What Is An "Owner-Builder"?

An Owner-builder (O-B) is an individual who chooses to act as the General Contractor (GC) in managing the construction of his or her own home. Most consumers hire a General Contractor to manage the home building process. There are many obvious benefits to hiring a skilled professional who has the experience, connections and tools to ensure your project is completed right and on time.

There are also many benefits to taking on the role of the General Contractor, from considerable cost savings, to enjoying extensive control over how the home is built and the products and materials used. Going the route of Owner-Builder is not a decision that one should make lightly. Let's take a look at the both the benefits and the challenges of being an Owner-Builder.

Why Do People Become Owner-Builders?

"Money" Is The Biggest Motivator

Though there are a number of benefits that drive more and more people each year to become O-Bs, the number one factor continues to be cost savings. Those savings equal instant equity for the owner, and a bigger return when they go to sell.

There are two ways that an O-B can save money. The first is in "cold sweat" equity. These savings don't require any physical labor on the part of the owner-builder. By acting as the project's manager and overseeing the building process, as well as performing additional duties such as materials buyer and cost controller, it's not uncommon to save as much as 25% or more of the home construction cost.

The second is traditional sweat equity, where the O-B performs little, moderate or large quantities of the actual construction work themselves. Normally, various subcontractors perform this work when and where their services are needed. Taking on more of the work has the potential to provide even greater savings. It also requires that you possess construction-related experience or skill, can offer greater time commitment, and are willing to assume the increased risk of not hiring professional subcontractors to perform this work for you.

Control

The second major benefit in becoming an O-B is the luxury of having complete control of the project. O-Bs who work hard and plan properly are often able to include upgrades and efficiencies at lower costs. Because you are able to focus on your priorities- you'll put greater effort and realize better success in those areas most important to you. O-Bs drive the process and are able to exercise a range of choices beyond what is possible when working with a GC. When hiring a GC, it's important that you don't hire someone who may cut corners in areas that are important to you, or resists your requests because they are comfortable with their way of doing things. Owner-Builders essentially hire themselves, which ensures that the home is built the way they want it?

Satisfaction

Although this is surely the last reason that most will decide to become an O-B, it's often the most rewarding when the job is done. Building a home can be a long, complex, stressful, and all-consuming process. For O-Bs, the satisfaction derived from successfully completing such a large-scale project is huge. Once your home is completed, you'll remember the hard work, thoughtful choices and attention to detail you were able to personally contribute and enjoy the fruits of your labors for years to come. For many, this feeling of pride and satisfaction can be the most powerful part of the Owner-Builder experience.

What It Takes To Succeed As An Owner Builder

You may ask yourself why so many people decide to pay a General Contractor such a large percentage of the overall cost of construction when they can manage the project themselves and reap such substantial savings. The answer is simple. Managing the construction of a home successfully is no small task. In fact, lenders will often refuse to finance construction projects unless there is an experience General Contractor (GC) or Building Manager involved to ensure that the project is completed successfully, on time, and on budget. GCs play the single most important role in the homebuilding process. Managing large projects take considerable skill and experience, which is why selecting the right GC may be the single most important decision you'll make. This is an important factor for you to consider as you contemplate becoming an Owner Builder for your project. If you want to ensure that your project goes smoothly and quality is maintained while realizing maximum cost savings at every point, you will be required to bring a considerable amount of time, effort and skill to the project. Are you the right person for the job?

Here are the ten leading qualifications of successful owner-builders from The Owner-Builder Book: How You Can Save More Than $100,000 in the Construction of Your Custom Home, By Mark A. Smith:

1.0 You come to the job each day prepared to fire people if needed. This consists of being clear about what you expect and holding subcontractors accountable for it. You are writing the check, you are in power. You stage your payments so that you can pay for performance to date and release the sub if necessary. You can put your foot down if needed.

2.0 You are somewhat familiar with construction. You have interest in the subject of building and some aptitude, and are willing to learn. You talk the talk of the business. This can be learned from building shows on television, from builder magazines to which you can subscribe, from interviewing subs, and from observing building projects, among other places. Even though you may not perform a given trade, you can talk about it knowledgeably. However, overemphasis on building knowledge can interfere with the exercise of good planning and management, your principal tools.

3.0 You communicate well. You make clear your expectations, and make certain they are understood. You can talk to all kinds of people. You can win loyalty and build relationships with the team. You are capable of making endless phone calls to check on things.

4.0 You pay patient attention to detail. Winston Churchill, who liked to lay brick on his English country estate and was a competent oil painter, said, "Genius is the capacity for taking infinite pains." The tiny details done right add up to a distinctly superior house. The O-B must be prepared to take the time to see that things are done right.

5.0 You have job flexibility. Either you or your spouse need to spend four hours a day or more on-site during construction. Many construction lenders interview their applicants about the circumstances of their employment to ensure this flexibility.

6.0 You have determination and problem solving ability. You don't lie down at the appearance of the first knotty problem. There are several every week during construction. You will stick with them until they are solved.

7.0 You are financially motivated. Parkinson's Law is that work expands to fill the time allotted to it. A corollary is that a construction budget expands to the borrowing limit of the owner. If your limit is low, you will be more ingenious in finding ways to meet it.

8.0 You are organized. If not in general, at least for this project, you are organized to a fault. You will tend to the agreements, paperwork, schedules and budgets tirelessly.

9.0 You are a good shopper. You can tell differences in quality, can find bargains, and won't overspend on anything.

10.0 You are a good student. You watch well and learn quickly. You can get answers to your questions.

As you as trying to determine if you have the time, energy and skills required- make a list of the areas where you think you are lacking, and see if you are able to locate support and assistance to help you fill the gaps. Maybe you have a friend or relative who is a great negotiator who can aid in getting low bids from subcontractors or better prices from material suppliers. Do you have contacts with construction experience that you can lean on? Maybe you know someone with an authoritative demeanor who will give you confidence when walking the jobsite to inspect work? There is also a fast growing service industry built around helping consumers succeed as Owner-Builders. These companies specialize in everything from helping you plan the project, secure financing, facilitate the selection and ordering of materials, to complete onsite consulting. There is also a good amount of media and resources widely available focused on Owner-Building - from Books and Magazines to software products and websites. Knowing your personal strengths and weaknesses can help you determine where you will need help, and what type of resources and services you will required. It's better to over-estimate the amount of help you'll need than to find yourself lacking in areas that may cause you problems. Managing is all about keeping a number of individual elements on track. There are pitfalls to avoid, and money to be saved by keeping things on schedule.

When You've Made The Decision To Be An Owner-Builder

If you've made the decided that you want to build your home as an O-B, you should be prepared to immerse yourself in as much learning and planning as possible. Preparation is key. You want to be sure that you're prepared to drive and manage the project effectively, and that all your goals are met along the way.

Again, from By Mark A. Smith, the Author of The Owner-Builder Book: How You Can Save More Than $100,000 in the Construction of Your Custom Home, here are the "The Ten Commandments of Being an Owner-Builder":

1.0 1,000 hours of planning. There are 2,000 hours in a work year, and it takes about 6 months of careful planning to build your own house. Our studies indicate that if you short yourself on the planning, you will save less money and take longer to build.

2.0 Written list of features. Once you start construction, you will be tempted to make many changes to your original plan if you have not thought through your design carefully. A written list of room-by-room specifications ensures good design and saves money.

3.0 Spreadsheet budget and expense tracking. Putting all your costs estimates onto a computer spreadsheet has the magical effect of producing project savings. You can see what you've spent and what cost projections for the future are. You can take advantage of bargains and limit damage from overruns.

4.0 Written schedule. Very few general contractors and a minority of owner-builders commit their project schedule to paper. Those that do invariably finish their projects smoother and faster.

5.0 Three bids from subcontractor and suppliers for each item. It takes time to get bids from subcontractors (subs) and compare them on paper. The effort results in an improved plan and tighter estimates of cost. Sometimes you find big bargains by looking for just one more bidder.

6.0 Signed agreements and lien releases. Many owner-builders have expressed regrets that they didn't get agreements in writing. A signed agreement can be your best defense in the event of a dispute. Signed lien releases, available from your lender, prohibit subs and suppliers from placing a lien on the new house.

7.0 Buy materials directly. Most subs like to provide their own materials, but experienced owner-builders know that it costs more that way. Buy your materials separate from labor and avoid unwanted overhead charges. When you search for materials you find bargains, too.

8.0 Constant communication with subs. One of the biggest problems with owner-building is that some subcontractors won't show up as promised. The remedy is to communicate early and often with your chosen subs.

9.0 Be on-site. Owner-building can be very profitable but demanding and is not something to be done on evenings and weekends. You or your spouse needs to be on-site during construction to ensure that all possible steps are taken to get you a well built home at a savings.

10.0 Run a clean, organized job. It actually saves money to have a clean construction site where tools and materials aren't trampled and lost. By keeping the site clean, you will end up with a house that is satisfyingly clean and healthy to live in.

Overseeing Work

As an O-B, you are the project's quality control manager. It will be important that you know how to schedule work at a pace that ensures completion and how to check work to see that it is being done properly. You do not want to micromanage. All trade contractors must be allowed to go ahead with the work they have contracted to perform without undue interference. Naturally, if they are not performing the job according to the plan specifications or other agreements, it is your responsibility to step in and get things on track. However, be careful not to take the time of the subcontractors and their crews unnecessarily by failure to have the material on-site in the proper quantities, or by asking too many questions to satisfy your own curiosity. Getting basic questions answered before work begins is in everybody's best interest.

It is good practice to always work directly with the contractor rather than with one of his or her crew. Make sure that all of the preliminary work has been completed before scheduling a trade contractor to begin his job. Failure to check this measure in many cases will justify extra payment for lost time.

Hiring Subcontractors

A critical responsibility for you as an O-B is assembling and managing subcontractors (carpenters, masons, electricians, plumbers, etc.). Your job is to interview prospective candidates, get bids, hire your choices, and schedule/manage/coordinate the work.

Next month's edition of Building Your Dream Home will focus on selecting General Contractors, and Subcontractors. We'll go into strategies for locating and interviewing the right talent, as well as tips for the bidding and hiring process.

Where Hard Work Pays Off

If you find that you have the required skills, time, motivation and resources needed to be an Owner Builder - it's a great opportunity to see your own hard work pay off, both in getting the home you want and in the money you save. Though not for everyone, it can be a once-in-a-lifetime experience for those who are up to the challenge.