Chapter 1: You Can Save $100,000
Amazing Cost Savings
You are driving down a beautiful street and you see houses that you would like to own. These are spacious custom homes with many upgrades and custom features. They cost around $350,000. You want to build a house like that, but not at that price. You sigh and drive on. But wait a minute. What if you could save 35% on construction and build that $350,000 house for $254,000?
Adjusting for land value, the average owner-builder (“O-B”) I studied saved that much on the same type of property. How does $226,000 strike you? That’s what it would cost if my own owner-builder savings were applied to that $350,000 house. How about $207,000? One of the O-B’s I studied saved that much building a similar house.
In these examples, I have assumed that the $350,000 house was built on land with a value of $75,000 and construction costs were $275,000. And I have applied savings of 35%, 44%, and 52% – actual achievements of people like you.
| Price of House |
Cost of Land |
Constr. Cost |
O-B Savings |
O-B Constr. Cost |
Total Cost
With Land |
| $350,000 |
$75,000 |
$275,000 |
35% |
$179,000 |
$254,000 |
| $350,000 |
$75,000 |
$275,000 |
45% |
$151,000 |
$226,000 |
| $350,000 |
$75,000 |
$275,000 |
52% |
$132,000 |
$207,000 |
|
The 35% savings example comes from my interviews with owner-builders from around the country. Their average savings on construction costs were 35%. These savings are calculated either against actual builder estimates of construction cost, or ...
Chapter 2: Learn The Wealth-Building Secret
People in Construction Know the Secret
We’ve all heard of “inside information” and “insider trading”. In building homes, industry people have the “inside track” on a wealth-building secret, the building of houses for themselves. Probably half of all owner-builders are construction people. For them, owner-building is something of a side benefit to their profession. But you shouldn’t be excluded from the privilege if you aren’t a construction person.
The average American’s net worth is equal to about four times their annual compensation. Thus, if you make $50,000 a year, you would hope to have a net worth of $200,000. And many people toil their entire lifetimes to develop it. But people in construction often have houses that contribute that much to their net worth. One of the general contractors I interviewed was an executive in a large construction company. He owner-built his $650,000 house with help from company tradesmen for $450,000. It was finished in four months. He added $200,000 to his wealth practically overnight. This approximates the net worth that many of us work for over our entire lifetimes. For him it was an employment perk. One of the subs on my house built his own 4,500 square foot house for $88,000 plus land, making a total cost of about $120,000. It took less than six months. Yet that house has a valuation over $250,000. In six months, he added more than $130,000 to his net worth!
Chapter 3: Contractors Aren’t What You Think They Are
Contractor Games
PERPETUATING MYTHS
You call a general contractor for a bid on your project and he shows up in a nice pick-up truck wearing jeans and a work shirt and work boots. Perhaps he’s carrying a clipboard. The impression is that of a tradesman, and of technical expertise. The contractor will reinforce some or all of the Myths described in Chapter 1. Most non-construction people would hesitate to question the word of this “expert”.The big myth is that you can’t do without this “technical expertise”. It’s a specialized field, and you need an experienced specialist. But the work of a contractor is to “contract”, that is to hire and manage independent craftsmen, known as subcontractors. His work is management work, much like the work of any of us who have ever run a household with its myriad expenditures and activities. Almost any independent construction inspector, (usually a retired contractor) has equivalent knowledge of the process and the details as does the contractor before you. They are paid as consultants, and can advise in detail on custom home construction for fees of less than $1,000.
Chapter 4: You Can Manage Better Than a Contractor
Timeline: One year before groundbreaking.
Management Concept One: “People Often Ingest M&M’s” Even though I have been a management consultant for more than 15 years, I am going to restrain myself and only include two management concepts in this book. However, these concepts will really help you to get a handle on your project and save money.The first is the duties of a manager. They apply to any general manager. These are the tasks that a contractor should perform when building a house, and they describe your duties in doing the same.
- Plan Organize Integrate Measure
- Motivate
These five words form the acronym “POIMM”. The device I use to remember them is the phrase, “People Often Ingest M&M’s".
Chapter 5: You Will Profit By Building a True Custom House
Timeline: Nine months before groundbreaking.
Starter, Step-Up, Custom, Dream house According to the latest survey of custom builders in Custom Builder Magazine, the average U.S. custom home is 3,600 finished square feet in size. The average total value of a new custom home is $556,000 including land. Factoring out land at 17% of total cost, custom home construction prices are at $128 per finished foot, on average. The average contractor-built custom home construction budget in this survey was $460,895. By contrast the average house built in the U.S. is 2,125 square feet in size and has a value with land of $140,000 according to the U.S. Census Bureau (1996 figures). Factoring out land at 17%, the average construction cost of a new house in this country is currently $116,000. Traditionally, single-family homes are classed roughly into three groups, by size and cost: “starter”, “step-up” and “custom” or luxury homes. To these groups, I would add a high-end classification of “Dream Home”. The starter homes are at the bottom of the market in scope, the step-up homes are in the middle, and the custom homes occupy the high position. A dream home is a highly customized custom home that the owner personalizes to his tastes without major concerns over its appeal to a subsequent buyer. With custom (and dream) homes averaging over $500,000 and the average house at $140,000, there is a great distance separating the categories of construction.
Chapter 6: Conquer Details Room By Room and Save 20%
Timeline: Eight months before groundbreaking.
Change Orders are Costly
A change order is an agreement to modify an original contract with a builder at an added cost. The term applies generically to those changes in the course of your project that change your original plans and increase your cost.You don’t want change orders. You want to get it right the first time because change orders are costly for these reasons:1. Do–Undo–Redo.
Many change orders result in three times the work. You do the design as planned. That’s the first cost. You decide you don’t like it. You undo what you did, destroying materials and running up labor. That’s the second cost. You redo the work in a different way. That’s the third cost. You’ve paid for the same item – family room, driveway, shower enclosure, whatever – three times. 2. Short notice.
The affected item must be changed right now. It stands in the way of other work. The interest clock is ticking. The schedules of the subs are on hold and beckoning. You’ve got to move now. You can’t give the item adequate competitive bidding or shopping time. You have no recourse but to pay top dollar.3. Tip of the iceberg.
Once an owner starts doing change orders, it’s just the tip of the iceberg. If one... 
Chapter 7: How to Get the Subs on Your Side
Timeline: Four months before groundbreaking.
How to Find Good Subs
One of the benefits of owner-building is assembling a team of outstanding subs of your own choosing. To do that you will need to start with a list of candidate subs for your project.
Here is where the buyer must beware. You will want to deal with reputable subs who have something to contribute. There is a risk that you might wind up with a very bad apple. One O-B told me,
“You can get ripped off easily. Some subs are like animals. They live from week to week for beer money and their hands are rough and cut. One guy gave me a medium price on my septic system. He said he would save me money on materials if he could pay cash for them. He showed me a lower price than I could get, and I gave him the money. He disappeared after he got it.”
On the other hand, some of the subs are unbelievably honest and professional. A woman owner-builder told me...
Chapter 8: How to Build a Budget That is a Powerful Miracle Tool
Timeline: Three months before groundbreaking.
Start with Your Bids from General ContractorsEven though you plan to act as the general contractor, there is nothing to prevent you from asking licensed general contractors to estimate your project. In a slow market, you may find a real bargain and decide to let a general build it. You may be forced by the unforeseen, say sickness or accident, to have a general build or finish your project. You may find a general that you use for a future project or recommend to someone else. For these reasons it is more than fair to take advantage of the free service that general contractors perform of bidding potential work.Your bid from a general contractor can be tremendously helpful in planning your approach to the work, but only if the bid is thorough and professional. I insisted that generals who bid my project include the following information:
1. Written cost breakdown or budget. You want to see each line item separately with its cost. 2. Who would likely perform each line item. You need this to compare with other generals.
3. Written calendar of completion. Tell them that you want to be sure that they can complete within your six month deadline, so you want to see how long they will take on each line item.
Chapter 9: Commando Shopping Techniques
Timeline: Three months before groundbreaking.
The Price of Marshmallows
Elaine and I have been avid grocery shoppers for years. It’s a science and a sport with us. We follow good rules of comparison shopping, we read labels, we check product sizes for comparability. When we buy a larger size of a product, say breakfast cereal or olive oil, we make sure that the price per ounce is lower than for a smaller size. We took the level of shopping up a notch some years ago in an effort to save money to build a house. Using a computer spreadsheet, we listed all the products, brands, and sizes that we use. We discovered that all of the items we buy regularly, from applesauce to lightbulbs, add up to less than 300 products. On the spreadsheet we listed the usual price of the item: (“one pound bag marshmallows: $.99”) and the lowest price we have found for that item (“one pound bag marshmallows $.44, Storehouse Market, March, 1996”).When we find a price that comes close to the “lowest ever” price we buy that item in bulk. By organizing our grocery shopping we have reduced our monthly grocery bill from $400 to $250 while still getting the exact brands and products we prefer. When we were developing early plans to build our home we took a vacation trip in the car. Elaine brought up the idea of owner-building the house, and I expressed real hesitation. While on the road we stopped at a convenience store for gas. I browsed the...
Chapter 10: How to Schedule the Work at a Savings
Timeline: Two months before groundbreaking.
Another Miracle Tool
Like a written budget, a written schedule has a magical effect on your outcome. If you have a deadline, in writing, with written steps that lead up to it, you have a very good chance of coming in on schedule.
Your schedule would be like a calendar with a start date and an end date. The steps for building your house would be indicated along with their durations and sequence.
You need the help of a written schedule because the upcoming construction phase of your project has a way of getting out of hand. One industry expert calls this phase, “Mr. Toad’s Wild Ride”. The construction phase tends to follow Murphy’s Law: “If anything can go wrong, it will. And at the worst possible moment.” A written schedule gives you a proven control device on the process.
Only 22% of the owner-builders I interviewed had a written schedule. This is one of the reasons they slipped an average of two months from their original completion dates. I want you to have a written schedule and to take advantage of your planning to make it an exceptionally good one.
The National Association of Home Builders says that the average contractor-built house in the U.S. takes six months to complete. The same group says that owner-builders take an average of 9.5 months to complete. It’s hard to know how the NAHB obtains good statistics on owner-builders. My findings are that owner-builders typically get done faster than 9.5 months. One possible explanation for the 9.5 month...
Chapter 11: How to Make Your Lender Swoon
Timeline: Two months before groundbreaking
Your Next Thousand Hour Payoff By this time in your preparation, you have been rewarded for diligent planning by saving money on house design, by finding good subs, and by pinning down some real construction bargains for your house. You are ready for your next payoff – smooth sailing through the loan application process.The myth that you can’t get a construction loan without a licensed general contractor is widely circulated. You can indeed get the loan, but there are many people who will tell you that you can’t. Of the lenders I surveyed, 45% made owner-builder construction loans routinely. 15% did so on a case by case basis. That’s more than half who will make these loans. If your preparation is well done, you will get a loan from any of the 60% who will consider it. You may come out so prepared that the 40% who don’t do it will make an exception for you. What the Lenders Want
The lenders want what you and I want. They want you to be prepared for a smooth and successful project. Several lenders used the same words with me in interviews: “They have to convince me they can do it.”
Lenders are justifiably wary of the typical O-B candidate for a construction loan. Construction lenders find O-B’s woefully unprepared on average to control a project...
Chapter 12: Paperwork Before You Begin
Timeline: One month before groundbreaking
Anatomy of a LawsuitWe made the mistake of not having back-up plans for those budget categories where volunteers were to help on our project. One of the volunteers, someone to whom we had loaned money, never showed up to do the finish carpentry he promised. Since our project was already delayed, I moved hastily to find a replacement carpenter. I hired someone I knew who was retired and seemed grateful for the work. He said he could finish the task with a helper in a week and a half. I agreed to pay him the hourly wage he asked for, with the proviso that payments would not exceed eight days for two men or 128 hours of work time. Since I knew the man slightly, I only made notes in my day book. We didn't sign anything. Then our nightmare began. For one reason and another, the men kept telling me that it would take longer than expected to finish the work. At the same time they came to me every Friday and asked for advances on their pay, saying they would not be able to stay in their apartments or have transportation if they didn't have some money. The task dragged on, and I eventually wrote out personal checks totaling 140% of the agreed amount, with only 65% of the work completed. Finally, on the advice of an independent inspector friend, I refused to pay any more. They left with curses and threatenings.
Chapter 13: Six Months to Victory
Timeline: Groundbreaking. “Integrate”
You remember the duties of a manager – POIMM – Plan, Organize, Integrate, Measure, and Motivate. You are two thirds through this book and you have only dealt with planning and organizing so far. This reflects reality, because a general manager should spend 65% 75% of his or her time on the future. As the contractor for your home, you are about to get down to the present and handle your responsibility to integrate.Integration is the coming together of the parts. It will be your job to get the people on your team to work together. You have selected people with a common work ethic and standard of construction quality. Nonetheless, there will need to be careful coordination to make your project run smoothly.You will need to coordinate the trades by running the schedule smoothly and managing the site for efficiency. In many cases you will need to bring people and their required materials together in a timely manner. Take responsibility. If a portion of the work is not done in time to enable the work of somebody else who depends on it, you are responsible. If materials are not there in time for the next sub or the next step, you are the one responsible. You settle disputes and facilitate the work of others. Your function is to make things easier for everybody else on the team.The average owner-builder I interviewed had a dozen different subcontractors to ...
Chapter 14: Smooth Execution Saves Money and Improves Quality
Timeline: Three to five months out
Other Daily Duties
With you as the contractor, there are a surprising number of things nobody will take care of but you. You oversee the details that, taken together, make a clearly successful project. There is a saying that “God is in the details.” Every day you should:
1. See that people are showing up.
Make phone calls to subs who are about to begin the night before they are to show up. Call subs who will be coming soon in the evenings or in the early morning before work. When you get to the site, if people are missing, call right away from the site. Your records should include cellular phone numbers for each of your team.
2. Check the work.
One owner-builder who is a physician from Atlanta paid a premium of $10,000 to upgrade his cabinetry from Georgia pine to solid cherry wood. He left the office to check on the installers in the middle of installation day. He discovered that they were installing particle board with a cherry veneer. They claimed he was getting what he had ordered. He had it in writing, and stayed on the vendor with calls and visits until the solid cherry was furnished a few days later.
Chapter 15: Mistakes You Can Avoid And Successes You Can Achieve
Timeline: Six months out
Mistakes
During the course of our construction, I kept a notebook of mistakes we made. Some of them were items that came out okay, but not as I’d hoped. For instance the stairs in the garage step down straight out of the mudroom. This was as originally planned, but it cuts a foot or two out of the basketball playing surface in the garage. I wasn’t thinking too clearly the day they poured those, or I would have had them form a landing and turn to parallel the garage wall. After being in the house we see that the smoke alarms go off occasionally from excess kitchen smoke. Next time I would put a 200 cubic foot per minute fan in the wall or ceiling to supplement the downdraft range.
Most of the mistakes were items that didn’t go smoothly – where the process could be improved next time. My biggest were:
- relying on donated labor or the return of favors from volunteer helpers;
- waiting too long for subs who didn’t show;
- not hiring an electrical consultant soon enough;
- allowing the consultant to do some actual work;
- paying some subs on a time and material basis without an advance estimate;
- allowing the plumber to supply some materials which were marked up heavily;
- hiring some “no-goods” as subs because I got in a hurry when the first choice didn’t show; ...
Chapter 16: If You Decide to Use a Contractor
There Are a Lot of Reasons to Use a General
An experienced construction lender whom I admire puts his loan applicants through hoops to make sure they are prepared to begin building. He insists on thorough preparation and a commitment to the time gobbling process of on-site supervision. If the candidate can’t make the commitment, he steers them to the use of a general contractor. 65% of his candidates wind up going with a general.Perhaps you are in the category of the 65% who intend to owner-build but acknowledge that they can’t make the commitment to succeed. It involves too much time or disruption. You may be under a tax or land contract deadline that impels you to move more quickly than you can prepare properly. It helps to be honest with yourself. You know the facts. You can save a great deal of money, but only if you conscientiously take the steps needed to effect the savings. You know the time commitment involved. You know the tasks involved and can make an informed and mature choice.You may want to go through a contractor-built process before attempting to solo. Like me, you don’t want to do something half-way. Life is long – there are many chances to implement your growing knowledge.For many people personal time is scarce, and realistically, there is a good-sized part of the public for whom money is more abundant than time. You may be in the happy circumstance of being able to afford all the house you want to build, general contractor notwithstanding.
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