- Personal Finance»
- Frugal Living
Saving Money as an Owner Builder
Do You Need a License?
The only time you need a license to build a home is if it's for someone else. In essence, the license is there to protect consumers from building contractors. So when you build your own home, you don't need a license because there is nobody to protect.
It's similar to the real estate license requirement. You need a real estate license to sell homes for other people because you are acting as an agent in their behalf. When you sell your own home, you don't need a license.
Save Builder Profit
Probably the biggest potential savings for the owner builder is the gross profit the builder makes. If you aren't familiar with it, gross profit is equal to sales minus the cost of goods sold. Here is a quick equation for the non-accounting folks out there...
Gross Profit = Sales - Cost of Goods Sold
So for a home builder, this would be...
Gross Profit = Sales Price - (lot + materials + labor)
So gross profit for a builder is basically the fee charged to build your new home. Now to better understand your savings as an owner builder, we want to come up with a percentage. So, we should take a look at the gross profit percentage, where gross profit is looked at as a percentage of sales.
As an example let's assume the professional builder only builds one house, where the sales price is $100k and the costs (cost of labor, materials and lot) total $80k. The gross profit percentage would be twenty percent. So, you are paying an additional twenty percent for the builder to manage your new home building process in this example.
Another big way for owner builders to save additional money on their new home is to provide some of the actual labor. Even if your aren't that handy, you can save significant money on cleaning, site cleanup and painting. If you tackle these projects, you can save an additional three to five percent on your new home.
Many owner builders have full time jobs that limit the amount of actual labor they can provide for their new home. But don't forget about family and friends. Getting together some friends and some pizza can really help you get some work done while enjoying the company.
Most professional builders have contractual relationships with suppliers that won't allow them to switch on a single home. So, even if they find a great deal on a full house of windows, they typically can't break the contract. However, the owner builder can take advantage of these types of savings and increase the overall dollars saved exponentially.
Some items you may want to check out for big savings would be closeout or overstocked windows, doors, cabinets, roofing...etc. One other option that has big potential would be to look at bank owned lots. With the pullback in real estate, there are some fantastic deals on single building lots for sale. Most big builders will shy away from one, loan building lot.
Owner builders can also save big with stone remnants. Remnants are pieces leftover from other countertop projects. By making use of these remnants, you have the potential to save thousands of dollars are high-end granite.
Are You an Owner Builder?
Have you tackled a project yourself at home recently?
Michael Luckado has built, remodeled and repaired thousands of homes across the U.S. He co-founded Armchair Builder to help you when building your home.