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 CLC
Advisor's Column
Acting as an Owner Builder:
What Contractors Don't Want You to Know
Everyone has thought of building their own home at some point in
their lives. Some never act on this thought because they think
it is not possible or too expensive. Yet, there are others who
inquire more and find out what most contractors do not want you to
know. By acting as an owner-builder, you can save thousands of
dollars as opposed to hiring a General Contractor (GC).
What is an owner-builder? An owner-builder
assumes the role of the GC. This involves building a
construction budget, hiring subcontractors, purchasing materials,
and overseeing the construction phase. How difficult is the
process? At times, it can be very trying with competing
interests. You will be responsible for working with the
building department for permits, scheduling contractors, disbursing
funds, etc. Anyone that says being an owner-builder is easy
has never built a home. But what is the reward?
Building your own home means building valuable equity.
Typically, GC's charge up to 20% of the home's proposed value as
their fee. So, if someone acts as an owner-builder, they turn
that 20% into instant equity in their home. Of course, this
equity is not free since you will be playing “contractor” in your
spare time. But the work involved does not mean picking up a
hammer (although you can to save even more money). Instead, it
involves managing a group of people. How many jobs do you know
pay $15,000-$100,000 for 12 months of part-time work?
A key ingredient in the process is the financing. Most
construction lenders
do not loan money to individuals with no experience in building.
In general, there are three ways to finance the construction of your
home:
1)
Hire a GC
2)
Hire an on site project
manager
3)
Hire a construction
management company
Each entity will charge a fee for their services, with
the GC being the most expensive, followed by the on site project
manager, and finally the construction management company.
These three options offer varying pros and cons.
General contractors control the whole project (meaning less
stress for you), but charge a large fee. Project managers can
monitor the project during the day, but their fees can often take
away from your potential equity. Construction management
companies generally charge the smallest fee, but will not assume the
smallest amount of responsibility. Analyzing each of these
choices – and what you feel you can handle – will help you make a
decision.
While being an owner-builder is not the easiest way to
build a home, it is the most profitable. As an owner-builder
you control the materials that go into the home, which
subcontractors are hired, and ultimately turn the savings into
equity. The savings are not without cost – it takes time,
effort, and the ability to manage others. But if you would
like to earn equity, control the project, and build a home for your
family, the owner-builder route may be for you.
Questions?
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or Send an Email,
with any questions or concerns that you may have. Visit Our
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