The Expert Podcast

While everyone else is taking losses because of inflation maybe having trouble finding contractors maybe having difficulty with supply chains how can you use the knowledge of what's going on in the u.s economy to your advantage to your benefit and maybe turn it around and make a profit out of it well let's take a look at a couple facts first of all here's an article from an insurance publication not from the building industry from an insurance publication about what to expect for lumber clients in 2022 now they're talking about clients of the insurance agency or the insurance company that are in the construction business and it's very important for insurance companies to project and predict what's going to happen in industries which they insure so if you're a broker that has a lot of general contractors or building contractors or lumber companies it's important for you to understand what the future is going to hold for those clients it might even be more important for you to know than actually the clients because that's how you write risk and that's how you associate premium amounts underwriting for your industry.

So let's take a look at what the insurance company predicts for lumber type industries in 2022 now this article was written in december so a few months ago but let's see what might be different they're talking about the backlog of container ships price escalations labor shortages some of that's changed you don't hear as much about the supply chain as much but what are the factors that made that happen have any of those changed well some of those may be a little different but what's not going to be different in 2022 is behind the scenes labor shortage okay so especially in the contracting industry which is licensed somebody can't just switch jobs and become a general contractor because you need to get a license we're going to going to talk about licensing in a moment what might happen in that side of the business.

Finding qualified truck drivers will continue to be a pain point here's a reason why too few drivers for too many open positions plus they must navigate evolving drug testing and marijuana legalization even though some states are legalizing different drugs and marijuana and cannabis what's happening is the insurance underwriter requirements aren't changing you have to drug test employees you can't have employees driving you know 40 50 60 000 pound trucks under the influence of any kind of drug alcohol marijuana or anything else even though marijuana may be legal alcohol is legal too but you can't drive drunk and they want to make sure that heavy equipment operators are not under the influence insurers must continue drug testing to root out bad actors this is from the insurance industry it's important for insurers meaning the companies to strengthen strengthen the driver training programs inexperienced drivers will need more education and the driver shortage and changing regulations continue to impact the cost of commercial auto here's the thing that's not going to change anytime soon there are going to be fewer people getting into the driving side of it.

What about the contracting side of it well as you know any type of building contractor needs to be licensed finding employees is very very difficult that's not going to change anything in fact one state this happens to be arkansas is trying to push to make licensing easier so more people can get into the business get get into the industry occupational license review met to review occupational license handled by the arkansas contractors licensing board and they're trying to ease those regulations in the education and experience requirements this is why you know in the 70s 80s even into the 90s many people who are contractors work for a family business they worked in a a local business and they got their experience that way now that you're having the great resignation and people changing jobs and people quite frankly not wanting hands-on dirty type jobs or effort type jobs fewer people are staying in the industry to have licenses.

What's the inflation rate going to be well inflation is projected in february to be 7.9 percent but look at what the difference is the actual was 7.5 the previous was 7 so it went up the consensus was 7.3 so basically what they're saying is the experts thought it was going to be 7.3 which would have been higher than the last one but it ended up being 7.5 what are they saying is going to be next the forecast says it's going to be 8.5 so it's going to go up even more and if they're wrong again it might even be closer to 9.

Now as a general contractor or as a property owner how can you use this to your advantage look at one other article insurance companies replace your roof or lose your coverage here's what's going to start happening in the insurance industry and how it affects general contractors and property owners insurance companies are passing the onus of replacing roofs onto consumers insurance companies gave them a letter two choices replace your roof or lose your coverage typically in florida but in some other states too homeowners are told to think about replacing the roofs at the 10 to 15 year mark but now they're saying if you don't have a roof that's 10 years old or newer they're not even going to give you coverage or it's going to go way up.

So if you're a homeowner and your roof is let's say 12 years old 14 years old you might expect it last 20 years however if you wait seven more years to replace your roof first of all the price is going to be higher inflation is going to be 8.5 percent a year second of all between now and then you might have to pay more for insurance and third it might be harder for you to find a roofing company to do this because there'll be fewer workers seven years from now so what is the advantage are you putting money in your 401k are you putting money into stocks what return are you expecting to get are you getting 8.5 percent no well then why don't you put on a new roof now a new roof now let's say would be 30 000 35 000 let's say for a typical house if you wait seven years that roof might be twenty five thousand dollars eight and a half percent time seven years is almost double with compounded interest so if you put your roof on now not only might you save money on insurance but you're going to be ahead of the game on pricing rather than wait three four years till you get non-renewed and then even if there's not huge inflation underlying the general economy you might have a tougher time finding a roofer company.

What if you're a general contractor how do you deal with this you can present to customers projected cost of roof in present day two years and five years to show them what they have as options and when they can see present day is thirteen thousand i'm sorry thirty five thousand in two years it might be eighteen thousand in five years it might be twenty thousand it gives your customers a vision of the future so they might take action sooner in fact they might even get a better quality construction today because they're still going to be experienced people in the market think about how customer service is in any industry now compared to even three years ago think about how quality of workmanship is compared to two or three years ago even if you go to a car dealership to get your oil changed how well are you taking care of today versus three years ago the same thing's going to happen in construction because you as a general contractor will have a tougher time finding qualified workers and as a homeowner you're gonna have a tougher time finding a general contractor that can do your roof.

In fact this also dovetails into the new home building market the new home market is expected to need five million more houses just to keep the current demand met so a lot of general contractors are going to go to building new homes and not doing remodels because they make more money on a new home and if you're a homeowner that's calling up a roofing company or a general contractor or framing contractor to do one roof you're going to be lower on the priority list than a home builder that has 10 houses for you as a general contractor to work on so if you have the opportunity to do this now it's a good investment any type of upgrade maintenance required improvement to your house like a roof like um septic maybe you do your septic now versus in five years you're gonna come out ahead based on inflation it's a good way to get an automatic eight percent return on your money by doing something now rather than waiting a few years when the price will be up there may be less people with education and experience your insurance company might drop you and the price is going to be higher regardless you.