of the budget is vulnerable to tariff shifts?
- Are materials pre-ordered or just-in-time?
This helps you gauge how insulated (or exposed) the project is.
3. Ask Sponsors About Their Plan B
What happens if costs rise 10% mid-project? Is there contingency built in? Will they value-engineer? Delay construction? Switch suppliers?
A solid sponsor has already asked—and answered—these questions.
Strategies for Real Estate Investors Navigating Tariff Turbulence
Let’s be honest: nobody likes paying more or waiting longer. But there are smart moves investors can make to adapt and thrive in today’s tariff-influenced market.
1. Focus on Value-Add vs. New Construction
New builds are often more exposed to tariff-related risk. You’re at the mercy of material costs, labor fluctuations, and global politics. By contrast, value-add multifamily investments rely less on new construction and more on renovations—which can often be phased or sourced more locally.
2. Prioritize Markets With Pricing Power
If you’re going to absorb higher costs, you better be in a market where you can raise rents. Target cities with:
- Strong population and job growth
- Low vacancy rates
- High demand for workforce housing
These areas offer more cushion for price increases and better absorption when units hit the market.
3. Build Relationships With Operators Who Have Leverage
Some operators have long-standing relationships with suppliers and contractors. That buying power can offset material price increases or secure priority when supply is limited. As an investor, partnering with these types of groups means more predictability and less volatility.
4. Look for Creative Financing Structures
With rates bouncing around, the capital stack matters more than ever. Keep an eye out for:
- Fixed-rate debt with long terms
- Bridge-to-perm financing with built-in rate caps
- Preferred equity or mezzanine options to reduce LP exposure
Creative financing doesn’t just protect returns—it also increases the likelihood that projects stay on track.
5. Reinvest Strategically Using Velocity of Money
In a volatile environment, the ability to pull capital out quickly and reinvest into stronger deals becomes a superpower. Forced appreciation, quick refinances, and short hold periods can help you move faster than the market.
Visual: Investor Priorities in a Tariff-Driven Market
| Priority | Why It Matters |
|---|---|
| Material Source Awareness | Anticipates cost spikes |
| Contingency Planning | Safeguards returns |
| Market Selection | Supports rent growth |
| Experienced Operators | Navigates supply chain issues |
| Leverage and Debt Strategy | Reduces exposure to rate hikes |
The Upside: Where There’s Disruption, There’s Opportunity
All this talk of costs, delays, and tariffs might feel like a buzzkill. But here’s the silver lining: smart investors always find a way to profit in changing environments.
As some groups pull back due to uncertainty, others step in with capital, confidence, and clear execution plans. If you can identify strong operators, sound markets, and insulated deal structures, you can outperform—while others sit on the sidelines.
At Follow The Deal, that’s exactly what we aim to do. We dig into deals that offer value beyond the surface. We understand where the risks are—and where they aren’t. And we help our investors earn passive income in a world where headlines change every week.
Because here’s the truth: tariffs may shape the market, but they don’t control your success.
