There are a lot of benefits to being your own contractor. There are also some costs. Don’t be fooled by the books that tell you that you can save 50% of the costs by contracting the home yourself. There are some major caveats to that statement. Let’s take a closer look.
Perhaps the most obvious and yet the most overlooked aspect of this equation is time off of work. If you are retired, then you don’t need to worry about this piece; however, for the rest of us time away from our day job is money lost. So what’s the cost? If you have to take 6 months off to build your house, how much is that in lost wages? Add it up. You may find that building your own house is not that cheap after all. I might add that assuming you can build, from start to finish, an entire house in six months might be a little over reaching. Most professional contractors take six to nine months to build a high quality home, and they do it for a living, not as a onetime deal.
So, getting back to the actual cost. If you make $30 per hour and work an average 40 hour week, that means you would take home $28,800 in the six months you are off of work while working on your construction project. Let’s assume that you don’t actually make the minimum six month window. Let’s call it a year, which is a much more honest assessment. That would mean you would lose $57,600 in wages. How expensive is your house?
If you figure that the lost wages as a 15% contractor’s profit and overhead figure (what you’re saving by contracting the house yourself) then your house would need to be worth a little more than $375,000 for this to be worth contracting yourself. In other words, you could pay $375,000 to a contractor and have him or her build your entire house for you and still save roughly $1350! In this scenario I’d suggest you stay at work and hire the contractor.
Another cost of contracting your own home comes in the down payment. Most banks require higher down payments from owner/builders or owner/contractors as they don’t believe you will meet the required deadlines and think that you are at higher risk of loan default than a professional contractor. Knowing this in advance may be all that you need. Save the money and make the larger down payment. If you are not in a position to save the extra cash, you will need to consider what your options are to lower the down payment. Perhaps you have some collateral you can offer the bank first position on, or perhaps you know someone who would be willing to co sign or even allow you to use their contracting company’s name and license number. The key here is to plan ahead and discover, early on, what will be required of you.
You are slow. Okay, that may be a somewhat mean thing to say, but I can almost make the safe assumption that you are not as fast at building as a professional contractor. After all, it is not what you do for a living every day. You’ve heard the saying “time is money” right? Well if that is true, then you taking longer to complete the construction of your home will cost you more money. Again, this is an assumption, but nonetheless, consider what the costs of a slower construction will be.
Don’t focus entirely on construction costs either. What is the cost to your family dynamic? What is the cost to your health and physical well being? How about stress levels? All of these things could be translated into financial costs, but they have their own impacts, outside of the finances, as well that should not be overlooked.
Take the time to really think about every aspect of contracting your own home. Take the time to discover what the possible drawbacks could be. It is best to learn about such things early on, even before you commit to the concept. This will allow you to break free of the potential downward slide and hire the professional you need to get the job done. OR, and that is an intentionally big “or,” you will learn that contracting your home really is a good idea and that you really will save money. Great! Now you know. Now you can build your house with confidence that you are the right man or the right woman for the job.
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