Building Your Custom Home For Dummies. Peter Economy

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construction process?

       Do I have extra time to train myself on the process?

       Am I good at managing people and projects?

       Do I have a good eye for quality of construction?

       Do I have access to good resources?

       Am I good at problem solving?

       Am I good with multitasking and constant change?

       Am I well organized?

       Am I good at managing finances and budgets?

       Will my partner and kids stay with me if I mess up the project?

If you honestly answered no to any of these questions, you probably need to hire a contractor (see Chapters 2 and 7). Most owner-builders are gambling that they can do a job equal to or better than an experienced, licensed contractor, thereby saving the cost of that contractor. Although an owner-builder may end up saving money, you need to weigh the risk of that gamble against the money you may save. If you’re wrong, it can cost you far more money than you planned to save in the first place.

      

One option if your answers were somewhat mixed is to hire an owner-builder consultant. One company called UBuildIt (www.ubuildit.com) offers expert consulting and procedures to guide you through the construction management process. The company charges you consulting fees and offers you products and services that are marked up, but the costs can be significantly less than a contractor’s fees. UBuildIt is a good alternative for saving money and shortening the learning curve; however, you still need to have the time and the management skills to make for a successful project.

      Analyzing the truth about savings

      The biggest motivation for being an owner-builder is the supposed savings. Ordinarily, a contractor makes money from charging a percentage on top of the cost of labor and materials used in the project; this fee or markup can be anywhere from 12 percent to 35 percent, depending upon what and where you’re building. Generally, more established contractors work on higher margins where younger contractors with less experience may work for less. Ask your contractor for a detailed breakdown of how they calculate costs.

      

Where materials are concerned, discount suppliers such as The Home Depot have made construction supplies available to the consumer at contractor prices, which can be real savings if you’re satisfied with the selection available at these stores. If you’re building with more elaborate materials and fixtures, the contractor may have access to wholesale pricing that allows them to make some money without your having to pay more. In some cases, they may be working on a lower margin and may be able to save you some money on items with a high retail markup.

      With labor, you’ll be subject to the prices and availability of the subcontractors in the marketplace. If the market is busy, pricing will reflect a direct supply-and-demand relationship, pushing prices up. If you have no preexisting relationships with any subs, you’ll end up paying the full price for their time. If they’re unable to work into your schedule, you may have other costs that come from delays on your project while you wait for the subs to become available.

      Finding and managing subs

Hiring and managing subs is the hardest part of being an owner-builder. A contractor has the advantage of having long-term regular relationships with subs. An experienced contractor has spent years finding framers, plumbers, carpenters, and others whom they trust to be timely, efficient, and good craftspeople. If they’ve worked together for a long time, they know how to work together, and the contractor will know when to ask for favors.

      

Hiring each sub is a new experience in negotiation, management, and quality control. Overcommunicate with everyone on the job to keep it running smoothly. Keep your eyes open. You probably won’t know if you picked the right sub until they’re finished and they’ve been paid. (Check out Chapter 7 for more information about working with subs.)

      Financing implications

      One other challenge with being an owner-builder is the financing. Most conventional construction lenders frown on owner-builder projects. They have three basic reasons for being concerned:

       The bank is afraid the project may not be managed effectively, causing it to exceed the allotted time frame and budget.

       The bank wants to be sure your job and income won’t be negatively impacted by the time demands of the project.

       In case of foreclosure, the bank doesn’t want to have to find and hire a contractor to finish the home.

      For these reasons, many banks that lend to owner-builders do so with stricter requirements than for regular construction loans, such as loaning less money relative to the appraised value. Other banks allow owner-builder financing only if you’re a general contractor, or at the very least they require someone with construction experience as a site supervisor. Private sources for owner-builder construction loans are available, but they can be expensive and don’t generally have permanent loans attached like the single-close loans we recommend in Chapter 9.

Chapter 2

      Preparing for the Process

      IN THIS CHAPTER

       Creating organizational systems

       Building a budget

       Selecting a contractor

       Purchasing insurance

       Making an enjoyable experience

      Any time you undertake a multistep project, you have a greater risk of something going out of control. The good news is that you can prepare yourself for the chaos and craziness that are bound to happen in your construction project.

      In this chapter, we help you set up some simple systems for managing the people and tasks involved in the custom-home process. We walk you through a short analysis of your finances

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