Try DIY?
The pros and cons of being an owner-builder
Kevin J. Daum

This article was originally published in the May 2006 edition of Log Homes Illustrated magazine.

The first image that pops into people’s minds when you tell them you have decided to build your own home is you standing on a ladder in overalls pounding nails. Or, in the case of a Log Home, they picture you with a chainsaw felling trees. Despite all the books for sale on the subject of building your home, actually fewer than 20 percent of consumers choose to act as their own General Contractor, and very few engage in the building process themselves. But thousands of books and magazines are circulated and countless TV shows are dedicated to those who long to be the builder of their very own home.

Even when I was writing the book Building Your Own Home For Dummies, there were extensive conversations over the title. Some believed it should be Custom Homes For Dummies since so few people actually do build their own home. Ultimately, the publisher chose the title to associate with most people’s dream of being involved in the process.

So what are the benefits of being the builder yourself? The most obvious reason for eliminating the contractor is money. Many people who head down the Owner-Builder path believe they can save a lot of money by removing a middleman. In many cases, it can be true; but for others, however, certain negatives come to mind. It seems like a lot of work. And if it’s so easy, why doesn’t everyone do it. For that matter, why doesn’t everyone have a contractor’s license?

Some of the real issues around this question have less to do with money and more to do with time and experience. Let’s assume for the moment that the likelihood of you handling the physical labor of all the construction your self is slim. Sure, some of you may actually be skilled in grading, log stacking, electrician work, plumbing, roofing, drywall and everything else required for building a home. Most of you, though, will look to simply be your own general contractor and farm out all that detail work to subcontractors. That being said, we can focus on your ability to contract a project.

To tell if being an Owner-Builder is right for you, start with this little quiz. I have taken the liberty to define the real issues surrounding the questions so you can consider them carefully.

1. Do I have extra time and a flexible schedule at work?
This is the big obstacle for most people who consider being their own GC. You have to keep your job to pay for the new home and this will be a full-time job in itself. Even if you manage to find the extra time on weekends and evenings, you may still need to take time off for significant activities, like pouring the foundation. Emergencies (yes there will be some) can be a drain on sick days and vacation days, particularly if you are building a second home that may be a couple of hours away from your office. One last thing to consider here is that even the extra daytime phone calls can be very disruptive to focusing on your normal work responsibilities.

2. Do I have the financial flexibility to take on more outside work?
Time is important and ultimately translates to money. Figure out how much your time is worth and whether you can afford to take the time away from focusing on sales or bonuses during this period. Even using sick leave or vacation will have an impact financially if you actually do get sick during the year. If you are self-employed the energy you put into running the house project can have a devastating effect on your business if you don’t have operations running smoothly without you.

3. Do I have experience managing the construction process?
I stated earlier, you will be hiring experts to do the individual jobs of construction, but you can’t expect them do coordinate how it all goes together. That will become your job. You also will be responsible for the overall quality of their work. Having some construction savvy is key to making sure the house is built in a consistent, workman like manner. This is not the time and place to start a long learning curve. It’s likely you won’t know if you picked the right subcontractor until he is finished and he has been paid.

4. Do I have good people and project management skills?
A log-home project is not the same as building a model railroad in your basement. This project will cost hundreds of thousands of dollars and will require the coordination and cooperation of dozens of workers and vendors, not to mention outside people like inspectors and bankers. Before your home is finished, you will have to keep everyone motivated and happy. You will have to resolve questions and problems quickly and effectively with a minimal of collateral damage. Make the wrong person unhappy, and your project could come to a grinding halt.

5. Do I have good connections to material suppliers and subcontractors?
This is the hardest part of being an owner-builder. Most contractors have long-term regular relationships with material suppliers and subcontractors. They know how to work together, and the contractor will know when to ask for favors. If this is your first time acting as a General Contractor, each relationship will be a new experience in negotiation, management and quality control. You will have to search to find which suppliers will have adequate stock and at the best prices. Since you are buying for a single purpose and with no established business relationship, you may be a lesser priority than bigger more established builders.

6. Will my spouse and kids stay with me if I mess up the project?
Ultimately this question will decide your fate as a General Contractor. Building a Log Home is in and of itself a taxing project on the family. It will require a significant amount of your financial resources and your time, regardless of whether you hire a builder. If your family is not ready to support you taking the lead in this venture or worse is likely to hold a grudge if something goes wrong, then by all means give them someone else to blame. Making the family happy is the primary reason for venturing into this project so give them the experience that will keep the family peace.
If you honestly answered “no” to any of these questions, then you should probably start interviewing contractors. Unless you know you can contract your home as well or better than an experienced, licensed contractor, you need to weigh potential savings against the risk of mistakes and frustration. Learning halfway through the project that you weren’t up to the task can be disastrous.

7. Do Owner-Builders really save money?
Sometimes. The money saved from being an Owner-Builder is the money you would have paid to a contractor for managing the project. Contractors work on margins over and above their cost of labor and materials. If you are purchasing a complete package from a log home company, then the dealer sets these prices in stone. The Contractor will negotiate a price with you on top of that package price. Many of the items not covered in the package, such as foundation and finish materials, will need to be procured by the contractor and will include a profit margin for the labor and materials. Generally, more established contractors will work on higher margins where younger contractors with less experience may work for less.

Contractors do have access to wholesale pricing that allows them to make some money without you having to pay more. In some cases, a contractor may be working on a lower margin than standard retail pricing and may be able to save you some money on items with a high retail mark-up. However, careful shopping on the Internet, as well as access to a resale license, can generally get you close to some of those same wholesale prices.

With labor, you will 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 subcontractors, you’ll likely end up paying the full price for their time. Contractors may be able to move subs around on projects, keeping them from waiting while on the clock which can save money.

You may be able to save between 10 and 20 percent if you choose not to use a Contractor, but you have to weigh that against the time you spend. Of course, the savings only occurs if you do everything properly. Mistakes can eat up any savings very quickly.

How do the banks feel about Owner-Builders? Not all banks are willing to finance them. Many conventional construction lenders consider Owner-Builder projects to be overly risky. They have three basic reasons for being concerned.

• The project might not be managed effectively, causing it to exceed the allotted timeframe and budget.

• You may not be able to maintain your job and income during a project that will put demands on your time and resources.

• In case you default on the loan, the bank doesn't want to have to find and hire a contractor to finish the home when it takes possession.

Ultimately, it’s your experience and your money. You are the only one who can assess whether or not you can manage the risks associated with being your own General Contractor. The more expensive the Log Home, the greater the potential savings. However, larger projects have more complexity and less margin for error. Keep this in mind as you decide whether the potential savings and the experience of running the project yourself for good or for bad are worth more than the completed home itself.

About the Author...
Kevin Daum is the Founder and CEO of Stratford Financial Services, a Real Estate finance and education company, founded in 1989. Stratford specializes in Purchase loans, Refinance loans and Custom Home Construction finance and has successfully financed thousands of clients. He is the author of "Building Your Own Home for Dummies" (Wiley), as well as "What the Banks Won’t Tell You." Mr. Daum was an Underwriter for Plaza Savings and Loan and Key Bank of New York. He is an INC 500 CEO and has been listed as one the 40 Most Influential People Under 40 in the San Francisco Bay Area. He is the Global Chair for the Edison Innovation Program with the Young Entrepreneurs' Organization (YEO) and is a founding Board member of the Bay Area Chapter of YEO.

Mr. Daum is a frequent contributor to numerous business publications on the subjects of Real Estate and Small Business leadership and speaks regularly on both subjects. He can be contacted at kevin@stratfordfinancial.com.