Hi. I just came across your page by accident. My husband and myself own a beautiful lot in our home town on a lake. We have waited since 2020 to build. With inflation, building materials, etc. we are told by multiple builders it’s not possible to build within our budget per square footage. I am wondering if owner-building is a possibility. We have multiple people trying to buy our property. I do NOT want to give it up. My husband is to the point let’s just let it go and buy a property turn key. This is extremely heartbreaking to me. Can you help me with some advice on how to make this happen so that we may too, build our dream home. We have a big decision to make quickly as our lease is up. Do we renew? Buy a basic property that is NOT my dream, and quite frankly settling? Help please!
If you can relate, read my response below.
I sincerely hope I can help. I know the feeling very well. You have a beautiful dream and due to that stupid B-word (Budget), and the nasty interest rates, etc., it is looking hopeless.
My husband tends to be skeptical and super practical and budget/money-conscious. I was sure he’d never agree to owner-building, but I encouraged him to look at the numbers and he realized not only that we should do it, but that it is really the smart way to go. Sometimes we dreamers have to appeal to their logical side.
(please note that I am not a financial advisor and this is not meant to be taken as such.)
A: Let’s say you bought your land for 100,000 and you could budget $500,000 to build a house on it (total cost $600,000)
B: Buy a built house for the same cost of $600,000.
You can replace these with your own actual numbers.
If you go the Owner-Builder route, you will likely save 25% by not hiring a builder. (The average reported savings is 35% but we’re going to be conservative.)
A savings of 25% on $500,000 is $125,000.
Let’s put that another way: You will have built a house worth $625,000 for only $500,000.
Add in the land – your property is worth $725,000.
If the house is 3000 SF, that means you built for $167/SF, whereas it is valued at $208/sf.
When the construction is complete the bank will send an appraiser to determine the value. This will be based on what it would cost to rebuild this same house by USING a builder. And therefore is likely to appraise for at least 25% more than what you paid. If you decide to sell the day it’s complete, you will likely walk away with at least $125,000 more than when you started. Even if you don’t sell for years, this equity isn’t going anywhere. In the meantime, this equity is money you can borrow against, and added security.
If you live in a property tax state, you can show the tax office your building receipts, budget, etc and prove that the house should only be taxed on the amount you paid, $500,000. (so figure in that tax savings).
Additionally, your mortgage is $500,000 (assuming you owned the land), which means you’re only paying interest on 500,000 and not $625,000. (Conservatively, that’s at least $200,000 in interest saved.)
This is the home you want; on the land you love.
It will appreciate over time, but it has a $125,000 head start.
3000 SF house, Purchase price: $600,000, Appraised Value: $725,000, ROI: $125,000
How long would it take you to save $125,000 the traditional way by cutting expenses?
You buy a house for the same amount, $600,000. (to keep it simple, let’s assume the land is worth $100,000)
This house price will be based on the appraised value (the amount it would cost to build this house using a builder (~$208/SF.) So it will probably have less square footage and/or need more work than the house you were able to build in scenario A. If it’s in excellent condition, this house might be 2403 SF. ($500,000 divided by $208/SF)
You will not have any equity initially. It is not on the land you love, and it may not be your dream house.
You will pay property taxes on the full amount.
It will appreciate over time with no head start, so if you decide to sell in a few years, your only equity will be money you put in for improvements and the appreciation since the purchase.
2403 SF house, Purchase price: $600,000, Appraised Value: $600,000, ROI: $0
You’ll be dealing with interest rates either way. We don’t know which way they will go from here, but in both cases, you can refinance WHEN they go down.
Owner-building will require some extra time and effort, but we found it to be very exciting and rewarding. But most OBs do it in about 10 months and an average of 15 hours /week. Could you swing that to get your dream? For $125,000+? (by the way, that works out to be about $208/hour.)
Let’s take your lease into consideration. I don’t know your actual rent but as long as you don’t pay more than $10,400 per month, you come out ahead and get a bigger/better house on your beautiful land!
When we self-contracted the first time, we had no intention of ever moving. But 5 years later, our situation had changed, and we decided to sell. The equity we had built was a huge boost to our financial situation.
If the above savings is still not saving enough for you to build your dream home on your dream land, you could save even more by shopping sales, and doing some work yourself. This would probably not be an option if you hire a builder.
Additionally, consider how you could build in phases on your land. Some ways to do this are to build a carriage house/garage or future guest house first, then build the house when you’ve saved up a bit.
You could also do the opposite and build the house first and wait on the garage.
Other parts you could save for phase 2 are landscaping, paved driveway, gas logs, glass shower doors, back porch/deck, flatwork (sidewalks, patios), wall treatments/extra trim work. French doors could be left as cased openings and the doors could be added later. These are good things to wait on because they don’t require any demo to add later, and they aren’t required for a certificate of occupancy. (Note: Some HOAs may require a paved driveway and lawn.)
Don’t be discouraged. Where there’s a will there’s a way! I truly hope you are able to make your home dreams a reality!
I hope this helps!
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You will be confident knowing:
You will learn how to get a construction loan without a GC, how to find, hire and work with subcontractors, costly and dangerous pitfalls to avoid, important protections you need, and more ways to save money as an owner-builder.
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