Why Being an Owner Builder can be False Economy

Why Being an Owner Builder can be False Economy

You may like to tinker with cars, but if you need a full engine rebuild, you’d find a mechanic.  You may have webmd bookmarked on your toolbar, but if you needed surgery, you’d find a specialist doctor.  So even if you have a building trade, or mates in the industry, why would you be an owner builder?

99% of the time, the answer to this is ‘to save money’.  But … here is why being an owner builder can be a false economy.

Most owner builders believe that by not paying the builder’s margin, they will be able to build their house cheaper.  There’s a number of reasons why this is not necessarily the case; and most owner builders don’t find this out until they’re past the point of no return.

Firstly, builders negotiate with suppliers for better rates on materials.  How do you get better rates?  By buying in bulk.  As an owner builder, you will only be buying enough materials for your one home.  More often than not, apart from items that are on sale to the general public, you will be paying retail prices; which is much more than what the builder pays wholesale.

On a side note to this, how much of a certain material do you need?  Trying to estimate quantities can be a tricky business.  If you are not certain of your quantities up front, you could be paying more as you have to ‘top up’ at retail prices when you realise that there is a shortage.  On the flip side to this is ordering too much.  If a builder over-orders, they can generally use the leftover materials on another job.  If you over order, many suppliers will not take returns and you will need to find a way to dispose of the extras; which takes time and money.

Also, when you sign a lump sum building contract with a builder, the builder is locked in to building for that price.  So, if there is a price increase in materials or labour over the time of the build, the builder has to absorb these costs themselves.  As an owner builder, you are left exposed to price increases in the market; which can quickly blow out your budget.

The second reason why owner building can be a false economy is time.  As the saying goes, time is money.  With a builder, they take into account there staffing costs and overheads in the price of the contract.  This is where most owner builders think they are saving money.  But what about your time?

As an owner builder, you are required to spend your time on both the administration of the build as well as the supervision.  Let’s say that, conservatively, this works out to about 10 hours per week (it’s bound to be much more if you include sending off emails while you’re in front of the tv at night, or quickly searching up suppliers over breakfast).

For the sake of this example, let’s say that you earn $50 an hour.  At 10 hours per week, that equates to $500 a week in your time alone.  Now multiply that by the number of weeks it will take to build your home.  Keep in mind that most owner builds take twice as long as it would through a builder.  So even with a simple single storey design, you would be looking at around 52 weeks.  That’s a whopping $26000 in lost income!  And don’t think that you will be able to concentrate on the build after hours; as trades and suppliers generally work the same hours as you do.

Thirdly are the hidden costs.  These mostly come under the administration side of the build and includes drafting of plans, planning applications, building permits, compliance with Australian standards etc.  All of these processes take time and money.  A builder has the knowledge and experience to understand what you can and can’t build.  Your great home design may soon become just a pretty picture on a piece of paper if you can’t get approval to build it.

And let’s not even start on trying to get finance in the current market!

So … what’s the best way moving forward?  Some builders, like Activa Homes Group, are willing to work with their clients in terms of allowing clients to supply goods and or undertake their own works during the build.  This way, you can still save money on the items that you know you can do on your own; leaving the rest of the build to the Builders.