The Financial Costs of Being Your Own Contractor

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.



10 Responses to The Financial Costs of Being Your Own Contractor

  1. Frank Mon, December 20, 2010 at 2:50 pm #

    What´s than the reason for giving workshops, why buying the e-course. What´s the profit i can make?

  2. Andrew Morrison Mon, December 20, 2010 at 5:04 pm #

    Hi Frank. Still lots of reasons to contract your own place. It can certainly save you money as long as you are well prepared and know what you are up against. No doubt you can save considerable dollars doing the job yourself as long as you are aware of what is required of you and you have the skills and knowledge to do the job right. Sorry if my article seemed to be a “naysayer.”

  3. Dale Tue, December 21, 2010 at 10:34 am #

    Hi Andrew, A lot of excellent points here and I understand that you didn’t want to, and probably couldn’t, go into all the possible scenarios but here are a few thoughts.

    Regarding lost income, median household income in the US is less than $50,000 in 2009. And that is household income, so for many households with two earners one person giving up a job for six or more months will be a lot less than your example. There are also a lot of other financial considerations in giving up a job to build your home. Do you lose your health insurance, does your employer contribute to a retirement plan, can you get your job, or another job back when you complete the house? Bottom line, the “loss” will be different for each person/family.

    Another factor is trust. There are a lot of good contractors out there but unfortunately there are also bad ones, as well as out-right cheats out there. Can you trust your contractor? If you are your own contractor you should be able to trust yourself, if not you have bigger problems than whether to build it yourself or hire it out.

    Good points about the other “costs” to you and your family in the areas of stress, health, and happiness. For myself, and I think other DIY people as well, there are health and stress reducing benefits that arise out of building your own home. I think a major benefit is the very hard to describe feeling you would have for years to come of knowing you built it yourself. Of course you will also have to live with, and accept, those mistakes that only you will see.

  4. Andrew Morrison Tue, December 21, 2010 at 10:48 am #

    Great comments Dale. Hope you are well!

  5. Allen Filson Sun, January 2, 2011 at 8:40 pm #

    Hello Andrew!

    I think your comments are very valid, especially the comment regarding the financing of your new home. I’m experiencing lender skepticism regarding my ability to construct a viable home (one where you can get a CO (certificate of occupancy) such that all your construction loans can be rolled into a mortgage. The lender has no interest in funding a project that can’t be converted into a traditional mortgage that they can resell into the morgage backed securities markets. Worst case, they would get stuck with a half (or some subset of a) finished home that would cost them time and money to complete. I completely understand the comments of a previous poster as I’m as rabid a DIY’er as they come and want to be involved in all the details however trivial. My plan to get the best of both worlds? Contract out the main building (2 beds/2baths/kitchen/family rm/study) and hire on as a laborer, learning all that I can in the construction of these parts of the building. Then do subsequent additions (garage/workshop/bed&bath addition) as the GC. It’s the only way I can think to get the building I want with the funding support I need while having a significant involvement. Would be interested in hearing how other owner/builders have tackled this challenge!

  6. van leasing Tue, January 11, 2011 at 8:31 am #

    great blog very informative

  7. Teresa Sun, May 29, 2011 at 9:09 am #

    I am a teacher and get about 6 or 7 weeks off during the summer. Is it possible to build a house in stages over a period of a few years? I would like to do this so I can pay for it as I go and not have to worry about financing. I can understand why a bank won’t loan money on such a project, but what about the county? I’m sure I would have to resubmit for permits. How much more will that cost?

  8. Andrew Morrison Thu, October 13, 2011 at 9:15 am #

    Hi Teresa. Sorry for the delay in getting back to you. It’s difficult to build that way because of the reality of construction and how things come together. The county will likely make you do specific things within a time period: usually 180 days. In other words, you will need to keep the project moving in such a way that you get inspections at least every 6 months. You may want to build the structure in pods so that each pod or section of th ehouse can be inspected fully and then new permits can be pulled for each section, making the inspection mprocess make sense to the county. Like I said, initially though, building over a long time is hard to do well, so if you can avoid it, all the better. If not, it is possible.

  9. Josh Sun, July 9, 2017 at 3:49 am #

    No, actually the contractor never pics up a tool on any job. His job is to pick the right sub contractor for each step in building a house and plan the time frames on what is to be done next. Anyone who knows the steps (which isn’t hard to learn) of building a house can save the 20-40% of what a contractor makes. My county allows me to pull each permit step by step, if the job isn’t done right, the inspection makes us fix the error. That in itself prevents bank default. If you have time to drive by the building in process a couple times per week, you will be fine as long as you know the sub contractors.

  10. Andrew Morrison
    Andrew Morrison Mon, July 10, 2017 at 10:08 pm #

    This is true for a paper contractor, yes. However, there are active contractors who do both on site and off site work. It is a harder approach to accomplish, but it is possible.

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