preparations | Building
lot/property | Home
plans/Specifications | Engineering
| Building permit
| Subcontractors and
bidding | Lien
Waiver | Contracts
and scheduling | Financing
Now that you are committed to contracting your
own home you will need to do the following: make some
basic financial calculations, decide on how to market
yourself to the lending institution, set up accounts
with building material suppliers, meet with local
building and zoning officials and do a preliminary
property search. Preliminary property search- You
need property before you can decide on a home design,
construction budget, apply for building permits, and
apply for financing.
a building lot- Go to a real estate agent
and ask for a MLS (multiple listing service) for building
lots. Give the realtor the following information:
General location (North East section of the city)
zoning, asking price, will the owner subordinate and
if it is an unimproved or improved lot. They will
also need the Utility status i.e. is there power and
water stubbed into the lot? If not where are the utilities.
Location, Location- This is the most important
aspect of the property. It will affect financing,
the value of your project, and your future resale
potential. The better the location the more secure
Zoning regulations govern the use of the property.
For example you can't build commercial buildings in
residentially zoned areas. Residential zoned areas
are generally broken into single family residential,
multi-family residential, and high density residential.
Get a zoning map from your local planning department.
price- Once you have determined your total
project budget, you can determine your building lot
budget. Ask your realtor for lot prices that are 10-15%
more than your budgeted amount. A motivated seller
that has a property listed at $40,000 may part with
it for $35,000.
status- What is the status of the utilities?
Are the utilities stubbed into the property? What
is the status of the electricity, gas, water and sewer.
If you have to pay to have the utilities brought to
your property, the cost may be prohibitive. Often
times a property is listed at a unrealistically low
price because there are no utilities. Natural gas
supply and sewer lines will probably not be present
in many rural locations. The MLS printout should tell
the status of all of the utilities.
Is the current owner willing to subordinate their
position to the bank or lending institution? If they
will subordinate their position, it is possible to
put a small amount down on the lot and sign a promissory
note for the remainder. You then have rights to build
on the lot and pay the promissory note off when construction
most lending institutions require that you add a contingency
of 5-10%. The reason is that most houses go over budget
as prices tend to go up, not down. Also, owners often
make changes in the plans, which adds to the cost.
Poor communication with sub-contractors can also lead
to cost increase. Hopefully after you have examined
the section on hiring subcontractors this will not
be a problem on your project.
expense ratio- the total expense over property
expense should be no more than 33%. Ideally the ratio
should be between 20-25%. For example, if your total
budget is $100,000 don't spend more than $33,000 on
your building lot. If your ratio is out of line, you
may have trouble getting a construction loan and reselling
your property may be a problem later on.
footage costs- The cost for your home can be
broken down into a cost per square foot. Most builders
figure $60-80 per square foot for finished space for
an average to good quality home, and $20-40 for garages
and unfinished spaces such as basements. Check a subdivision
in your area and make the calculations for yourself.
For example, if a 2000 Sq ft. home in your area is
selling for $175,000 and an improved building lot
costs $35,000. The house cost is $140,000. If you
figure a 400 sq. ft. garage at $25 a square foot equals
$10,000. Then divide 2000 into $130,000 and you get
a square footage for finished space of $65 per square
yourself- Lending institutions want to protect
their investments. They will want you to have some
construction credentials, either a valid contractors
license or a construction resume or both. However,
many banks are responsive to a well-organized owner-builder.
If you have a proposal with property, blueprints,
cost breakdowns, and bid proposals, you will be taken
There are several benefits
to setting up accounts with suppliers. One is that
you give yourself 30 days to pay for supplies. You
also have records for the bank, so that getting draws
at the end of each month is simplified. Getting supplies
delivered to your site is also easier when you have
an account with a supplier.
up accounts with two different lumber companies. Also
set up accounts with one of the following: concrete
supplier, electrical supplier, plumbing and mechanical
Some suppliers often will not set up an account with
you unless you are a licensed contractor. Explain
to the suppliers that you are contracting your own
house and that you intend to purchase large amounts
of supplies from their company. Negotiate for the
best discount possible. Most companies discount according
to the amount that you purchase from them. They realize
that Home Depot and Home Base will sell you the same
supplies, so why not sell them to you and make the
Meet with building
officials- In order to make your efforts as seamless
as possible, it is a good idea to visit with the building
officials in your area. Your city has a building department
which is generally located at city hall or the city
office buildings. If you are building outside city
limits, the county may have jurisdiction over building
activities. Because owner-builders make up such a
high percentage of all building permits issued, many
city building departments have provided a checklist
of requirements for getting a permit.