Save money by becoming Owner-builder Pros & Cons
It’s common knowledge that becoming your own contractor may save you thousands of dollars in the long run. But it’s more common to overestimate savings and understate time commitment, problems, and hazards. It’s possible to have a successful or a disastrous experience as an owner builder. Take a serious look at what it will take to achieve and how much money you might save before deciding to embark down this route. Then you can determine whether it’s worth it.
It’s a bit of a stretch to say that contracting can save you a lot of money since it’s so lucrative. There would be a lot more contractors out there and a lot less people going bankrupt if it was that lucrative and simple. Second, the claim that everyone can do anything is unrealistic and can cause severe financial damages if you don’t understand what you’re up against. Because of the amount of expertise that an experienced contractor offers, construction projects benefit from cheaper prices and greater quality work. Having worked in the construction industry for many years, we’re well-versed in which materials and construction details will last and which will need frequent attention.
Because of this experience in dealing with subcontractors and suppliers, a general contractor may help keep your expenses down. In addition, we knew exactly who to recruit as subcontractors and had a good working connection with them. If you think that you can just hire a lot of subcontractors, hand over the drawings, and expect to get a great construction at a reasonable price, you’re wrong.
You can save a significant amount of money on a construction project if you are well-organized, quick to pick up new skills, knowledgeable about finances and business, and willing to put in the time and effort necessary. You may even save 15% or more if you do everything correctly and avoid any messy (and costly) mistakes. With everything going well, this might be up to $30k on a $200k project. Even if you wind up saving only $20,000, which is a more realistic target, that’s still money and may be worth the time and effort you need to put into this.
SKILLS NEEDED BY OWNERS TO BUILD THEIR OWN HOMES.
In order to ensure that everything goes well on site, a contractor spends more time preparing than doing. As part of this process, you’ll look over the plans to see if there are any issues that need to be addressed, estimate the costs of materials, get the necessary permits and approvals, hire, schedule and manage employees/subcontractors; order materials; and track accounts payable/receivable to keep the whole thing running smoothly.
Most firms have a general manager (GC), and he or she is the one who gets summoned when things go wrong. It’s inevitable, since Murphy’s Law is still very much alive and well on every building site. The less issues and surprises there are, the better the planning. However, due to your lack of building expertise, you might anticipate more than the typical number of issues and surprises. Over the years, I’ve seen examples of both professional and owner-builder work (including my own) such as:
- While digging, the excavator comes into an abyss where part of the foundation had been planned.
- When pouring the foundation, it’s out of square and off level.
- When a drainage swale is installed, it does not operate as expected and has to be entirely regraded.
- 2x8s were torn in half by the lumberyard because they ran out of Douglas-Fir 2x4s, so they sent out a truckload, which had to be returned (due to lower strength ratings).
- Trusses that spanned 30 feet were were drooping on the site. a subcontractor sends his inebriated son to complete the work and is forced to send him home, causing a one-week delay in completion.
- Standing water and serious decay in the structural timbers of a four-year-old timber-frame house were caused by inadequate construction details. It has to come down.
- The incorrect millwork is delivered with a houseful of windows ordered with custom jamb extensions. Casements that were supposed to open to the right sometimes opened to the left instead.
- Contractors working on the insulation project buried recessed ceiling lights not designed for use with insulating materials.
- In the course of a renovation, the plumber sawed 10 16-foot floor joists in half down the middle. To fix the problem, an engineer needed specially made steel plates.
- A carpenter’s assistant ran his thumb through the table saw, skipping the recent instruction on pushing tiny bits of wood through the saw using a push stick (and was lucky to just lose a thin slice of his finger tip).
- Many truss plates had fallen free as a result of a crane lifting the roof trusses incorrectly.
- Despite being situated in the middle of a house, a massive stone fireplace was unable to vent correctly. This eventually led to the addition of a motorized exhaust fan to its ventilation system
- The town’s zoning board ruled that a house’s finished gable roof was two feet too tall, so the contractor was forced to make the necessary alterations.
- The architect’s designs for a new stairs don’t allow for it. The end product was a large box suspended from the ceiling of the opulent stairway of the Victorian mansion.
A general contractor’s to-do list might go on and on, covering anything from the seemingly little to the very disastrous. It’s possible to solve most of the issues prevent physical injury with a reasonable amount of money and effort. The most important thing to remember is that things may not go as planned on your project, and unexpected costs may arise. A well-thought-out strategy may save time and money in the long run.
Being your own contractor does not need a thorough understanding of the technical aspects of building construction, but if you don’t have someone on your team with substantial building expertise, I wouldn’t advocate it. That may be a great construction manager or site supervisor, or it could be a great lead carpenter that you engage to oversee the job on site. If you can discover someone you can rely on to complete the job correctly, investing in them will be a wise decision. Still, you’ll save a ton of cash, as well as your sanity.
How much money do you have to spare?
Self-contracting may save you up to 25% on the cost of a new house, according to several publications. To put it another way: The contractor’s overhead and profit take up 25% of the cost of a new house. If you are purchasing a new house package, including land, from a developer during a strong market, you may be able to save 20% or more. However, this assumes that the developer is purchasing land at a lower price and constructing at a lower cost than you can.
Comparing your expenditures as an owner-builder against hiring a general builder is a more accurate comparison. It is difficult for general builders to meet their 20% objective since they have lower costs and operate with considerably narrower margins, usually between 7 and 8 percent.
Overhead and profit costs for a normal general builder are about 15%, so you could theoretically cut building costs by that much. Most of the money is spent on the contractor’s overhead, which includes things like office supplies and supplies like vehicles and equipment as well as things like advertising and marketing. The remainder is profit.
Because your overhead expenses will be lower than those of an expert contractor, hiring yourself might still result in significant financial savings. But because you don’t have the negotiating power of a full-time contractor, the rates you pay for subcontractors and supplies will likely be higher. Due to your lack of expertise, you may also suffer additional costs. A lot of what you’ll learn in your first job may be put to good use in the future, if you’re courageous enough to do it all over again.
It’s also possible to obtain a better bargain from a contractor or developer when the economy is weak — and you’ll save more money by performing the job yourself.
Remember that many contractors aim for a 15% to 20% gross profit margin, although it isn’t always reached. So many contracts end up over budget and so few end up under budget because of a contractor’s single largest challenge: cost management. The amount of money you save by performing the task yourself depends on your ability to manage costs and how much you value your own time.
To put it another way, your savings may not be as much as 20 percent as you think they are. You’ll have to put in a lot of effort and put yourself at danger in order to get those discounts. To save money, you’ll need to employ a foreman or construction manager if you lack construction knowledge or spare time. In contrast, you will save more money if you are an expert with a hammer and intend to supervise and do part of the work yourself. You’ll save money if you design the project yourself.
Becoming Your Own Contractor: Pros and Cons
You may save money by working as your own contractor, but you must first determine whether you have the time, organizational abilities, and technical expertise necessary to complete the project. Alternatively, are you able and ready to outsource the expertise you lack?
- Choosing to work as your own contractor has several advantages.
- Can reduce construction expenses by 15% to 20% (if all goes right)
- As a result, you are in complete command of the project and are more likely to get the results you want.
- Despite your lack of expertise, the overall quality of the task may be improved if you work with competent subcontractors.
- Building your own house gives you a sense of accomplishment and self-worth.
- The accomplishment of running your own business
Due to unexpected costs and cost overruns, real savings are frequently lower than predicted.
It’s likely that the job will take longer and need more effort than you anticipated.
Due to your lack of experience, the work is going to be more difficult.
Because of your inexperience, the quality of the work you do may be compromised..
Cost overruns and construction issues that arise both during and after your move-in will be mostly on your shoulders. There is no one else to blame except oneself in the vast majority of situations.
The process of getting a construction loan might be challenging.
TIPS FOR WORKING AS YOUR OWN CONTRACTOR
In the event if you’re well-organized, have an excellent business sense, and have some grasp of how homes are put together, this may be a practical solution. Getting up to speed on permits, estimates, scheduling, contracts, insurance, and job-site management will need time and effort on your part. You’ll also need to supervise the project yourself or pay someone else to do so. Permitting, refining designs and requirements, choosing materials, budgeting, requesting bids, setting up subcontractors, negotiating with suppliers, and scheduling the work are all key aspects in the planning process. As long as you’ve done a good job, the constructing procedure should be rather straightforward. To be sure, the home won’t be built by itself, but with a few expert carpenters or production managers on hand to work out any kinks, the project should go as smoothly as expected.
Inexperienced or overworked owner-builders will find that hiring a construction manager to oversee subcontractors is the most straightforward answer. You will still be contracting directly with the subcontractors and managing as much of the contractor’s work as you choose and are capable of doing. Estimating, scheduling, obtaining permits, conducting inspections, placing orders for supplies, checking invoices, and processing payments all fall under this category. The less you have to pay the construction manager, the more you save. The GC’s usual gross profit should be reduced by half to three-quarters in any case (typically 15 percent to 20 percent of the total cost). Sharing the general contractor’s role with your construction manager might save up to $15,000 on a $200,000 project.
In the event that you decide to go it alone as a contractor, do an honest assessment of your strengths and weaknesses before bringing on the necessary personnel. This might be a construction manager, as indicated above, a designer or architect for design and specifications, a lawyer for contracts, and different professionals, such as engineers or consultants, to assist you in areas where you feel out of your element. Spending an hour or two talking to an expert may often save you hundreds, perhaps thousands, of dollars in the long run. There are numerous hazards on construction projects that novices and experienced alike may fall into, so don’t underestimate the time and work necessary to complete this task well.
Before starting a new construction project, I’d recommend doing one or two smaller ones first, like updating your present house. Make sure you go through the same process as if you were building a new house to get a sense of the effort needed and the complications that may arise. If I’ve failed to dissuade you, go ahead and try it. I wish you luck! It may go so well that you end yourself launching a new profession as a construction worker.
OTHER WAYS TO SAVE.
There are several ways to spend money and numerous methods to save money when doing a job of this magnitude. Fixated on becoming your own contractor, you can miss out on alternative options that might save you money without the added bother and danger. The following is a sample of what we have to offer:
Hire an expert draftsman to develop functioning drawings that are to code after you’ve done your own design work. Alternatively, you might employ a professional architect to analyze and modify your blueprints.
Preparation is the key to minimizing post-construction adjustments. Changes are more expensive than you may expect.
Work with a general contractor to complete the bulk of the structural work — such as building an enclosed shell — and then serve as your own general contractor for the remaining jobs, such as finishing work, landscaping, and so on. Do
Clean up the project site every day, paint, or anything else you’re capable of doing with your own two hands.
Always do your research before purchasing any building supplies or engaging subcontractors to do any work on the inside of your home (such as finishing the walls or installing porches and decks). Compare contractor yards, wholesalers, and discount home shops to get the best deal. Big discounts on expensive goods may be found, such as windows and doors on the outside of a house as well as cabinetry and fixtures in the bathroom and kitchen (tile, carpet, hardwood). The installer may inform you that they cannot guarantee the material if you purchase it, but the savings may be worth it since the material are normally guaranteed by the manufacturer..
To acquire the house you desire for the least amount of money, decide where to spend and where to save.
Plan for future growth by allowing room for an extension in the basement, attic, or area above the garage. If you prepare ahead of time, expanding will happen more quickly for less money in the future.