Read an Excerpt
Chapter 1 - Be Your Own General Contractor and Save
THIS IS A BOOK that will teach you how to be a general contractor for your own house. There's one big reason for doing it - to save money. How much you will save will vary considerably depending on local prices for labor and materials, land costs, the size of the house, and your ability to follow the steps outlined in this book.
The size of the house will be the largest determining factor, as most general contractors base their profit and overhead on a percentage of the total cost. A larger house will cost more and therefore will include a larger builder's profit and overhead. You will also save more in real estate commissions as the size and value of the house increases.
If you do all that I suggest in this book, a goal of 25 percent savings is possible. If you think of how much you will have to earn - and pay taxes on - to get the money to build, the savings are even greater. And by reducing the amount of money you will need to borrow and then pay back with interest, you will save even more money for years to come.
Let's look at what you can expect to save.
Say that I built a house and I am offering it for sale to the general public. If I set a selling price of $100,000 (a minimum price for a new home in most areas), typically the land would have cost me $25,000, labor and materials $50,000, and my gross profit will be $25,000.
Wow, you say. That's a lot of money to make off one product. Well, if it were that simple, you would be right. But before you get outraged with the building industry in general, let me show you where that gross profit goes when you build professionally.
First, I have to pay sales expense out of my gross profit. If that involves a real estate broker, it may cost as much as $7,000 (7 percent of $100,000). Next, like any business, I have business-expense overhead. This varies with each builder, but the National Association of Home Builders suggests that home builders allocate 50 percent of their adjusted gross profit (after sales expense) for overhead expenses. These include, but are not limited to, phone, insurance, secretarial, gas, truck, car, rent, and office equipment. That leaves me with $9,000, which is half the adjusted gross of $18,000 ($25,000 - $7,000 real estate commission). That is my real expected net (before taxes) profit. You can see that when builders say they make less than 10 percent, they're not wrong.
But you aren't building professionally. You don't have sales expense. You don't have business-expense overhead. You can take the entire gross profit of $25,000 and consider it yours. You may never even have to pay taxes on that gross profit if you follow the Internal Revenue Service guidelines for reinvesting your primary residence capital gains. Imagine! You could actually "make" this kind of money while you go about your regular daily business.
Actual dollar amounts will vary. The average asking price for new homes in many locations may be $150,000 to $200,000, or even more in some areas. But the percentage of actual fair market value (what a house should sell for) that you can save will remain fairly true. Does that mean you can expect to save $50,000 on a house that would sell for $200,000? You bet!
What You Need to Know
You need to know very little about building to be a general contractor. You don't need to have the technical knowledge about framing or bricklaying or wiring. Your subcontractors will know their business just as mine do. I'll help you make sure of that.\
You may wish to pick up some information on various aspects of building, and that's fine. In most bookstores there are excellent how-to books for the do-it-yourselfer on almost all phases of construction. You may want to read some of them to better understand the process of building a home. But there's no way you can become a master of all trades. The role of the general contractor - which you will be - is as an organizer, a manager, not a tradesman. Your role is to get the job done - by other people.
Hire an Attorney
If, in any of the planning stages of building outlined in this book, you feel uncertain, hire a good real estate attorney. You will need the help of an attorney in certain steps anyway, such as in the closing of the loan. If you hire one now, the fee will be money well spent if it enables you to build your own home, and that fee is an actual cost of construction. Many attorneys will forgo hourly rates in favor of a flat fee, or at least reduce their regular hourly rate if they are going to be involved throughout your project. Be sure that you like the attorney in your first meeting. The two of you will have a long
relationship, for the six or more months the house is under construction, so this is important. See page 57 for information on obtaining an attorney.
If you can balance a checkbook, read, and deal with people in a fair manner, you can build your own house. Don't look at building a house as one huge job. View each phase or step as a separate job that you can easily accomplish, and in this way the overall task will seem less monumental.
The most difficult things you will have to do will be behind you when you actually start construction. Sounds unbelievable, doesn't it? But it's true. Your job of planning and organizing will be 90 percent complete when you break ground . . . or it should be. At that point it is up to your team of experts - your subcontractors (subs) - to do its job. Almost all of them will do their jobs correctly, even without your being at the site.
As you go along never be afraid to ask anyone a question about anything. Pride is foolish when it prevents you from asking a question you can learn from.
Carpentry Crew
An important step in building your own home, and maybe even in helping you make the decision to do so, is finding a good carpentry crew. Also known as framing contractors or framers, this carpenter with his crew is the key subcontractor. Having a good one before you start will help you make many intelligent decisions and will help your local lender to make a decision to lend you money.
A personal visit to a few lumberyards or building supply houses (preferably the smaller ones) to ask for recommendations will give you more than enough leads to find a good carpentry crew.
If the first carpenter you find is too busy, ask him to recommend another. But usually another house can be worked into the first carpenter's scheduling. Your carpenter will be one of your best sources for finding many of your other subcontractors.
After selecting a good candidate for this job, check him out. He should give you a list of four or five jobs he's handled. Talk to the owners. Look at the work he did for them. Others to check with are banks and building suppliers.
One note about this key subcontractor: Most good carpenters, particularly the older ones - mid-thirties and up - have a very good knowledge of most phases of construction. Though they may not be up-to-date on wiring for Internet access or the latest energy-efficient appliances, these job-site veterans are experts on getting a house framed up and closed in quickly, with all doorways, stairways, and window openings sized and located correctly. The good carpenters are easy to find, hard to get, and usually worth waiting for. They will also cost you a bit more but, in the long run, will save you money and time.
Time Involved
How much time is involved in being your own contractor? For each individual it will be different, but you'll spend more hours planning and getting ready than you will on the construction site - that is, if you let the subs do their jobs without feeling that you must be there every minute.
In the planning stages you may spend a month of your spare time or several months, depending on how fast you are able to make a decision on all the various aspects that I will cover. For example, deciding on house plans can take an hour, a month, or even longer; the same thing is true when you are choosing land, specifications, and subcontractors.
The time involved after you start construction will be short. The maximum time ought not to exceed two hours a day; those hours need not interfere with your job or normal activities. You will have many helpers and some free management. You can have real estate people (the ones you are dealing with on your lot) do some legwork by checking on restrictions and getting information on septic systems and wells. Your suppliers can help you save time, too, by finding your subs for you, doing "take-offs" for estimating and ordering supplies, and giving technical advice.
Building your own home is an ideal husband/wife operation. Just be sure that you and your spouse agree and get your signals straight. Failure to do this has often been a source of petty annoyance for me with some of my clients. Problems arise because of poor communication.
