The Case of the Law School Professor
by Mark A. Smith
Blaine L., a law professor from Louisiana, got interested in owner-building after talking with a bright young man in his law class who had done it. This student was a medical doctor going for an additional degree as a lawyer. He had built his own home, acting as contractor, for $350,000. The house appraised on completion for $800,000.
An astute owner-builder, the doctor brought the house in at a very low $39 a square foot. Simple math says he was paid $450,000 for about a year's work. Unlike his medical (or legal) earnings, this compensation was entirely tax-free. Since the equity constitutes pure wealth, we estimate his gain to be the equivalent of $4.5 million in ordinary salary. Probably more than 20 years of earnings for a highly skilled practitioner.
Another young professional couple that Blaine knows recognized the opportunity to generate wealth by owner-building. After having their new home estimated at $240,000 by a general contractor, this couple took off work for a month and devoted themselves to getting competitive bids on each component of their planned house. They reduced the cost in just one month from $240,000 to $160,000 for their house. Their instant equity of $80,000 translates to a salary equivalent of $800,000. (See Chapter Two of The Owner-Builder Book , "A Dime Saved is a Dollar Earned".)
A bright legal mind, Blaine came to the conclusion that he, too, should owner-build.
How about you?
What's Different About Our Book
by Mark A. Smith
For starters, we did this ourselves. We had many experiences,
some painful, many joyful, that prompted us to write. We only owner-built
one time, but managed to save 43% on the cost of a custom home on the
first try. That made us think that many ordinary people could succeed at
owner-building if they had the tools.
Our book makes the somewhat groundbreaking discovery that
the major savings on your project are not from trade work but from
management work. We call this "cold sweat equity." In our case we
knocked ourselves out saving $20,000 in trade work but spent much less
time saving $125,000 as the general contractors on our new home.
Since this equity savings constitutes pure untaxed wealth, we
show how an average person can make much more money building
equity than they can in their employment.
Many of the books on our subject bypass planning and go right to
the juicy part - breaking ground for your new house or addition. We show
that two thirds of your management effort should be spent on planning,
and only a third on actual construction.
The real management tools of your project are a budget, a
schedule, and a written list of house features. We provide these tools
along with worksheets and note pages that are easy to customize. We
even offer software templates to equip you for the job.
What makes our book good reading is that we conducted over
300 interviews for the third edition of people who have been through
the process: tradesmen, contractors, suppliers, inspectors, lenders - and
provide their often pithy observations to save you time and trouble.
The book is very realistic, but it is encouraging. We really help
you see the steps to completion and how to do them. We've filled it with
useful items not available in other books in the category, like over 200
colorful sidebars with comments from readers and quotations from other
Everything we saw a need for we tried to produce. We offer
extensive support materials including this web site with more than 5,000 pages of information, a toll-free phone line,
more than 60 additional books and reports, MP3's (coming), DVDs and
software. We want you to succeed.
Phony Owner-Builder Books
by Mark A. Smith
Some years ago, I was working and saving money before going to graduate school. We had a little family and were living in the midst of a real estate boom in Southern California.
I wondered if I could make some money towards my education by owning a home. Perhaps we could build some equity and get ahead. I went to the library and read or scanned six books about owning your own home. All of them warned against the risks and difficulties of home ownership. I concluded that it was a rash idea and bought a nice car with my money instead. I found a nice deal on a new Mercedes and sold it two years later for more than I paid for it.
During the two years, I had driven "for free" and made $600 to boot. But did I make the right decision?
Not even close. Buying a home was no rash decision, it turned out to be a big missed opportunity. I would have taken more than $5,000 back to graduate school (a lot of money then) and "lived free" during the intervening two years, which would have added another several thousand to my savings.
Everybody knows that home ownership is a good idea, financially and otherwise, except evidently people who wrote books about it. This same irony prevails for prospective owner-builders. Many of those who write books about it spend their ink telling you that it's not a good idea and you probably can't pull it off.
Why? My theory is that the typical author in our category is a general contractor who wants to protect the privileges of the brotherhood. They have a bias, an axe to grind, and they peddle it to you under the guise of authoritative expertise.
Well, I'm here to tell you that you can do it. And that it will likely be the single most profitable undertaking of a lifetime. Please don't be discouraged by the naysayers. Do your preparation thoroughly and your confidence will grow.
The Siren Song of Self-Work
by Mark A. Smith
A bookstore owner said to me, "I bought two of the books about owner-building and read them. They don't give what the cover says. They try to talk you out of it and offer few tips to do the job. They actually discourage you." Reader Mike Cambiano called from Kansas City, Missouri, and said, "I bought eight books about owner-building over the winter, and yours is far and away the best. Many of the books tell you no!"
We say in our letter to the reader in the front of The Owner-Builder Book that we decided to write a book that would tell you yes! We didn't have an axe to grind, or a profession as a contractor to protect. Thus we offer encouragement, and provide the tools for real owner-building, and what are those tools?
When we went out to do our house, we read books in the library. Most of the books preached do-it-yourself work, but where were the management tools to do this? How much would it cost? What about a schedule? More than once, these books gave me a chart of the sizes of nails and their names. I couldn't believe it! What did I need that for?
Most of the writers say that the only way to save money is to do the work yourself. Self-work is the siren song of general contractors, who want to co-opt you, often to their profit, by getting you to do a few items on the house, which are classed as "allowances". (On which they still charge you overhead.)
This is how many home builders pacify their customers. They offer them allowances for carpet, or appliances, and let them do the shopping themselves to save a little money. The same allowances can be had for painting, or finish carpentry, or clean-up, or any task you think you can do yourself. But your savings on these items are a pittance compared with eliminating the contractor and sourcing everything at a savings.
Be cautious about self-work. Be judicious. Self-work is sort of an imposed slavery because while you are knocking yourself out doing work, you don't get in the contractor's way. It shifts the focus away from their turf, management overhead, the true area of savings. As I wrote in The Owner-Builder-Book, "self-work is the opiate of the owner-builder". It can put you to sleep.
Caution: House Plans on the Internet
by Mark A. Smith
Twice in one month I got calls for help from readers who had
purchased their house plans on the Internet. Thy carried the plans down
to the building department and filed for permits. They were told the plans
had to be redrawn. They were calling to see if I knew of a way they could
get their money back.
I didn't know a way.
Of course, an ounce of prevention is worth a pound of cure. It
turns out that both of these ladies lived in areas where state law required
an architect stamp for building plans. These are laws that protect the
brotherhood of architects by giving them a monopoly on the service. By
doing the planning interviews that The Owner-Builder Book recommends,
they could have found out before getting to the plan stage.
Most people are in a rush to break ground. They give short shrift
to planning. This saddens me because planning allows you to make
your mistakes and fix them before you spend any money at all. Most of
the savings of successful owner-builders are turned up during the
Some of the architects I interviewed from the stamp states (I
believe eight states have this law) told me that they had stock plans
available in their offices for people who want an inexpensive custom
design. The architects made a few modifications to these and stamped
the plans, making them acceptable to the building department.
One possible solution for the rejected plans: call around to
architects in the region and ask if they would be amenable to modifying
the internet plans and ask what that might cost. There are certainly "good
guys" in the profession who will help.
Most owner-builders can take a warning from this. Do your
planning before you spend money. There are so many improvements
and inexpensive customizations you can make to your design before you
have plans drawn. By interviewing potential residential designers and
architectural draftsmen you may find a bargain for their services. I paid
only $1,200 for my plans, less than a percent of the construction cost of
my house. In calling designers, I found one in a small town nearby would
do the plans for only $500.
We don't have the stamping requirement in our state, but we
have local codes that require special considerations. Our codes relate to
seismic (earthquake) risk. Some areas have high winds, special snow
loads or other specific risk factors. Internet plans won't cut it on their own.
The Lady Who Waited
by Mark A. Smith
One of our readers, Melissa D. of Hanover, Pennsylvania was going to
break ground this fall on a new home. She decided to wait.
She decided she wasn't prepared.
It's not that she is inexperienced, She's owner-built twice before, acting as
the general contractor.
But those two previous times taught her a lesson. Don't go off half
cocked. Get it in writing. Bide your time.
She gained tremendous equity on the first two homes, ($75,000 each) but
could have done more, if she had been more thorough. For instance, she
had a commitment from the concrete man to do her sidewalks at $900.
Later the bill came in for $1,500. She was told that the first number had
just been a guess. She didn't have it in writing, and couldn't do anything
Her linoleum had been estimated at $12.99 a square yard. She was sure
about it, and had it clear in her notes. But the bill came in at $12.99 a
square foot. She didn't have it in writing, and the woman who sold it to her
had moved on to a new job.
On the last house, she ordered plush carpet for the bedrooms, and
berber for high traffic areas. They came out and reversed it. It was a case
of Murphy's Law: "If anything can go wrong it will, and at the worst
Melissa says it's just better not to start until you have the T's crossed and
the I's dotted. She checked and found that lumber and wallboard were
three times as high as last time, and she decided to wait until next year.
"You need a couple of Valiums when you build", she says. "But we made
so much money." She'll break ground next year. And she'll be ready.
by Mark A. Smith
There is gimmick in the construction business that provides
erstwhile owner-builders an "easy way out". It's called a package plan.
This is a way to "owner-build" your house with the help of a
company that sells you the materials and provides you a list of
recommended subs. One such company "DeGeorge Homes" went down
in flames a few years ago in a spectacular bankruptcy. Other well-known
companies Landvest Homes, Homestead Homes and Homeworx Partners. In our Forums there's lots of talk about BuildMax and UBuildIt. We counted five of these companies plying the
trade at our local Home and Garden show.
When I first heard about one of these plans, I signed up for the
free seminar to find out about it. Elaine and I went to a local hotel one
evening and joined 15 other people to hear rosy stories of beautiful
homes and successful owner-builders. They passed out information
packets and we began to see a few problems.
A fellow with a construction background who handled local sales
stood in front and started to take questions from the group. We asked
one of our questions, and the company president moved up from the back
of the room and took a seat in front of us to give us personal feedback. In
other words, to keep us from contaminating the rest of the group.
We left with five principal areas of dissatisfaction:
1. Why did they bundle the cost of the land with the cost of
construction? Answer: We charge a 10% fee on your whole project for our
services. Read between the lines: While the land has nothing to do with
construction, we need the extra percentage on that to get by. So we take
an extra $3,000 on your $30,000 piece of land, because we need the
2. Why do your subs pay a fee? Answer: So we can approve
them and make sure they are good. Read between the lines: If a sub
wants to play in our market, he has to pay the freight so we can collect
more revenues. Naturally, he will get that money back from you when he
does work on your house.
3. Why can't I get a sub of my own choosing to use on the
project? Answer: So we can approve them and make sure they're good.
Read between the lines: We control the subs so we get our piece of
gratuitous profit margin.
4. Why do you admit to only a 15% savings on home
construction? Answer: That's an average of the savings of couples who
have followed our program. My guess: Since owner-builders in my
survey averaged 35% savings, the package plan must be making 20% in
overhead and profit on the average project. They make $40,000 on a
$200,000 house while I do the work.
5. Why do they provide all the materials? Answer: Because we
have great buying power and pass the savings on to you. My guess: If
they can save more on materials than the average owner-builder, they
must be pocketing more than the 20% figured above.
Add to this the fact that you have to use one of their designs, and
can't customize in any significant way. They help you get a construction
loan, but at a high cost - more profit again. Chapter 11 of The Owner-
Builder Book shows how anyone can get a construction loan at a
We decided that the package plan added a middle man to the
process and pumped up the cost. What's your decision?
Why We Don't Find Subcontractors for You
by Mark A. Smith
Occasionally someone will call me and ask why we don't provide
lists of subcontractors and suppliers for our readers.
Many other web sites and commercial services do this, and we
deem it the opposite of what you want. With a bezillion tradesmen out
there in every state and community, how do you think a given
subcontractor gets listed in a "subcontractor directory"? He pays for it. It's
just another of the myriad forms of advertising that raise the cost of
staying in business for the sub and increases the costs passed on to you
by the sub.
Some web sites will use lines like "certified by us" or "Quality
contractor" or "approved contractor" for such a sub. It really means "they
paid us". Of course it does, or all subs would be on their list. Nobody can
approve a sub in any meaningful way, because each job the sub does is
different. Different craftsmen or crews do the work, people move on,
ownership changes, etc.. A sub will do great work for a bargain price, and
the same sub may do poor work and overcharge for it. People get sick,
get divorced, get distracted, and things change.
I once did a telephone survey of several dozen roofing
contractors listed in the Yellow Pages in Columbus, Ohio. The phone
book was a year or two old, and about half of the contractors listed had
already gone out of business. That's how rapidly things change in the
The best way to find subs is to talk with other recent
owner-builders and interview the sub before asking for a bid. If you
decide to ask for a bid, ask that sub for the three most recent jobs
completed. Not three "references", but three recent jobs. Check with
each owner to see if there were any surprises. This gives you the
current health and effectiveness of that sub.
You don't want to pull subs from a commercial "finder service",
because such advertising inflates their cost. Find your own at the time
you need them.
The Lady Who Got Five Bids
by Mark A. Smith
I recently heard from a reader, Kathi D. of Tucson, AZ:
"We are now pretty much settled in our new home. We love it
Friends and neighbors (old and new) stop by to check out the house and
are so impressed with the quality of the house and all that it has to offer.
We really saved a fortune by doing this on our own. Our total cost (land and
building) for a 3,700 square foot home (12 ft ceilings) with every extra you
can think of (and more) plus a 1,200 sq ft covered patio, and a REAL 3 car
garage (approx. 1,100 sq ft), and 4 acres of prime land, came in at
$363,000. Our bank appraisal came in at $475,000. The
bank appraiser commented that she had never seen a home with such
fine finish work and quality features. She took pictures for herself. I, of
course, recommended your book to her."
Kathi's house came in at $67 per square foot, not counting the
monster garage and covered patio. General contractor costs for this level
of construction would now come in at $150 a foot in her area.
One of her secrets was lots of subcontractor bids:
"You recommended three bids, but on some aspects like HVAC, I
got five. Each time I got a new bid I got a lot more information. When I
then talk to the next person, I can talk knowledgeably, and they respected
Of, course, to find five good subs to ask for bids, Kathi had to
start with many more names. She profited by interviewing them in
advance, occasionally turning up information that saved her money later:
"Interviews were very good for me informationally. For example,
on the roof, one guy was going to include scuppers, like drains, and one
wasn't. The latter guy said, they should be part of the HVAC package,
because they are sheet metal. So I got on the HVAC guy, and got it for
free even though it wasn't specified. By that move I saved $4,000 on
roofing. There were 24 scuppers, on the flat roof home. When we started
with the concrete foundation guy, he said they didn't include the bolts in
their price. So, I called them back, and said some of the others have that,
so they gave them to me at no charge.
Kathi kept good notes of her conversations and kept a list of
questions and to do items in a notebook:
"The Owner-Builder Book was right about setting up the proper
files, knowing where to go for things, and staying organized. Checking
references. I became the form queen. We didn't track a lot of it on
computer, but I carried a notebook with me. I wrote down the tasks and
crossed them off, and went back through periodically to see that things
were done. I kept my conversation notes there and could find things later
that way. The book was a really big help."
When Kathi and her husband finished the house, he said to her,
"let's get some more land and do it again." Is that in the plans? "I don't
think so," Kathi says. "Now what he says every day is just "I love this
You Get What You Pay For?
by Mark A. Smith
I've grown to despise the expression "You get what you pay for."
It's a favorite of general contractors who condemn owner-building. It's
spoken with some gravity as if it were a higher truth known to the wise.
But it just isn't true. We see people saving 35% by owner-building every day of the week. They have the same house, the same
kitchen sink, the same garage door, the same sliding window as the
person who used a contractor and spent 35% more.
What is it about that kitchen sink that makes it better when you've
spent $338 instead of $220 like Elaine and I did? Or heaven forbid, if you
paid $450 or $600, the listed "retail price"? When a contractor is running
the job, you have an excellent chance of paying retail for house
components, although they are widely available at deep discounts.
Yes, you pay more for a general contractor and what does it get
you? A better design? No, that should be the province of the designer
working closely with you. Better quality? Not if you are checking the work
that goes into the job each day. The average custom contractor provides
on-site supervision only a couple of hours a week when you're building.
Expertise? You can hire an independent inspector for that who will
provide objective input. Peace of mind? Yes, if you are clueless about the
But you won't be clueless. A successful owner-builder plans
thoroughly before breaking ground. You wind up knowing your house and
what's in it better than any third party can. Along the way you resolve
design issues to your satisfaction and see better ways and better
components to meet your needs.
The reward for this is not well understood. You pay less, but you
get the same valuation as a contractor-built house. On an average home,
you would save more than $50,000. Mind you, this is pure equity, it is tax-
So, did you get what you paid for? You paid less, but got much
more. I prefer the saying, "The best things in life are free."
by Mark A. Smith
Recently, I indulged a hobby and took a part in a community
theater production. I was the Modern Major-General in "Pirates of
Penzance" by Gilbert and Sullivan. I had to learn a song that went along at
a dizzying, breathless pace. Because I would be in front of people, and sing by myself, I had to learn it well beforehand.
I had to refresh skills of singing, breathing, projecting my sound,
dancing while singing, etc. There was no chance that I could become
proficient by just listening to a "Pirates" CD. So I practiced a lot. I sang
while running on the treadmill to increase my lung capacity, and timed
myself to get my fast song up to speed.
I didn't get paid to perform, but I probably put more into rehearsal
than I did into planning my house. I got paid handsomely for building the
house, but could have been paid more and performed better if I practiced
the needed skills in advance.
Glenn A. Overton says that we become proficient at a skill after a
minimum of 5-7 repetitions. An owner-builder can profit by practicing the
skills needed to succeed before the "performance" of breaking ground.
I regard the major skills of owner-builders to be budgeting,
scheduling, featuring, and buying. Recently I observed an owner-builder
friend break ground before ever practicing the first skill - budgeting. The
spreadsheet budget he submitted to the lender was the first time he had
ever tried to make a budget for the project. It turned out incomplete and
misleading. Better to make 5-7 attempts before show time.
Same goes for developing a schedule of construction and written
features for the house. Do and redo until you are proficient. Develop
written RFQ's (request for price quotes) to buy materials and services for
the project 5-7 times until it's easy for you. Use your skill to get multiple
bids in every category before you break ground. You'll save a lot by doing
You could theoretically practice the skills after you break ground,
but that's when the unprepared seem to get lost and bog down. Most
people find that it's too late for practice when it's show time.
Don't Confuse Owner-Builder With Do-It-Yourselfer
by Mark A. Smith
An owner-builder is not a do-it-yourselfer. He or she is a general
contractor, a manager of his project, whether it be a new house, an
addition, or a remodel. As manager, the owner-builder may opt to do
none of the actual work, some, or all.
One of the discoveries of The Owner-Builder Book is that self-work takes unforseen amounts of time for the "civilian" owner-builder, one
who is not from the construction trades. In many instances we've tracked,
owner-builders take 10 times as much time as professional craftsmen to
do construction trade work.
For some people, this is not a problem. But we think that a
serious owner-built project, one with bank financing, should strive for
completion in about six months. To accomplish that and get on with your
life, you need to do serious planning as the contractor of your project.
It's not that owner-builders don't do some self-work. The
average O-B we interviewed did 4.3 of the trades themselves. Most found
that to be more than enough to keep them busy for 6-9 months. By
contrast, do-it-yourselfers doing all the work on a house can take 8-10
years, the average of the do-it-yourselfers in George Ehrenhaft's book,
The Owner-Builder Book also established that the bulk of
savings on owner-built homes came not from self-work, but from the
functions of the general contractor, such as buying materials directly and
eliminating the middleman. We suggest that an aspiring owner-builder
take the contracting work seriously and be vigilant in saving money and
improving quality as the manager. If you decide to do-it-yourself, do the
general planning first, and then do specific planning for the trades you will
Look in on John and Jessica
by Mark A. Smith
The Norton Home, shown under the Resources menu on this site is
a valuable resource for owner-builders.
This resource takes you through the planning and building process of
a new home with a young couple owner-building their first home. It's an
extensive feature covering more than 100 pages, and includes hundreds
of photos of the process.
It's not for the faint of heart, though. John and Jessica Norton go
through the range of emotions - reported here openly - from elation to
outrage to exhaustion. It's a naked eye view into true feelings and events.
Their experiences include illness, threat of legal action, finding bargains
beyond expectation, conflicts with the building inspector, and losing 20
pounds on the job.
There's much there to learn, as the story is filled with plenty of
practical advice. There are insights into house quality and savings on
every page. It will take you hours to read, as it approaches book length,
but is very well written and most timely.
The story starts with elation and discovery and ends with a stunning
home and amazing amounts of equity for a couple just starting out in life.
I commend it to you with all of its pathos and raw emotion. We're proud to
offer it free of charge to all who are looking to build a better home and
Honors for The Owner-Builder Book
by Mark A. Smith
On July 14, 2001 The Owner-Builder Book became the second top
seller among home improvement and self-contracting books on
Amazon.com with a sales ranking of 967 out of three million titles offered.
The leader was the best selling self-contracting book of the nineties, The
Complete Guide to Contracting Your Home: A Step by Step Method for
Managing Home Construction by Lester & McGuerty (See our Bookstore)
which had an unheard of ranking of 566.
We narrowly edged out the popular book Build it Right: What to Look
for in Your New Home by Myron Ferguson with a sales ranking of 1,047.
(Since replaced by Better Houses, Better Living.) Rounding out the top five was Building Your Own House: Everything You
Need to Know About Home Construction from Start to Finish by Robert
Roskind, which had a sales ranking of 1,055 and Your New House: The
Alert Consumer's Guide to Buying and Building a Quality Home by Alan
and Denise Fields in fifth place with a ranking of 1,530.
The Owner-Builder Book carried a 4.5 star rating with the on-line
On August 13, 2001 in Chicago, The Owner-Builder Book received
the Silver Hammer Award from the National Association of Home and
Workshop Writers for Books - 2001. Judges commented that "...Amid stiff
competition, this book stood out for good writing and value to the
consumer." This award brought tears to our eyes because it was given
by journeymen writers with hundreds of books and thousands of
magazine articles to their credit. NAHWW members are professionals
who know our subject and know the written word.
The NAHWW also awarded a Gold Hammer to The Owner-Builder
Book on Tape, and a Bronze Hammer to The Owner-Builder Workshop
Videos, (since replaced by The Owner-Builder Workshop DVDs) making The Owner-Builder Series the most decorated title of the
[Editor's note: In 2005, The Owner-Builder Book surpassed The
Complete Guide to Contracting Your Home as measured on Amazon, BN.com and independent bookstores served by Ingram Book Distribution.]
How Much Profit Do Builders Have in Their Houses?
by Mark A. Smith
The Complete Guide to Contracting Your Home, written by a general
contractor and a building consultant, says that builders make a 15% -
25% profit on each house they build. (See our Bookstore for book.) Our
own survey of general contractors found a 14% average stated profit.
This would constitute a real opportunity for savings. If you could build
for 20% off on a $200,000 house, you could save $40,000. Not bad tax-free money just for eliminating the middleman.
But it could be much more. When you eliminate the general
contractor, you eliminate his profit AND his overhead. Together overhead
and profit are called margin. In the retail world, it's called markup.
Usually the overhead is a far bigger piece than the profit. Our niece does
grocery store pricing and reports that a can of evaporated milk which sells
for 69¢ costs the grocery store 15¢. (A markup of 450%) But grocery store
profits are only 2% nationwide.
So how much is builder overhead? In our survey, general contractors
reported an average of 28% overhead. This covers all the costs of doing
business from equipment and taxes to salaries and insurance, etc. This,
too is eliminated when you act as the contractor. At 15% for profit, and
25% for overhead, you now have 40% or $80,000 on a $200,000 house.
Now you're talking some serious money! But you must consider that
you will have some "overhead" too, when you build, like some insurance
costs. And you may be unable to match the direct costs for subs and
materials that contractors pay.
But we think you can come close. If you buy smart, as taught by The
Owner-Builder Book, and take advantage of unique bargains, you have a
chance of spending even less on direct costs than an experienced
general contractor. And what you save you get to keep.
How Much Is a Postage Stamp?
by Mark A. Smith
In The Complete Guide to Contracting Your Home (see our
Bookstore) the authors write: "The old saying, 'Only one thing has one
price: a postage stamp.' is alive and well in the building material
They are making the point that anything you buy, from excavation to
sinks to carpet, can have a different price at different times to different
people. As one veteran told me, "It's a negotiated business."
We'd hate to stretch a point, but beg to inform our learned colleagues
that even a postage stamp can have many prices.
This came home to me a couple of years ago when the local grocery
store offered postage stamps for $1 off per book of stamps. (About 18%
off). There was no limit, but one catch, you had to take the stamps with
some money-saving coupons in a booklet. The coupons turned out to be
very good ones. The store has repeated the promotion frequently.
Shortly after this, our post office began accepting credit cards for
stamp purchases. Now the "time value of money" was on our side. We
bought all the postage we needed, hundreds of dollars worth, on the 26th
of every month, when our new credit card cycle began. We then had 55
days to pay for the purchase. Stamps went on the credit card on the 26th,
we got a statement the 30th of the next month, and payment was due on
the 18th of the following month. We made the payment on the Internet
without using a stamp or writing a check. The charge hit our bank 3 days
later, a total of 55 days of valuable "float".
We also compared sources of shipping and found that when we
shipped our books to the distributor, (usually done through UPS) the
charge was $26.30 per box. By selecting our class of postage we were
able to ship USPS for $15.43, another way to get more out of a stamp.
Of course this postage was also charged on a credit card, and we
got frequent flyer miles for the purchase. We keep a credit card that gives
the most bang for the buck in air travel. We take advantage of all their
promotions, and get a good handful of free air tickets every year.
So how much does a postage stamp cost?
Five Useful Ideas from The Complete Guide to Contracting Your Home
by Mark A. Smith
We highly recommend "immersing" yourself in self-contracting
information before your build. Very often a single idea can save you more
than the cost of your last vacation. By becoming familiar with the good
books on the subject you will find unexpected ideas to help you build a
better house for less.
One such good book is The Complete Guide to Contracting Your
by Lester and McGuerty. (See our Bookstore.) Here are a handful of ideas
that might make a difference to your project, culled from just the first 100
pages. Aw, what the heck, how
about a double handful:
Page 11 "Have materials delivered early so they can be exchanged or
corrected before they are needed."
Page11 "Put payment amount and payment schedule in writing and
it signed by both parties."
Page 12 "Don't try to do too mych of the actual physical work yourself.
Your time and skills are often better used managing the job."
Page 23 "Look for any situations that can void Worker's
coverage. For example, in some states, drywall subs experiencing
accidents while using drywall stilts are not covered."
Page 24 "Don't build in an area where homes are more than 15 or 20
percent lower in value than your planned home."
Page 24 "Don't attempt to save money by buying a less desirable lot.
Curb appeal can affect the value of your home by 25% percent or more."
Page 29 "Eliminate as many hallways and walls as possible.
waste building materials and add to heated space while making a house
Page 40 "Most material suppliers will be glad to store purchased
for you and deliver them when ready for use."
Page 42 "Pay schedule: 45% afer rough-in. 45% after finish work
complete. 10% two weeks after finish work."
Page 48 (Regarding taking out interior walls) "Air is the cheapest
material you can use."
Page 50 "[Self-] Work can distract you from your more important job of
overseeing the work of others. Your most valuable skill is that of boss -
scheduler, inspector, coordinator, and referee."
Page 52 "Use a glued-and-screwed tongue-and-groove plywood
increase the allowable span of the floor system. This system stiffens the
floor and eliminates squeaks. It also eliminates the need for a separate
Page 54 "Use 22 1/2 inch windows if your studs are 24 inches on
No header needed. Use several for a big window effect."
Page 56 "Burn or bury trash if you can. It is cheaper than hauling off
Page 96 "If you do not own a pickup truck and can't borrow one, try to
an inexpensive trailer than can be attached to your car. You can sell it
later after the project is over."
Page 99 (If you cut down trees yourself) "...Cut them four feet from the
ground: the bulldozer needs a good piece of the tree to pull the roots out
of the soil. If you don't have a fireplace, consider selling the wood."
A House Is a Magical Possession
by Mark A. Smith
It's not just that houses shelter you and facilitate your activities, though they do that marvelously well. A house can feed you, give you a workout, stimulate your mind, entertain you, and care for you. (See our cover essay "A House That Works" or page 74 of The Owner-Builder Book)
What amazes me is that with all that, a house can make you wealthy, too. It is an appreciating asset. Unlike that other big typical family investment, a new car, the house goes up, not down, in value.
Elaine and I looked over the property deed for her parents' home recently. That house, now worth $120,000 and long since paid for, cost the folks a grand total of $600 65 years ago. The current value is 200 times the 1935 value.
You've got to admit, most cars depreciate to zero in two or three decades. But not houses, they have potential value for several centuries. When that value is gone, the land beneath them continues in value.
Even my modest first home in Denver, Colorado, purchased in 1978 for $55,000 has grown to be worth a quarter of a million dollars in those short years. Could you imagine that an average home you build now might be worth $10 million or $20 million in 65 years?
An Italian proverb says the greatest things in life are to have a son, to write a book, and to build a house. I can think of other great things that outlast us, but I do agree that a house is a magical possession.
Why an Economic Downturn Is a Great Time to Build
by Mark A. Smith
In The Owner-Builder Book, we mention two good times to build, low seasons and cyclical lows.
Low seasons for construction activity vary from place to place, and some places have no low season at all. Where winters are cold you have a low building season. Where summers are very hot or tropical storms prevail, you have a low season. You can find out local patterns by checking the numbers of residential building permits issued each month of the year by your local building department.
Cyclical lows are another matter. If the national economy is high and inflation is brisk, many buyers of new construction make it a seller's market. Prices are high.
But when the economy is low, inflation is low, and the country is in or near recession, you usually have a buyer's market. In order to get work, subcontractors lower their prices. In order to reduce inventory, suppliers lower their prices.
The best of all worlds is where you, the buyer, set out to owner build with secure employment and adequate funds, and you acquire the materials and services you need to build in a downturn, And where possible, in an off-season. That is, if you have no worries about disposing of your previous residence favorably.
The most costly time to build is when everyone else is doing it. In good times, in high season. If you build then, work extra hard to get multiple bids on both materials and subcontractor services.
How Do You Learn?
by Mark A. Smith
When you plan to build a house, there are many things you could learn
that will save effort and money and create more quality, convenience, and
The trouble is, most of us forget the things we learn. There is a theory
called the "Half-Life of Human Knowledge" that says we forget half of what we
learn in a day, half again in a week, half in a month, and we have only 2%
left at the end of a year. As my high school French teacher explained it,
"Then it's a question of whose 2% is bigger."
In an Owner-Builder Workshop session, we challenged our students
who had read our book to recall the "Ten Commandments of Owner
Builders," the most important money-saving principles we know on the
subject. Half the class could recall one commandment out of ten. Three
people knew two, and one person could recall three of the
Management guru Peter Drucker said, "When you get a new boss, first
decide how he or she likes to communicate. Some prefer written
communication, some prefer face to face." You may be like that. Some
learn well by reading, and should read everything they can before
building. Some learn best by listening and can benefit from audiotapes
or disks. Some learn best visually and should watch lots of videos on the
According to Confucius, whoever we are, we learn best by doing. "I
hear, I forget. I see, I remember. I do, I understand." Unfortunately, by the
time you "do" a house, it will be too late to take advantage of your learning
for that house. And you'll learn plenty.
Elaine and I have tried to take advantage of all the above in preparing
for our next building project. We read copiously, search the Web, listen to
tapes, and watch videos. In addition, we help others who are building,
which consolidates our learning. You might make a friend by helping
another owner-builder or by volunteering with Habitat for Humanity, for
example. It all helps grow your 2%.
The Ten Commandments of Owner-Builders
by Mark A. Smith
What are the secrets to acting as your own general contractor to
money on the construction of your home? 200,000 American families are
estimated to build homes without a general contractor each year. They
come from every walk of life and report an average savings of 35% off
contractor estimates. Based on interviews with successful owner-
builders, here are ten keys to follow to contract your home without tears:
1. 1,000 hours of planning.
There are 2,000 hours in a work year, and it
takes about 6 months of careful planning to build your own house. Our
studies indicate that if you short yourself on the planning, you will save
less money and take longer to build.
2. Written list of features. Once you start construction, you will be tempted
to make many changes to your original plan if you have not thought
through your design carefully. A written list of room-by-room specifications
ensures good design and saves money.
3. Spreadsheet budget and expense tracking. Putting all your costs
estimates onto a computer spreadsheet has the magical effect of
producing project savings. You can see what you've spent and what cost
projections for the future are. You can take advantage of bargains and
limit damage from overruns.
4. Written schedule. Very few general contractors and a minority of owner
builders commit their project schedule to paper. Those who do invariably
finish their projects smoother and faster.
5. Three bids from subcontractor and suppliers for each item. It takes
time to get bids from subcontractors ("subs") and compare them on
paper. The effort results in an improved plan and tighter estimates of cost.
Sometimes you find big bargains by looking for just one more bidder.
6. Signed agreements and lien releases. Many owner-builders have
expressed regrets that they didn't get agreements in writing. A signed
agreement can be your best defense in the event of a dispute. Signed lien
releases, available from your lender, prohibit subs and suppliers from
placing a lien on the new house.
7. Buy materials directly. Most subs like to provide their own materials, but
experienced owner-builders know that it costs more that way. Buy your
materials separate from labor and avoid unwanted overhead charges.
When you search for materials you find bargains, too.
8. Constant communication with subs. One of the biggest problems with
owner-building is that some subcontractors won't show up as promised.
The remedy is to communicate early and often with your chosen subs.
9. Be on-site. Owner-building can be very profitable but demanding and is
not something to be done on evenings and weekends. You or your
spouse need to be on-site much of the time during construction to ensure
that all possible steps are taken to get you a well-built home at a savings.
10. Run a clean, organized job. It actually saves money to have a clean
construction site where tools and materials aren't trampled and lost. By
keeping the site clean, you will end up with a house that is satisfyingly
clean and healthy to live in.
The 1997 Tax Law - An Incredible Bonanza
by Mark A. Smith
The Taxpayer Relief Act of 1997 was signed into law on August 5,
1997, and provides unheard of advantages to homeowners, which are
still in effect.
For the first time ever, homeowners can sell their homes and keep the
profits tax-free, up to a $500,000 limit for a married couple. No more
waiting until retirement to cash in on your home equity. The new law lets
you do it now. But that's not all. The new law lets you sell your home as
often as every two years without paying any taxes.
In this respect the law is 80 times as generous to homeowners as the
old law. If you are age 30 and sell and replace the house you live in every
two years until you retire at, say, age 70, you could enjoy this tax-free
bonanza 20 times. Since the new limit on tax-free profits is $500,000, four
times the old limit, you enjoy 80 times (4x20) the tax break you had
In a practical sense, the biggest beneficiary of the law is the
"owner-builder" - the homeowner who acts as his own general contractor
in building a home. Owner-builders can usually build at a savings over
homeowners with contractor-built homes because they exchange their time
and effort for a savings on contractor costs. Owner-builders can sell a
home profitably in a two year period, the time the law requires for a
A conventional homeowner would realistically have to wait longer than
two years to benefit. This is because the "in and out" costs of selling a
home would gobble up the profits afforded by normal home appreciation
in a two year period. In and out costs include mortgage origination fees
and loan closing costs.
An owner-builder meanwhile is uniquely positioned to benefit from the
tax law. Owner-builder sweat equity can be harvested every two years
through a tax-free sale. Unlike the former tax law, the 1997 law does not
require you to replace the home you sell with a more expensive one. This
helps the owner-builder who wants to repeat the process several times.
In the old days, you had to replace the home you sold with a more
expensive one to escape a capital gains tax. Now you can step down to a
less expensive home, step across to an equal priced home, or step up.
There is no taxable capital gain on the sale at all unless you exceed the
$500,000 limit for a married couple.
This provision helps owner-builders who are developing net worth
through selling their homes and building new ones to replace them. The
old law required them to "step up" to more expensive homes. After two or
three steps up they found themselves priced out of the market. Their
homes were too expensive to sell easily. Now they can build and sell any
size home they like, tax-free, as long as they live in the home for two
A House That Works
by Mark A. Smith
"A house that works" is my theme for building a house. My impression
after touring hundreds of houses is that they lack imagination. Most
houses are tremendously dull concepts involving little more than boxes
stacked on top of each other. You can change this. By forethought, you
can put all kinds of things into the design and inside the walls that will
make your house more useable and comfortable.
As an owner-builder you have the unique opportunity - I consider it a
stewardship - to make your home into an environment that facilitates
better living. Winston Churchill captured the thought when he said, "We
shape our buildings, and our buildings shape us." Your house has a job
to do, and that is to facilitate your life and those of your successors in the
house. Some ideas to put your house to work:
1. Let it process the water with which you will cook, clean and drink. This
can be through water filtration, water softening, water distillation, or a
2. Let your house improve the air you breathe. Through a variety of air
filtration systems, humidifiers, and air to air heat exchangers you can
improve the healthfulness of your inside environment, and the
cleanliness of your surroundings. Housewraps reduce dust infiltration.
3. Let your house feed you. Through forethought you can simplify the
process of preparing and storing food in your new house. You can
landscape for a place to grow food and herbs; you can provide a root
cellar or fruit room to store the produce.
4. Let your house give you a workout. You can build a sports court into
your design. You can adapt a room into a workout room by providing
appropriate soundproofing and electrical service and cable TV to facilitate
5. Let your house stimulate your mind. Provide spaces conducive to two
person conversations. Create libraries and reading spots with natural
and artificial light and privacy. Pre-wire for electronic Internet and
computer sharing pathways from room to room. Locate student desks in
bedrooms. Pre-wire for telephone and data access to many points.
6. Let your house clean itself. Build in a dust-free whole-house vacuum
system. Bring wash facilities to points of use. Avoid designs and surfaces
that catch dust. Use scrubbable, cleanable, renewable finish materials.
7. Let your house warm and cool itself. Provide for air flow, orient your
structure to capture morning and winter sun, design to shade from the
high sun of summer. Provide means of storing thermal energy and
insulate to protect your found resource.
8. Let your house care for you. Make provisions for handicap access if you
have immediate need or if you will stay long enough to experience the
ravages of unexpected injury or advancing age. See that your hallways are
wider, your baths, laundry and entrances are accessible, and your kitchen
is open and adaptable. Design in considerations for children and for pets.
Make play spaces, gathering spots, and storage for toys and personal
9. Let your house entertain you. Prewire for whole-house audio and home
theater video. Provide for Internet, satellite, and computer connections to
televisions. Create spaces for guests and gatherings. Design your house
to separate activities and permit privacy. Provide for musical
performances and instruments, for formal meals and holiday
celebrations. Facilitate your hobbies thoughtfully.
10. Let your house make a living. Create and equip space for shop or
office, craft or livelihood. Anticipate the necessary utilities and facilities.
See that storage, display, delivery, and communication flexibility are built
in whether you choose to activate them later or not.
Making Your Remodeling Project Easy
by Mark A. Smith
Every year more than 100,000 owner-builders - people who build
a general contractor - finish new homes in the U.S. According to our
surveys, they save about 35% of the appraised value of construction by
acting as the general contractor. Hundreds of thousands more do home
remodeling projects or add to their homes in the same way.
Many of these owner
builders have satisfying, money-saving experiences with their projects.
But many more report stress, frustrations, and budget overruns. This
doesn't have to happen to you.
Your home remodeling project could be anything from installing
shelves to enclosing a back porch. Whatever the project, you can save
yourself money, anxiety and time by following three simple steps: 1) Plan
your project fully in advance. 2) Track all of your expenditures. and 3)
Watch over every step of construction personally.
1) Plan. Elaine and I believe in "overplanning" your project. Any couple will
have disagreements about the way a project should be done. I got a call
from a reader last week who says that her husband "just won't listen"
when they are in the middle of a remodeling project. They have restored
several old homes on their property in Illinois, and she despairs of getting
anything done the way she wants.
We deal with these disagreements by getting them out of the way
before we start through planning. We take photos of houses and
construction details we like and save them in an album. We make up
sketches and lists of components on paper. This brings up lots of
questions that get settled in advance. For instance, when we built our
home, we debated about laminate kitchen countertops versus a solid
surface like Corian. Before we got very far along we found a definitive
bargain on solid granite countertops and compromised.
In The Owner-Builder Book, we list more than 75 planning steps we
recommend before starting a project. They include items like developing
a preliminary budget and schedule and getting bids from at least three
subcontractors or suppliers on each item. We tracked our time on the
home we built and found that planning took over 700 hours of effort. If you
are just remodeling a kitchen, you might plan on spending 100 hours on
the planning phase.
2) Track. Track your expenses along the way and compare them to the
preliminary budget you developed in advance. We do this tracking on a
computer spreadsheet - it takes surprisingly little time to set one up. You
can do it on paper as well. The idea is to get as close as you can to a
complete picture before you start. Then track each cost you incur and
compare them. Ideally you should get few surprises.
Last week I had to change the battery in our car. I had a 75 month
battery that had gone bad after just 38 months. I took it in to the distributor
warehouse to be replaced, but first I did my homework. I found that the
same battery was offered at our local car parts store for $42.60. When I
got to the counter at the distributor warehouse, they tried to charge me
$66 for the replacement battery, or $39 after the warranty adjustment.
Since I knew my prices in advance, and I was paying attention, I argued
successfully for the $42.60 price I had seen elsewhere.
If you pay attention to the prices you are charged after you have
preliminary estimates, you can protect you budget and your interests.
Sometimes suppliers make pricing errors or arithmetic mistakes on
delivery invoices for your project. Write down everything you pay for right
next to the preliminary estimates you received in the beginning, and
discrepancies will pop out at you. If you don't get the price you want, take
time on the telephone to chase down a better price.
3) Watch. One of our friends is a physician in Atlanta who recently
remodeled his kitchen in posh luxury for $50,000. He figured he would
"stay out of the contractor's way" and didn't even visit the job until breaking
away at lunchtime one day in the middle of the project. He watched the
workers unpack the cabinetry and bent down to take a closer look. He
discovered that they were installing pressed board with a cherry veneer -
not the solid cherry wood he was paying for. He questioned them, and
they assured him this was the right product. He didn't buy their
explanation and asked them to call the boss on the phone. The boss
wasn't in, so he told them to stop work right where they were.
He knew he had paid for solid cherry, and had it in writing. He stood
firm, and a few days later they showed up with the right stuff and got the
job done. He watched the rest of the work more closely.
Many good things come from watching. "Cheating" on cheaper
components is reduced or eliminated. The workers seem to be more
diligent when watched, and sometimes they will offer you suggestions on
improving the project. They get their questions answered immediately
when you are close at hand, and you get the benefit of their counsel.
If you feel like you have nothing to do, use the time to make phone calls
to track down bargains and make sure deliveries and workers show up
on time. Use idle moments to keep the jobsite clean and make sure that
the workers do the same.
Incidentally, one of our other physician friends remodeled his kitchen in
California a few years ago. He used ingenuity, did some of the work
himself, and followed the Ten Commandments of Owner-Builders (see
Cover Essays). We don't know if he's a better doctor than our friend in
Atlanta, but he is a better manager: his total cost was only $3,000.
Qualifications of an Owner-Builder
by Mark A. Smith
A telephone survey we conducted revealed that persons acting as their
own general contractor in the construction of their residences
("owner-builders") saved an average of 35% off the contractor price of
the house. Do you have the right stuff to take on your own residential
construction project? Here are the ten leading qualifications of
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
subcontractors 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
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
5. You have job flexibility.
Either you or your spouse need to spend four hours a day or more 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
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
10. You are a good student.
You watch well and learn quickly. You can get answers to your
"Come on out here and sit a spell with me," my grandfather
said to me, rising from the dinner table where we had gobbled
down my grandmother's fried chicken, mashed potatoes, cream
gravy and green beans - her standard Sunday spread. Taking a
wedge of her pecan pie with us, Papa and I headed for the front
As I snuggled up to him on the swing, carefully balancing
my pie, I could smell the sunshine in his faded blue-denim
overalls that he had changed into after church. They were so
worn they were as light and soft as his chambray work shirt.
Side by side, we sat on the porch that spanned the front of
our farmhouse, scraped up every last crumb of Grandma's pie,
leaned back, sighed contentedly and "sat a spell." To me, it
was a perfect way to spend a Sunday afternoon.
To this day, front porches hold a special place in my
heart. My grandfather's porch was wide and deep enough to
handle tricycle races with my cousins, games of jacks, picnics
and the dreams of a little girl gazing up into the summer sky.
The porch also had many practical uses. My grandmother,
mom, sister and I would gather there in its cool protection with
old washtubs filled with peas, string beans or strawberries just
gathered from the garden. As we shelled or snapped or husked,
we talked about everything from 4-H projects to boys to what was
On really hot summer nights, my grandfather would drag a
cot out onto the front porch, hoping to catch a nighttime breeze
and a little sleep. He would fall asleep to a chorus of locusts
and crickets in the glow of a million stars.
The porch served as a haven for all, human and animal
alike. After a few rounds of pushing a lawn mower around our
big yard, my brother would take a break on the porch. Coming in
from a freshly cultivated field before moving on to the next
one, Papa would stop a minute for a cold drink on the porch.
Hot and flushed from canning vegetables, my grandmother would
step out on the porch to catch a bit of breeze. Even the dogs
knew the next best place to flop besides under a bush was on the
cool boards of the front porch.
And there was no better place than the porch to be when a
summer rain swept in. You could sit out there and smell it
coming from miles away; feel that first hint of a breeze, first
hot and then surprisingly cool; see the first drops of rain plop
into the dust that layered everything. Then the full force of
the storm would hit, sometimes driving you reluctantly inside as
winds lashed the rain farther and farther up under the porch's
I received my first kiss on that porch, painted its swing
one adolescent-bored summer, helped my father repair its steps
and spent many lazy Sunday afternoons on it.
Front porches serve a real purpose in American life. They
are an open invitation to sit a spell, to talk, to dream or to
do nothing at all - rare luxuries in today's fast-paced life.
Front porches soothe the soul as surely as they shade the stoop.
I'm still sitting on front porches. My own home has one
that spans the length of our house. It's not quite as deep as
my childhood front porch, but still wide enough to hold the
dreams of a grown woman gazing up into a summer sky.
And the invitation is still there, now for a new generation
of children: "Come on out and sit a spell with me."