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The Truth About Owner Builder Construction Budgeting

Jul 21, 2008
Are you considering being an owner builder? Do you want to manage your own construction project to save anywhere from 15% to 35% in costs? If so, then you will need owner builder financing, which will always require an itemized budget of your projected construction costs.

The owner builder construction budgeting process is filled with potentially disastrous pitfalls that leave people in huge financial holes before they ever have a chance to finish their house - if you are not prepared.

On the other hand, by budgeting properly, owner builders will not only have accurate numbers with which to start building, but will have already lined up all of the people to do the actual construction.

Proper budgeting is critical to an owner builder's success and cannot be underestimated.

If budgeting is so important, why do so many owner builders ignore it or try to breeze through it? Good question.

It is likely a combination of ignorance of how the process should work, as well as a tendency to rush into the actual construction phase.

Many owner builders misunderstand what is truly important about successful construction projects and how to properly work through the process. This can lead to much higher costs than necessary. These costs can come in the form of time delays and/or additional material and labor costs.

For those owner builders who are willing to spend the time and make the effort to properly prepare, the owner-builder process is both personally and financially rewarding.
Most people think that it is more important to understand how to hammer nails or run wires than it is to understand how to budget. So, they rush through the budget, relying on estimates and assumptions, and they end up in trouble. In fact, they are doomed from the start - they just don't know it.

The smart owner builder understands that it makes much more sense to leave the hammering or wiring to a professional, while making sure the project is properly planned and budgeted.

The only accurate way to budget for the construction of a home is to provide full sets of blueprints and detailed specifications to multiple sub-contractors, who will then provide a bid for the labor and materials required to do their particular phase of the construction.

For example, if you want to know how much it will cost for the electrical wiring and installation, then you need to provide your blueprints and your specs to a few electricians in your town to determine how much they will charge you.

Owner builders should get a detailed breakdown of the costs from each sub-contractor who makes a bid. Do not simply accept a single number on a piece of paper as the bid. Get it broken down into labor and materials. This will help you understand what you are getting, as well as keep the sub-contractor honest.

Do this for each type of bid you need. This method of building a budget is definitely more detailed and requires a little more work on your part. But, the time an owner builder spends now will more than pay for itself later.

Many new owner builders will try to argue they don't have the time to do all this. They would rather rush through this part of the process to get to the actual construction.

The problems with that approach are several for any owner builder project.

1) You will definitely, 100% guaranteed, under budget your project.

2) You will end up not having subs lined up for when you need them, which causes several other problems, such as overpaying at the last minute and settling for an inferior sub-contractor.

3) You will end up spending more time finding the sub-contractors, while you should be managing the work itself. This will cost you time and money.

4) You will increase your stress and reduce your enjoyment of the process.

This is not to say, however, that owner builders will always get perfect bids back from sub-contractors. Sometimes, sub-contractors won't respond at all. And other times you may find an uninterested sub-contractor who gives you a bid that is so high that they will only do the job and take your money if you are dumb enough to accept it.

That is the nature of the construction industry. This is why every owner builder should follow the proper steps by being prepared and seeking multiple bids.

By sending out the proper request for bids and only selecting the sub-contractors who will work within a proper contract system, you are minimizing your chances of hiring sub-contractors who don't take their work seriously. The key is that you are in charge of the project. The sub-contractors are working for you, the owner builder.

When there are multiple sub-contractors bidding for the same job, you can weed out the ones who aren't as professional as you want them to be.

Remember, owner builders will need to get at least three bids for each phase of the construction. For example, get bids from at least three framing crews to frame your house. If you only get two bids, and they are way off in price, you will have a harder time determining which one is being realistic. You need that third bid to see which of the bids is way out of whack.

And, you must know everything that is included in each bid. Or, more precisely, know everything that is not included in the bid. This is why you want an itemized list of the work that is being included, even if you can't get a list of individual costs for each item.

This kind of follow up will provide you with a wealth of information about the construction field in your area. Soon, you will know a lot more than you thought possible and will be able to take advantage of lower construction costs. That's the owner builder way - the right way.
About the Author
Owner builder construction loans, provided by Chris Esposito's Owner Builder 101 program, allow you to build your own home without paying the overhead costs of a general contractor. To learn more about being an owner builder, go to www.OwnerBuilder101.com or call (877) 876-3688.
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