Adam Marquart
Owner Builder Not The Savings You’re Looking For More Risk

Before getting caught up in the romance of building your home, owner-contractor, consider the risks

Photo by Henry & Co. on Unsplash

There’s romance and pride being in control of the decisions made during the construction of your custom home. More than likely you consider yourself a handyman. Maybe you have experience building out your basement. Framing the walls, the openings, and hanging the drywall. Possibly, running the wires from an existing junction box to the wall outlets and switches. Even tackling the installation of plumbing fixtures. You may even find tile flooring, tile surround of the shower, and pre-engineered wood floors.

I built this house myself

I enjoy visiting the home of a Do It Yourselfer (DIY), they’re beaming with pride to show you the wet bar they built. Their choices in materials, patterned tiles, and colors that were a steal because of being discontinued. Which would affect resale, if they were planning on flipping their home. However, most DIY owners occupying their home longer. Making their remodels out of date regardless of their choices in materials.

Regardless of the amount of hands on experience you have there is work that requires a licensed subcontractor to do. This is pertinent even if you live in a rural area where construction not governed by a city inspector. There will come a time that you sell, or refinance requiring an inspection. That inspector will ask for certificates proving the work wad done by a licensed professional. Most common, will be a certificate of install of electric panel, HVAC, plumbing main, meters, and gas. It is important you understand the building codes and those requirements.

Builders make too much money!

This will be the biggest factor of whether it’s workable to build your own house. First, we need to clarify how much a builder makes. I have seen estimates of 20–25% and then another 10% shopping bids. The advice was to get at least three-to-five subcontractor bids for each trade. You’ll be lucky to get two!

Bottom line, default is 10% profit and 10% overhead. That sounds good, right? Those two numbers are a forecast of a projects potential. However, I agree this is a builders economy, everyone is busy, and demanding premium prices. Capitalism, supply and demand. The mark-up doesn’t just fall on the home builders shoulders. It is across the board, including the price of materials; wood, drywall, concrete, and steel.

Real quick. I know we’re talking about owner-builders but would you like to know a good gauge for picking a good home builder? If they were a builder before 2008. Everyone knows about 2008, the great economic downturn, that started with the lending scandal. I recall speaking with home builders, they like to gossip too, they were lucky to crack 5% total. The only way you could get through 2008–2012 was being busy when everyone else was hurting. It organized those builders, made them efficient, and hired subcontractors with the same traits.

Back to the forecast. I use the word forecast because a builder can’t account for every known or what if factors that go along with construction. If they did, they’re pricing themselves out of the competition. A few examples:

The extra time a Superintendent spends on customer service. Answering your questions about changes, what’s next? Or, when do you think we’ll be done?

The supplemental time a Super or Laborer will put on their tools to fix items they don’t want to waste time having the subcontractor come back and do.

The actual time laborers spend keeping the job site clean.

The weather. Rain or snow, can keep a framer from maneuvering their lifts to install rafters or second floor walls.

Rain can keep finish concrete floors from being poured in the basement and garage.

The extra moisture in the air can extend the cure time between finished drywall to paint. Not just paint on the walls but cabinets, moldings, and doors.

If there is an extended period of cold weather, then temporary heat needs to be brought in to cure the drywall mud, and get moisture out.

These examples are extras, labor and material, that eats into the builders bottom line. These are line items that a customer will not understand having to pay for. As an Owner-Builder whose pockets are the extras coming out of?


When financing the cost to build a new home you’ll need two loans. The first, a Construction Loan. Then 60–90 days before closing you lock in an interest rate for your Mortgage Loan. The banking industry considers Construction Loans to be a high-risk loan. They typically carry a one-year term. So, be sure to plan your schedule accordingly.

A Construction Loan also requires a 25% down payment. One more little caveat. Most lending agencies base the amount of the construction loan on the appraisal amount. So if they believe your home will appraise for $200,000, you’ll be getting a $175,000 construction loan. They divide the remaining into four-equal installments or draws. They pay the draws out after 25%, 50%, 75%, and the final at 100% completion. These draws are used to pay your subcontractors.

Maybe you’re seeing where I am going with this, how are you going to pay the projects startup cost? Start-up costs would be:

SID Fees (your portion of the sewer, streets, and lighting if you’re building in a neighborhood)

Sewer permit (if in the city) otherwise install of septic tank and lateral field

Water permit (if in the city) otherwise drilling of well

GeoTechnical Report (typical for acreages to locate septic, lateral fields, and water well)

plumbers rough-ins for the basement and mains

electricians rough-ins for the basement and mains

Waterproofing of foundation walls

Maybe I’m being a little dramatic, but I know the first draw doesn’t happen until after backfill. Home builders have to have enough cash on hand to pay the above to start a project. They need to start as soon as possible. They need to meet their customers’ expectations. So, if you’re wondering why your friends and relatives are always questioning why their builder hasn’t started. There you go. This what you’re responsible to start your project, to the tune of $40,000-$50,000.

Understanding your why by “Pick Two”

Let’s discuss your WHY. Why do you want to build your home? Is it bragging rights? Maybe you’re like me and you want quality. Everyone’s go to, save a bunch of money!

The easiest way to explain this is with an exercise, I call Pick Two (I didn’t invent this, a collage uses it and I stole it because it works!). There are three demands every customer wants; save money, better quality, done by a certain time. In reality, only two are possible.

by writer Adam Marquart

If your WHY is to save money. Then you either have to lower your standards of quality or take extra time. The extra time, wait on cheaper subcontractors to fit you in.

If your WHY is you care about quality. This is my why. Then it will cost you more or it will take longer. Everyone knows quality takes longer and you will spend more.

If your WHY is to make it in time for an expecting baby, Thanksgiving, Christmas, or an upcoming graduation. Then you’re going to either pay more for overtime or lower your standards of quality.

But, if I’m the owner-builder I can do all three!

Can you though? The construction loan has a 1-year clock on it. So you can’t sacrifice time to wait on cheaper and the best subcontractors. Depending on your construction costs, do you have the money to pay for the best subcontractors?

Trial and Error

Being a home builder is about learning on the job by trial and error. The only way for a builder to fix their errors is to have another customer waiting. The customer is another chance but also a source of income, that’s right, try again. Along, with any error in construction comes cost. A cost to the current customer, as a change order or from profits. Neither of which will come until after they complete a project. Often, that’s not soon enough to start the next project. They, like you, will need to be cash liquid to pay for the materials and the subcontractors time to fix the mistake and move on.

The above circle of life of a builder, is why they often build the same home over and over. They’ve perfected their processes and can navigate the problem areas. Their subcontractors also develop a comfort level. They know exactly what they will make and the material it will take. It’s a comfort zone for all involved.

There’s no book, website, or construction management degree that will prepare you for onsite problems. That’s because most of the problems all stem from human nature. Think about a coworker, or an employee you manage, they are not all created equally. Sure you’ll have a majority of employees that are reliable, give a 100%, without being micromanaged. But, we all make mistakes.

Now think about that employee that is a ninety-percenter. They show up on-time, ninety percent of the time. They complete ninety percent of their work. Requiring you to finish it or assign it to another co-worker. I find both traits in subcontractors. However, consider yourself lucky getting the ninety-percenter. More than likely, in this economyconstruction is booming- everyone is busy and stretched thin. So, you’re probably getting the seventy-five-percenters.


Have you spoken with your insurance agent? You’re going to. You’ll be responsible and liable for every person who comes on to that site. The way to offset that, make sure every subcontractor is current on their insurance. Don’t just accept a piece of paper, call the companies and verify coverage. Before they start work and don’t hire them if they’re not.

What is your time worth?

How are you going to micro-manage the seventy-five percenters? Calling them to confirm they will show. Then going to the job-site to confirm they’re working. Meeting with every subcontractor, even if you reviewed their proposal, onsite before work is to begin. You want to review their scope and the locations they’ll be working it. Make sure you listen, to be sure another trade didn’t complete the work needed for the next trade. Taking this extra step is to clarify your assumptions of work included in their bid. Lowering your chances of being charged for an extra and limiting the excuse of one.

You cannot manage a job site with a full-time job. Maybe your significant other can help, by tag-teaming it together. If you go that route, write it down, who is the boss? The boss can decide without checking the others’ opinion. Decisions needing consent, results in labor packing and costing you a day of work. They don’t want to redo work and probably have another job they could work on. Also, writing it down, reminds the other to back up the boss. Don’t question the decisions made, or comment, I would’ve done that differently. This will be stressful. It will cost you more than you thought, planned, or budgeted. Don’t add passive aggressive arguments to the mix.

Source link