BE YOUR OWN CONTRACTOR
In This Article
Skills Required For Owner-Builders
How Much Can You Save?
Pro & Cons Of Being Your Own Contractor
Other Ways to Save
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There are numerous books and websites that tell you how easy it is to save thousands of dollars by being your own contractor. Most exaggerate the savings and minimize the time commitment required, the difficulties, and the risks. There are owner-builder success stories and owner-builder nightmares. Before going too far down this path, take a hard look at what is required to succeed at this and a clear-eyed view of the potential savings. Then decide if it’s worth it.
The first premise, that you can save a lot of money because contracting is wildly profitable is a bit of a stretch. If it was so profitable (and so easy), there would be a lot more contractors running around and a lot fewer going bankrupt. The second premise – that anyone can do it — is also wishful thinking. An experienced contractor brings a wealth of knowledge to a project (see list of contractors’ responsibilities) that can make the building process go smoothly and efficiently, resulting in lower costs and higher quality work. Based on years of experience, he knows what materials and building details will stand the test of time, and which are prone to failure (all contractors hate “callbacks”!)
A general contractor can also save you money by negotiating effectively with subs and suppliers, and managing the work efficiently to avoid extra costs. Equally important, he know what subs to hire and had a working relationship with them. The idea that you can simply hire a bunch of subs, let them loose with a set of plans, and end up with a perfect building at bargain rates is simply not reality.
On balance, if you are well organized, a quick learner, have good financial and business skills, and have the time and interest to effectively plan and manage a building project, you can save a substantial amount of money, maybe even 15% or more if you do everything right and are lucky enough to steer clear of any messy (and costly) mistakes. On a $200,000 project, that’s as much as $30,000 if everything goes right. Even if you end up saving only $20,000 – a more realistic goal, that’s still real money and may be worth the time and effort you need to invest to make this work.
SKILLS REQUIRED FOR OWNER-BUILDERS
While some of a contractor’s work is done on the job site, most of the work is planning ahead of time – so that things will go well on the job site. This includes reviewing plans to look for potential problems and the best way to get the job done; estimating the costs of materials and labor; locking in material quotes; obtaining permits and approvals; hiring, scheduling, and managing employees and subcontractors; scheduling inspections; ordering materials and scheduling deliveries; and tracking accounts payable and receivable to keep the whole thing afloat.
The GC is the boss and, as in most companies, he is the guy who gets called when things go awry. And they will, either in a little way or a big way, since Murphy is alive and well on all construction sites. The better the planning, the fewer the problems and surprises. However, your lack of experience in construction means you can expect more than the average share of surprises and problems. Examples I’ve seen on both professional and owner-builder jobs a over the years (including my own) include
(* denotes owner-builder jobs):
- The excavator encounters unexpected ledge where part of the foundation was planned.
- The foundation is poured out of square and out of level.
- A drainage swale does not work as planned and needs to be completely regraded after the home and yard are completed.
- The lumberyard ran out of the Douglas-Fir 2x4s so they ripped 2x8s in half, and sent out a truckload, which had to be sent back (due to lower strength ratings).
- Huge site-built trusses spanning 30 feet that were all sagging. *
- Passive solar windows were placed on the west, not the south side of a house *
- A subcontractor sends his drunken son to do the job and has to be sent home, throwing off the schedule by a week.
- A 4-year-old timber-frame home had standing water in the basement and severe rot in the structural timbers due to poor construction details. It had to be torn down.
- A houseful of windows ordered with special jamb extensions arrive with the wrong millwork. Some casements opened left, instead of right, as ordered.
- The insulation contractors buried recessed ceiling lights that are not rated for insulation contact.
- On a remodel, the plumber cut half-way through the center of ten 16-foot floor joists. An engineer required custom steel plates to repair the damage.
- A carpenter’s helper ran his thumb through the table saw, ignoring the recent lesson on using push sticks for small pieces of wood (and was lucky to just lose a thin slice of his finger tip).
- Roof trusses were lifted by a crane improperly and many truss plates had come loose, undermining their integrity.
- A giant stone fireplace, built in the center of a home, did not vent properly. Eventually a power exhaust fan was placed in the vent stack.
- The zoning board found that a house violated the town’s height restriction, and made the contractor chop two feet off the completed gable roof.
- A new stairwell won’t fit the space allotted on the architect’s plans. The result was a big box in the ceiling over the Victorian home’s grand stairwell.
- In our area, we’ve had at least two fatalities in the past 10 years caused by malfunctioning heating equipment in relatively new homes.
The list could go on and on for any general contractor — and include items from the trivial to the catastrophic. Most of the problems could have been avoided by better planning, and all (except for bodily harm) can be fixed at some cost. The main point is that you should expect some things to not go smoothly on your project and that there will be some unanticipated expenses. The more you know and the better you plan, the fewer the headaches and extra costs.
While a general knowledge of the technical side of building construction is not absolutely essential to being your own contractor, I would not recommend that anyone go this route without someone on their team with extensive building experience. That could be a really good lead carpenter who you hire to supervise work on site, or a construction manager or site supervisor as described above. If you find someone you can trust to get things done right, pay them well and it will be money well spent. You will still save a lot of money – and your sanity!
HOW MUCH CAN YOU SAVE?
Many books claim that you can easily save 25% of the cost of a new home by contracting it yourself. This is based on the notion that 25% of the cost of a new home goes to the contractor’s overhead and profit. This may be true if you are buying a new home package, with land, from a developer during a strong market (but discounts the fact that the developer is buying land cheaper and building cheaper than you can — so maybe the potential savings are closer to 20% or less).
A more fair comparison would be comparing your costs as an owner-builder to hiring a custom builder. Custom builders have lower overhead and generally work on much smaller margins, typically ranging from 7% or 8% up to about 20%, a goal that is rarely achieved.
In theory, you can reduce the cost of construction by the amount you would pay the general contractor in overhead and profit — let’s say 15% for the typical custom builder. In very round numbers, about half that money goes to the contractor’s overhead: bookkeeping, accounting, insurance, office expenses, trucks and tools, marketing, and other costs of doing business. The rest is profit.
If you contract the job yourself, some of the overhead costs will become your own, but less than for a professional contractor, so your potential savings may still look pretty good. The prices you pay for subcontractors and materials, however, will likely be higher in many cases, as you don’t have the bargaining power of a full-time contractor. Also, you are likely to incur added expense due to inexperience. Nearly every job is a learning experience – and you will learn a ton on this first job that you could put to good use later if you are crazy enough to want do to this again.
Also, when economic times are tough, margins tend to slip, meaning that in a slow market, you can get a better deal hiring a contractor or buying from a developer — and will save less by doing the work yourself.
Bear in mind also that a 15% t0 20% gross profit is the goal of many contractors, but it is not often achieved. Cost control is one of the biggest single challenge faced by all contractors, which is why so many jobs come in over budget and why almost none come in under. Your own success at cost control – and how much you value your own time — will ultimately determine how much you can save by doing the work yourself.
So your real savings may be closer to 10% than 20%, compared with what you would spend on a custom builder. For those savings, you are committing a lot of time and taking on a lot of risk. If you do have much construction experience or free time, you will need to hire a foreman or construction manager to oversee the work, reducing your savings. On the other hand, if you are handy with a hammer and plan to both oversee the job and do some of the work yourself, your savings will naturally be higher. If you design the project yourself, you’ll reap additional savings.
PROS & CONS OF BEING YOUR OWN CONTRACTOR
It’s possible to be your own contractor and save money, but you need to first evaluate if you have the time, and organizational and business skills, and technical knowledge to get the job done. Or are you able and willing to hire the people you need to fill in the gaps in your knowledge?
Pros of being your own contractor
- Can save 15% to 20% of construction costs (if all goes right)
- You maintain full control of the project and have a better chance of getting exactly what you want.
- If you hire good subcontractors, overall job quality will be good despite your inexperience.
- You have pride and satisfaction of building your own home.
Cons of being your own contractor
- Real savings are usually less than expected due to unanticipated expenses and cost overruns.
- The project will probably take more time and energy than you expect.
- The job will likely have more problems, due to your lack of experience.
- Quality of construction may suffer due to your lack of experience.
- You will be absorbing most of the risk for cost overruns, and for construction problems that occur during the job and after you move in. (In most cases, there will be no one to blame but yourself).
- Obtaining a construction loan may be difficult.
RECOMMENDATIONS FOR BEING YOUR OWN CONTRACTOR
If you’re highly organized and a good businessperson, have the time and energy, and have at least a general idea of how houses go together, this is a viable option. You must also be willing to put in the necessary time to come up to speed on permitting, estimating, scheduling, contracts, insurance, and job-site management — and then put in a fair amount of time overseeing the job, or hire someone else to take on that role. In reality, your most critical role is in the planning stages: permitting, honing the plans and specs, selecting materials, budgeting, soliciting bids, lining up subs, negotiating with suppliers, scheduling the work. If you’ve done all that well, the building process itself should be pretty uneventful — which is of course what you want. I can’t say that the house will build itself, but most subs know their jobs quite well, and with one experienced carpenter or production manager on site to troubleshoot the occasional glitch, you can expect that the project will come out more or less as planned.
The easiest solution for an inexperienced or overly busy owner-builder is to hire a construction manager to manage the subs. You will still be contracting with the subs directly, and handling as much of the contractor’s job as you want and can handle. This includes estimating, scheduling, permitting, inspections, ordering materials, reviewing bills, and handling payments. The more of this you do yourself, the less you will have to pay the construction manager. In any event you should save half to tw0-thirds of the GC’s typical gross profit (typically 15% to 20% of the total cost). On a $200,000 project, if all goes well, you could save $15,000 or more by sharing the general contractor’s job with your construction manager.
If you decide to be your own contractor, do an honest self appraisal and hire the people you need to fill in your weak areas. That could be a construction manager, as described above, a designer or architect for design and specifications, a lawyer to help with contracts, and various experts such as engineers or consultants to help with areas you feel out of your element. Sometimes a one or two hour consult with the right expert can save you thousands of dollars and a lot of headaches in the long run. However, don’t underestimate the time and effort required to this job well and the many pitfalls that trip up the unwary — as well as the veterans — on construction projects.
Start small: If you have the opportunity, I’d strongly suggest running one or two smaller jobs, such as remodeling your current home, before building a new one. Even though the job will be much smaller and less complicated, run though all the same steps as you would with a new home to get a feel for the work involved and types of issues that come up. If I still haven’t talked you out of it, go for it and good luck! Who knows, maybe it will go so well you’ll want to launch a new career as a building contractor.
OTHER WAYS TO SAVE
There are many ways to spend money, and many ways to save money, on a project as large and complex as building a home. Getting fixated on being your own contractor can blind you to the others, which in some cases can save you just as much money without the hassle and risk involved. A short list includes:
- Do the design work yourself, and then hire an experienced draftsman to create working drawings that are to code. Or hire an architect to review and tweak your plans — you’ll probably be glad you did.
- Plan, plan, plan so that you will make minimal changes after construction begins. Changes cost more than you think.
- Hire a general contractor for most of the structural work — get an enclosed shell, and then take over as your own contractor on finish work, landscaping and other tasks that require less expertise. Do
- Do the hands-on work that you can do: cleaning up the job site daily, painting, etc.
- Shop very carefully for materials, and for the subs that you will be hiring yourself for the interior finish, porches, and decks, landscaping, etc. Comparison shop contractor yards, large wholesalers, and discount home centers. Look for big savings on high-ticket items: windows and exterior doors, cabinets, bathroom fixtures, lighting fixtures, HVAC equipment, floor coverings (tile, carpet, hardwood). The installer may tell that you they cannot guarantee the material if you buy it, but the savings may be worth it as the material are generally guaranteed by the manufacturer.
- Decide where to splurge, where to hold back in order to the get the home you really want for the least money.
- Design for future expansion in the basement, attic, space over the garage, or leaving space for an addition. By planning for the work now, it will go a lot quicker (and cheaper) later when you expand.
- MORE COST-CUTTING STRATEGIES.