What is an Owner-Builder, Really?

by : Chris Esposito

If you have been involved in construction in any way over the years, you have probably heard the term owner-builder thrown around. You may have even heard some stories about the good, the bad, and the ugly side of being an owner-builder. But, the truth is that there is a lot of misinformation out there about owner-builders. Most people do not truly understand who an owner-builder is, or what an owner-builder actually does.

So, it's worth a moment to step back and figure out the real role of an owner-builder before you decide if it's something you may be interested in trying one day.

Simply put, an owner-builder is someone who takes on the role of managing the construction process without hiring a builder, or general contractor. Sometimes they are also called an owner-contractor or self-builder. In essence, he or she is the general contractor.

Being an owner-builder does not mean having to actually do the physical work yourself. You can, if you want, but it is not required.

The owner-builder is responsible for all day to day aspects of the construction project, just as the builder would be if one had been hired. As the saying goes, "The Buck Stops Here" with the owner-builder. The headaches and responsibilities of every part of the home building process are yours alone.

So why do it? It sounds tough. Well, it is, and it isn't, really. And the rewards usually far outweigh those headaches.

First, it must be pointed out that being an owner-builder is not for everyone. Nearly anyone can do it, but not everyone has the patience, the time and the motivation to do it successfully. If you feel that you cannot devote the proper time and energy to the planning and management that is required to build a home, you should not be an owner-builder.

You must understand that the average owner-builder project takes about a year from start to finish, and you must be prepared for this job. Think of it as exactly that - a job and an obligation. It is a job that will sometimes take time away from your regular job, your family, your weekends, and even your sleep. That is the tradeoff for the incredible financial savings and self satisfaction you will enjoy for a job well done.

Now that you know who this endeavor is not for, let's take a look at who makes a good owner-builder: anyone, that's who!

It is for anyone who has the motivation and desire to build the home of their dreams, without compromising quality or amenities. And it is for anyone who wishes to save 20-30%+ of the costs of building their new home.

And, anyone can do it, too. Our office specializes in owner-builder construction financing and assistance, and our past clients have included single moms, senior citizens, and people from all walks of life. Each has successfully built their new home and each has moved in with a considerable amount of equity that would have otherwise been given to a builder. And, each also understood the importance of proper planning.

Being an owner-builder DOES NOT mean physically building the home yourself. Not if you don't want to, at least. Many owner-builders never hammer a single nail or do any aspect of the actual building. In fact, over 80% of our clients do not physically do any of the work themselves.

Some, however, choose to do some of the smaller, easier tasks themselves - whatever they may be comfortable doing. And still others wish to build the entire home by themselves. This is a choice that the owner-builder makes based on their own levels of desire, skill and comfort.

To illustrate this point about never having to lift a hammer to be a successful owner-builder, here is an excellent example of a school teacher who managed her new home's construction project back in 2002:

Terri, a school teacher from New Bern, North Carolina, is a school teacher and a single mother two young daughters, Sarah and Denise. Terri desperately wanted to move out of the 2 bedroom apartment that she and the kids were renting. She contacted our office in February, 2002 to explore the possibility of building a new home on a piece of land she saw while driving home from school.

She admitted she had no idea how to build a house, but she knew several people who were carpenters and other tradesmen. She had fallen in love with a home plan she found online and was determined to build the home. It was not a large home or an expensive lot - the total loan was just under $140,000, about half the size of our average loan amount.

Terri understood the importance of the planning phase of construction, including the budgeting and selection of sub-contractors. By the time she closed on the construction loan, she had a complete and accurate budget with a full set of bids from sub-contractors. The appraisal for her as-finished home came back at $178,000, giving Terri a projected $38,000 in instant equity when she finished the home.

One day, less than six months after closing on the loan, Terri called to say she and the kids had just moved into their new home and couldn't be more excited. She added that she was able to save some money during the process by continuing to get new bids as well as keep the process moving quickly. In the end, her final loan amount, when she rolled into the permanent loan was $129,500. This gave her an incredible $48,500 in equity in her new home.

What made me so happy for her was the fact that she was a single mom who slaved away as a school teacher with an annual salary of $45,000 and savings in the bank and her 401K of less than $15,000 at the time she came to us. But just a few short months later, she was living in a brand new home, paying about the same as she was in rent each month, and had more than a full year's salary saved in her new home already.

Keep in mind, though, that Terri's construction time is not typical for owner-builders. She was able to finish her home in six months, because she had devoted the appropriate time and effort to the planning phase of the project. Let Terri's success be a lesson learned for any future owner-builder. If you don't put a proper budget together, based on actual bids from sub-contractors in your area, then you won't have a quick, easy construction period. Guaranteed.

As a side note about Terri, since completing her first home, she has gone on to build additional investment properties as an owner-builder. And, she plans to continue building as a part time job.

What's the moral of this story? Owner-builders don't have to be expert tradesman to build their own home. Remember the true definition of an owner-builder: someone who manages the construction process of their home in order to eliminate the extra costs of hiring a general contractor.

So, remember, anyone who has the dedication, patience and time can be an owner-builder. But, also remember that it requires detailed planning and proper management to be successful.