The Owner-Builder Book: How You Save More Than $100,000 in the Construction of Your Custom Home

The Owner-Builder Book: How You Save More Than $100,000 in the Construction of Your Custom Home

by Mark A. Smith, Jon-Cameron Gull, Elaine M. Smith
The book was honored by the National Association of Home and Workshop Writers with its Silver Hammer Award for Books, 2001.

We have provided many other resources to help you build at, including a free Owner-Builder Resource CD-ROM with software for construction budgeting and scheduling.


The book was honored by the National Association of Home and Workshop Writers with its Silver Hammer Award for Books, 2001.

We have provided many other resources to help you build at, including a free Owner-Builder Resource CD-ROM with software for construction budgeting and scheduling.

Editorial Reviews

Kansas City Star
The 16-chapter book takes [you] from putting a materials list together and putting out bids to subcontractors to shopping for bargains and close-outs on framing lumber, fixtures, concrete and appliances. It also discusses how to avoid first-time mistakes.
Nancy Cook-Senn
...16 easy to read chapters with lots of charts, lists and examples...More practical advice...
The Shawnee News-Star
Curtis Rivers
...this is the book which will tell you how to design and build your own home just the way you want it. It also tells you how to save thousands of dollars in the process...You can also save up to 50% of the cost of a house by becoming an owner-builder...goes through the stages of how to plan, planning, how to buy, developing a network for purchasing your materials, how to get bids, what to look for in bids on different areas, how to supervise your sub contractors, etc...seems to leave very few, if any, stones unturned.
Vero Beach Press Journal
Countrys Best Log Homes
Assuming you have the same costs that a general contractor will have, you will save the profit (more than 10 percent average) and the overhead (two to three times the profit) paid to a general...The Owner-Builder Book discusses just how this can be done.
Builders Showcase
If you don't want to sorry, follow the process outlined by Mark Smith in his book, The Owner-Builder Book.
Prince William Region Home Focus
...covers every aspect of the building process, including planning, scheduling, working with subcontractors, financing, building permits, etc....has, perhaps for the first time, demystified the home-building process for the layman. Consider this to be a textbook.
Home and Real Estate Weekly
...highlights techniques for materials shopping (what he calls "commando shopping") and planning your home room-by-room to maximize savings.
Henry Herald
This new book gives a step-by-step approach to building your own home and saving up to 50 percent on construction costs. Chapters show how to beat contractor pricing tactics, how to deal with paperwork (contracts, permits, and legal and insurance protection), how to manage home building project on a daily basis, and how to avoid common owner-builder mistakes.
Simple Living Quarterly
Great practical little book filled with tips to save money when building a home. If you want to take on the project yourself, it's good to know the tricks of the trade first. You'll learn to manage bureaucratic paperwork, how to get subs on your side, and even become privy to "commando" shopping techniques. The Smiths explain how to benefit from new tax laws and how to prepare yourself to get loan approval.
When it comes to building your dream home, sweat equity a.k.a. doing it yourself, can help economize. But you don't need to swing a hammer to nail substantial savings. In The Owner-Builder Book Mark Smith leads home-owners through a step-by-step guide of planning, scheduling and financing a custom built house.
American Press
Robb Northrup
If you ever have thought of building your own home, The Owner-Builder Book is for you because it is a step-by-step guide for the amateur and covers all aspects of building a home.
Kitchener-Waterloo Record

Product Details

Consensus Group, Incorporated, The
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Read an Excerpt

Letter to the Reader

I had no idea I could build a house.

I didn't know the first thing about carpentry, or cement work, or any of the trades; I had no tools; and I certainly didn't have enough money to build the kind of place I knew I wanted.

Yet here I sit in the nicest office I've ever had in the nicest home we've ever owned enjoying every comfort and a breathtaking view of the mighty Wasatch mountains.

Elaine and I built this place. We truly love it. Its a gorgeous house that has everything we want in it and works very well. It's a great comfort because we can manage the mortgage payment and because we go to sleep knowing that we have more equity in it than we owe.

I never thought we could do this because people assume you can't. And the thought that you could do it far less expensively than a general contractor really causes resistance. People told us "no" all the time.

We decided to write a book that would tell you "yes".


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.

Savings Comparison

(see table in book)

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 against appraised values after completion.

The 44% savings example is our own. Elaine and I built our home in 1996 for $50 per finished square foot after it was estimated by a general contractor at $90 per foot, exactly as specified, with the addition of many upgrades. We saved about $140,000, or 44% of the estimated cost.

The 52% savings example is that of Vince Miner, a college tennis coach I interviewed. He saved 52% on the cost of his custom home by owner-building.
Best Tax-free Way to Make Money

"You can make more tax-free money building houses for yourself than any other way."
Rod Allred, general contractor.

Owner-building is the best kept wealth secret around. I first understood this when we struggled our way into our first house in Denver, 25 years ago. We tried painstakingly for a year to save up the $3,000 down payment from my IBM paycheck, and wound up putting part of it on a credit card. I just barely squeaked in before the house got over my borrowing limit. The house cost $55,000.

A year and a half later, when we moved out of town, I sold the house for $84,000, paid commissions of $4,000 and had $18,000 left over. Since I purchased another home right away, I owed no taxes. The $18,000 was mine! I put $10,000 down on the new house and had $8,000 in cash. With the cash, I paid off two automobiles. I didn't even have $500 in savings from the years at IBM. But I had $18,000 in cash from my house. And I found out an amazing thing about that house profit. It spends just like any other money!

Living expenses and taxes had eaten up my generous IBM salary, but the money we made from our house was intact. We made that money from appreciation, one of the ways that home ownership pays off. Colorado was in the midst of a real estate boom, and we made a phenomenal 15% gain per year on our home. I was ecstatic. It wasn't until years later that I discovered an even better way to make money on a home.

Building booms come and go, and house appreciation fluctuates. It is rarely more than ten percent per year, and it can be flat, or worse. In the 1990's, homes in some parts of California actually lost value. A surer, faster way to make money is through owner-building your home, because you can accomplish your gain in a very short time, usually less than six months. We saved 44% on our home in the first year by owner-building, and we continue to add five percent or so to its value each year through appreciation. The appreciation amounts to more than $1,000 a month, but during the time we built our home we made about $20,000 a month through construction savings.

This sizeable income is protected from taxes in two ways. First, money saved building your house is not taxed at all when you save it. You don't pay federal, state, social security, sales tax or property taxes on what you save. It goes direct and untouched into your home equity and your net worth. Second, when you sell it, the 1997 Taxpayer Relief Act allows you to keep your profit tax-free.

If you are married and file a joint return, you can keep up to $500,000 in house profits without paying a dime in taxes. You must live in the house for two years to enjoy this tax-free bonanza. But you can do it again and again, as long as Congress maintains the current law. You no longer even need to build or buy a new home with the proceeds.

Some people think that winning the lottery is the best way to make money, but it's hardly tax-free. You can "make" a million dollars on the lottery, yet with the $50,000 checks you would get once a year (they usually pay the million over a 20 year period), the various taxes you'd pay (morethan 50%), and the things you'd spend it on, very little if any would go to your net worth. In fact, I added more to my wealth each month I was building my house than a million dollar lottery winner does in a whole year. All the savings in building a house for yourself go to net worth. It's pure wealth!

"Cold Sweat" Equity

To achieve this wealth, you don't need to swing a hammer or do much self-work on your home. On the contrary, I advocate limiting self-work and emphasizing your role as manager of construction.

The big savings in home costs that build value are often called "sweat equity" - you provide labor to reduce costs on a new home or to improve an existing one. The value of the property and your equity in it rise. This book will teach you "cold sweat" equity - the savings and value you get through your worry, planning and management. Most of the savings described in the chapters that follow are in planning, organizing, and controlling construction costs.

Lowering The Threshold

For many, home ownership is an unattainable dream, beyond the financial reach of the average person. The owner-builder process can change that.

If the median new home cost is $200,000 and the mortgage payments are $1,750 per month, only people with household incomes of $5,250 per month, or $63,000 per year can qualify (rule of thumb: income should exceed three times payment). This amount of monthly income ranks at about the 60th percentile of U.S. households. At a savings of 25% of construction cost, that same average home could be erected for $160,000, requiring a monthly payment of $1,400 and a household income of $4,200 or $50,400 a year, hitting the 50th percentile of incomes in the U.S.

For those who are just trying to enter the market in the smallest possible way, you may be looking at a project in the $100,000 range. Kyle and Rachel Echols purchased a starter home for $120,000 and in two years were thrilled to know its value had climbed to $140,000. Look at those numbers. The $120,000 mortgage requires a monthly payment of $1,050 for a household income of $3,150 a month or $37,800 a year. This comes in at the 40th percentile in the U.S. Saving 25% on the construction portion would put that project at about $96,000 for a monthly payment of $850. The qualifying household income would be $2,520 a month or $30,250 a year, about the 30th percentile of U.S. households.

Saving 25% or more on construction costs can make home ownership available to an additional ten percent of U.S. households or about ten million more families. Ownership of nicer homes is also available to a wider group. I live in an exclusive neighborhood that includes the ranch of former football star Steve Young, and the home of TV personality Donny Osmond. This is a neighborhood far above our means. Typically the mortgage on a home like we live in would require a monthly income of $9,000. Because we saved $140,000 on the home we were able to save $1,200 on the monthly mortgage. Multiplying times three, we were able to get into the house at an income of about $3,500 a month less than otherwise indicated.

Other Benefits

We saved 44% building our home, but the benefits didn't stop there. Our satisfaction has been enormous - real daily pleasure in our new home and a sense of pride that we accomplished what we set out to do.

In doing this, we didn't cut any corners. In fact, we always chose the "upgrade" while trying for the best deals we could get on the improved version. We upgraded the carpet, cabinets and appliances from the original specifications. We bulked up the framing, the insulation, the wiring and the concrete work. We upgraded the fixtures and added flexibility for future upgrades to the house as each opportunity presented itself. In many cases we found an upgrade available at the same or lower cost than the going price for standard levels of finish. For instance, we actually saved money shifting from Corian (R) to solid granite countertops whena bargain arose.

As your own contractor you get to buy cafeteria-style. You may have things you want to do which vary from the norm, and which save labor dollars. You don't have to argue the merits with a contractor, like using pre-built roof trusses instead of "stick-built" roofs. Or using insulated panel sheathing instead of conventional stick built exterior walls. You can realize increased savings on labor because you negotiate with each trade directly.

You get the extras you want without the surcharges occasioned by fixed-price bidding. One of the pleasures of our new home is ceiling fans. They can move the heat out of a bedroom quickly on a summer evening and provide a very pleasant breeze through a summer night. Builders will add ceiling fans as upgrades to custom homes at upwards of $300 apiece. We put in each high-end fan ourselves for about $75 and each economy fan in children's rooms for about $35. At that price we installed as many as we wanted, and controlled the quality closely.

We saw just the right vinyl siding at a home & garden show, and met an award-winning craftsman to install it. We removed the original siding subcontractor from our plans and engaged the new craftsman without a hitch. We found a solid vinyl deck material we wanted to use. We negotiated for a contractor price and got it installed at far below market value. In the course of construction, other ideas and improvements occurred to us. We implemented them without having to negotiate with a contractor. We found many bargains, and exploited them on the spot.

There are unexpected benefits when you build your own house. You have control over quality and features. You get inexpensive extras. You ensure low maintenance and ease of repair. You control energy-efficiency and comfort. You derive a continuing sense of accomplishment, make new friends, experience family and personal growth and gain prestige.

In the course of interviewing architects for The Owner-Builder Book, I talked with an architect from Louisiana who was curious about our owner-built home. I described the specifications and asked him what a house like ours is worth. He said that in his market, our home would appraise for "at least $150 per square foot". After being told so often that one cannot achieve a success like ours, this brought me a deep sense of satisfaction.

Myths and Propaganda

One of the biggest satisfactions in owner-building our home has been that we "beat the system". The system tends to be a closed one, reserving the privilege of owner-building to construction industry "insiders". Many myths about owner-building have been spread about as propaganda by general contractors. Even some construction lenders have voiced the stereotypes you see here.

Since contractors have their own industry groups and associations with their own publicity machines, they can perpetuate attitudes about something like owner-building that they consider to be a threat. Very little exists to counteract the flow of misinformation. Owner-builders have no organized voice, no association, no official magazines, no propagandist. As a result, many of the following attitudes have come to be accepted as fact.

"You Can't Save Any Money"

This is a widely circulated idea that has no basis in fact. Every owner-builder that I surveyed saved something over the cost of a general contractor-built house. I know of several instances of "civilian" O-B's (non-construction people) completing their new homes with 50% equity or more. Among construction tradesmen who owner-build, instances exist of savings of 60% and more in terms of cash expended. (Part of their savings is due to trading labor with other tradesmen.)

This is not to say that O-B's don't exceed their construction budgets. Budget overruns are common in all branches of construction. Mistakes, surprises, and upgrades caused my own budget to go over by $20,000. But I still saved 44% against contractor estimate.

"The Professional Builder Passes Inspections With Flying Colors"

Building inspectors tell me they catch instances of contractors cheating frequently, although less so on custom homes. A veteran general contractor whom we hired to do air conditioning and furnace work caused me one of my few failed inspections. He had framed up the furnace closet three inches too shallow to pass code. He had been general contracting and doing furnace work for 40 years. He had to re-frame the closet, and since I was dumb enough to pay him by the hour, I got to pay for his indiscretion.

Owner-builders on the other hand are regarded as a good bet by inspectors. They are building for themselves, not to protect a contractor's bottom line. As a result, they are seen as interested in quality, durability, and safety.

"Contractors Get Better Prices Than the Public"

I had trouble getting a good price on the lumber for my house. My initial quote came in at $21,000. A general contractor I used as an advisor sent me to his lumberyard to get his prices. He had built many homes with his lumber dealer over the years. The dealer priced the package at $19,000. I was pleased but decided to give it another try. Then a prestige builder friend of mine who buys $250,000 a year in lumber had his lumberyard estimate it. This time the price came in at $16,000. The materials were identical, and I was able to beat the price of my construction advisor by $3,000, and the initial quote by $5,000. The advisor was amazed. He had never questioned his prices at the lumberyard.

A retired cement contractor told me that he had a deal with the cement plant to buy concrete at $10 a cubic yard, many years ago. At the time, contractor prices for concrete were $16 a yard. He kept his prices a secret by signing a non-disclosure agreement with the plant. His conclusion: "There are contractor prices, and then there are contractor prices." This contractor got wealthy by sourcing the material at secret prices, and passing it on to his customers at street prices. Note well that any contractor who gets a special price may have no motivation for sharing his savings with you.

There is always a better price to be had, usually through research and effort. Chapter 9 provides you a guide to construction buying at a savings.

"Contractors Take the Risk and Relieve the Owner of That Burden"

Author Ronald Horne says that increasingly, contractors work without risk: "There is no risk for the builder any more." This is particularly true if a home is built on a fixed-bid contract, as 90% are. If a contractor agrees to a fixed price with you, he knows that he can meet it because he has control over materials and workmanship, and can cut corners to protect his profit. For the owner, the risk is the viability of the single greatest investment he will ever make. For a review of relative risks, see Chapter 16.

"Contractors Can Get Better Quality Materials Than You Can"

One contractor told me that owners were liable to get "crooked lumber" because they don't know any better. That wasn't a problem for us. Before we signed our lumberyard credit agreement, our framer advised us to cross out the paragraph that said we had to pay a restocking charge for any returns. He then inspected all the stock that was delivered, and refused to accept anything that was hard to work with. I hired the framer; the framer checked the lumber.

"The Contractor is There to Protect Your Interests"

The interests of a contractor and his customer are frequently at odds. The customer wants every upgrade and attention to detail possible. The contractor wants every bit of his planned profit, and that means economizing on costs. Most of these trade-offs are decided by the contractor during the course of construction. Who do you think he decides for?

"Owner-Builders Build Shoddy, Cheap Houses"

This makes no sense. The owner wants the best for his comfort and his investment. Unless he is doing the work himself (not recommended) he is contracting for the best quality he can get. In reality, owner-builders are known for upgrades and extras, not for shortcuts and cheating.

"Owner-Building Isn't Legal"

Unless you buy land in a developer-restricted subdivision, there is no law against owner-building in the United States. You must own the land, obtain necessary permits, and make timely requests for municipal inspections. You may be required to carry certain forms of insurance.

"You Have to Have a License"

Not to build your own house. In a few areas there are restrictions against doing some of the mechanical trades yourself, (electrical, plumbing, heating and air conditioning). But even those restrictions are rare.

"Banks Won't Lend to You Unless You Have a Contractor"

In nationwide telephone interviews of bankers, I found that 15% of banks refused to make construction loans to owner-builders. 40% made the loans with some restrictions. 45% made the loans with no special restrictions.

"You Can't Possibly Get It Done in Six Months"

The National Association of Home Builders says that the average owner-built residence took 9.5 months to complete last year in the U.S. Contractor-built residences took six months on average.

My survey of owner-builders indicates that the average planned schedule of completion was five months. Average actual time was seven months. Most O-B's could use some help in this area. About half of my respondents finished in under six months. Vince Miner, owner-builder extraordinaire, finished his 4,000 square foot house in four months.

"You Will Save Enough In Interest Alone To Pay a Contractor"

My carrying charges on a seven month $150,000 construction loan were an average of $625 a month. The National Association of Home Builders says average completion time on contractor-built houses is six months. As it took me seven months to build, completing the house in six months would have saved me $625 in interest.

But many contractor customers complain about how slow contractors are to finish a job. Particularly on custom homes, the contractor time to complete can be much longer. My neighbor built a 9,000 square foot dream home with a contractor. The original schedule was 14 months, and they got the job done in a mere 30 months.

"You Can Make More at Your Job Than What a Contractor Costs"

The average American saves less than ten percent of his salary. However, all of the savings you realize building your home go directly to your net worth. If you build a $350,000 house for $250,000 you enrich yourself by $100,000 in equity. If you make $100,000 at work, you enrich yourself by less than $10,000 on average, a savings rate of less than $1,000 a month. The average owner-builder I studied completed their house in seven months. Which is better, $100,000 saved or $7,000?

Few people have to quit their jobs to act as their own general contractor. However, you will have to make some choices during the construction period.

"The Subs Won't Show Up for You"

A good portion of this book is devoted to the problem of managing subs effectively, starting from subcontractor interviews and references, to the bidding process, to on-site management. Some of the O-B's I interviewed had no problem with subs showing up. Much more to come on this subject.

"You Can't Do It Because You Lack Know-How"

You may indeed lack construction skill. However, contracting a home is not a construction skill; it is a management skill.

One contractor told me that no one should expect to come in and do what a contractor does any more than expect to do what a doctor does. He said, "What if my wife needed surgery - do you think I could cut her open with a knife and start messing with her organs?"

I have to laugh at the gruesome illustration. I can just see a couple hearing this harangue and the wife squirming at the vivid analogy. And then placing themselves wisely in the hands of this surgeon of brick and mortar.

But the analogy is a scare tactic and hardly apt. This builder went on to say that he had seen windows framed into owner-builder walls without headers, and later on, the walls would sag, he said. Well, O-B's rarely do their own framing. This is the province of the framer. It is inspected by the inspector. You choose the framer you trust.

A better analogy is that of a homemaker. A builder is more like a homemaker than a surgeon. He shops or should shop for good values; he coordinates the efforts of different members of the group, and manages a budget. The task is a management task, not a medical one.

Owner-Builder Misconceptions

For their part, prospective owner-builders labor under some misconceptions, too. Lenders tell me that O-B applicants for construction loans are almost never prepared. They tend to underestimate the size of the task, or their own ability to contribute. Many don't understand the risks involved and how to manage them.

"I Could Do This With My Free Evenings and Weekends"

The general contracting task will actually take owner-builders about one man-year of effort, though you could spread the planning part over several years of time. Most of that can be done on evenings and weekends. The construction phase requires about four hours per working day of the O-B's time. At least half of that during working hours.

"Once I Get the Ball Rolling, the Project Will Manage Itself"

This could be true for someone who has done dozens of houses and had systems and routines in place to manage the process. The construction phase of building a house has been called "Mr. Toad's Wild Ride" for good reason. Many things will go wrong if not managed, and many opportunities for improvement of house comfort, longevity and value will be missed.

"Subs Will Show Up as Promised and Do What They Promised"

Almost never.

"There Is Only One Way To Do It"

Some O-B's will not take counsel from the subs they hire for possible improvements in design or approach.

"My Construction Drawings Provide an Infallible Guide for the Subs"

One key to saving time and money is to be decisive. Many questions as to the owner's desires and intent arise every day on a custom home project, in spite of detailed drawings.

"The Subs Know What They Are Doing and Take Care of Everything"

One O-B went on vacation and returned to find that the roof had been placed on his house, but that the second story had been omitted.

"The Subs Will Do Everything They Can To Save Me Money"

Most savings come through persistence and planning. Help from any quarter is welcome, but it rarely comes spontaneously.

Qualifications of an Owner-Builder

1. You come to the job each day prepared to fire people if needed.
This consists of being clear about what you expect and holding subs accountable for it. You are writing the check, you are in power. You stage your payments so that you can pay for performance to date and release the sub if necessary. You can put your foot down if needed.

2. You are somewhat familiar with construction.
You have interest in the subject of building and some aptitude, and are willing to learn. You talk the talk of the business. This can be learned from building shows on television, from builder magazines to which you can subscribe, from interviewing subs, and from observing building projects, among other places. Even though you may not perform a given trade, you can talk about it knowledgeably.

However, overemphasis on building knowledge can interfere with the exercise of good planning and management, your principal tools.

3. You communicate well.
You make clear your expectations, and make certain they are understood. You can talk to all kinds of people. You can win loyalty and build relationships with the team. You are capable of making endless phone calls to check on things.

4. You pay patient attention to detail.
Winston Churchill, who liked to lay brick on his English country estate and was a competent oil painter, said, "Genius is the capacity for taking infinite pains." The tiny details done right add up to a distinctly superior house. The O-B must be prepared to take the time to see that things are done right.

5. You have job flexibility.
Either you or your spouse need to spend four hours a day or so on-site during construction. Many construction lenders interview their applicants about the circumstances of their employment to ensure this flexibility.

6. You have determination and problem solving ability.
You don't lie down at the appearance of the first knotty problem. There are several every week during construction. You will stick with them until they are solved.

7. You are financially motivated.
Parkinson's Law is that work expands to fill the time allotted to it. A corollary is that a construction budget expands to the borrowing limit of the owner. If your limit is low, you will be more ingenious in finding ways to meet it.

8. You are organized.
If not in general, at least for this project, you are organized to a fault. You will tend to the agreements, paperwork, schedule and budget tirelessly.

9. You are a good shopper.
You can tell differences in quality, can find bargains, and won't overspend on anything.

10. You are a good student.
You watch well and learn quickly. You can get answers to your questions.

I possessed, or Elaine did, nine out of ten of these qualifications, though we had to work at number two. It cost us dearly that I was utterly incapable of number one. If you lack one or more of these, perhaps you can hire someone to compensate. In my case, an independent inspector would have been a great help.

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