Can I build a custom home and sell it and make money?

Can I build a custom home and sell it and make money?

This is a question that I am asked more and more in this current market and economy.

The fact is that it can be very tricky to try and make money from building a custom home and then trying to sell it right away.

A lot of people think that the way to do this is try to build the custom home without the use of a general contractor. The reason that they think this is because contractors charge you a percentage on the whole project, this is their profit. It is true in principle that you would save money without using a general contractor expect that it isn’t true if you actually sit down and way the pluses and minuses of trying to build without a general contractor.

Here are some of the problems that you will run into if you try to build your home without a general contractor;

• Building a custom home is a full time job. You will have to take the 8 to 12 months off to build the house just to organize and supervise the trades.

• Builder discounts. You will not qualify for these at the local lumber yards, tile suppliers and construction material warehouses.

• Sub trade priority. Trades such as electricians and plumbers are loyal to contractors because contractors will give them work year over year. You are a one time job and since you are the general contractor they will look at you as a hassle, because you will not know as much as a general contractor. If your not there every day to talk to them they will leave every time there is a decision to be made and there is no one around to make it.

• Sub trades charge more to homeowners then they do to contractors. There a couple of reasons for this; one is because contractors will give them more work, the other big reason is the risk that you will not pay them. This is a real worry for sub trades; collecting money is not a fun thing for sub trades.

• Knowledge. You will not have as much knowledge as a contractor. You will end up doing things that will cost you more money than if a contractor had organized them. The contractor with experience knows the pit falls and will save you money steering you around them.

• Safety, safety, safety. If take on building your own house you have to give every trade a safety tour of the house. You as the owner of the property have to ensure all safety standards are met and if anyone is hurt on the site you will have to answer to the labour board. Any lawsuits (because of injured workers) will be directed at you because you are in charge of the site.

• Clean up. One of the major concerns about work sites is how clean they are kept. Sub trades don’t always clean up after themselves. You will have to do it, or you will have to pay someone to do for you. If sub trades find a site to messy they will charge you more for hassle or walk away because of safety concerns.

• Code. You better memorize the code book. A lot of sub trades will give you exactly what you want, even if it’s against the code. You will find this out when the building inspectors fail it. Since you asked for it, the sub trade gave you exactly what you wanted and now you have to pay to have it done again.

• Building officials. You better learn when you need all your building inspections and you will have to take the whole day off to meet with the inspector. They will not give you a time they will be showing up, they will just confirm the day that they are going to show up.

I have seen home owners that have tried to build their own home to save 50 thousand that the general contractor would make and blow that 50 thousand in mistakes that they make before the house is half built. I have seen homeowners hire sub trades to frame the house under their direction and then have the building inspector come in and fail it. Forcing the homeowner to bring more sub trades in to fix the problems and then get it engineered because the inspector doesn’t trust what the home owner did. This is well within the building inspector’s right to force you to pay 5 to 10 thousand in engineering costs to prove to him that the house is structurally sound.

Things such as the order of how the trades are called in to install things in the house can cost the homeowner money. I have seen homeowners call the electricians in before the heating contractor to wire the whole house. The electrician is happy because there is nothing in the way of their wiring, but when the heating contractor shows up to run all the duct work and finds that the electrical wiring is in the way, they will simply cut it out. This will force you to get the electricians back to rewire the house. This will cost you money, because it’s your fault. To sub trades time is money, if you cost them time because you didn’t know what order things should be installed in your home then they will charge you money for all the time they lost during installation and for every hour that they are forced to redo something because of your poor scheduling. It is not a sub trade’s job to give you advice on how to build a house; it is your job to hire a general contractor to do that for you.

The way you finish the house will be only as good as the people you hire to do it. The best finish carpenters are already employed and are kept employed by contractors. It will be hard for you to hire the best which means that you won’t get the best job. The other thing is when you finish a custom home it is finished in your tastes, it is customized to you. This will be a major problem when you go to sell it. People who are looking to buy a custom home are looking to buy a home that meets their tastes. So right away you have removed a lot of the market that will be looking to buy a house in the price range you will be asking.
Also when you are selling your custom home you will be asking more then it cost you too build it because you will want to make a profit. Here lies the problem with custom home building. Why would someone buy your custom home for more money than it would cost them to have one built themselves? They could have one built and have it customized to them not you.

One of the biggest reasons that it is almost impossible to make money by building a custom home and then selling it right away is the warranty. If you do not have a contractor build your house then you don’t qualify for the warranty. In a custom home, warranty is a big issue because there is a lot that can go wrong. In Ontario we have Tarion (the new home warranty program) that is a 7 year warranty on all new homes, as long as they are built by a registered Tarion builder. It is actually illegal for a builder in Ontario to build a new home without being registered as a Tarion builder. This all costs money and is built into the percentage that a contractor charges the homeowner to build the house. Imagine walking into a car dealer and the salesmen says, I have this car that you could buy for $20,000 with a full 7 year warranty or this car for $19,000 with no warranty. I think for the small percentage more, most people will be asking for the more expensive car that has a warranty.

So when you add up all the costs associated with a custom home you can clearly see that building a custom home and then selling it will not net you any great profit. Now if you waited 5 or 6 years as house prices and building costs continue to rise then maybe you would have the chance to make a profit on your custom home.

If you are thinking about building a custom home please feel free to check us out at www.villagebuilders.ca

Rob Abbott
Village Builders Inc.

Buying Local series: Lumber yard/Building centre

Buying local series: Lumber Yard

When building a new home it is always best to buy from the local businesses in the area or community that you are constructing the home. No matter if it’s your summer home or a second home buying locally always makes more sense. This time I’m writing about the reason you should be buying your lumber and building supplies locally, I’m talking about the local Lumber yard/building centre.

Lumber Yard/building centre:

The material that you buy to actually build your house can be purchased from a wide variety of places. It doesn’t matter what company you buy the material from, you should be buying as much as possible from the local building centre. This might sound like an obvious thing to do when building a new home, but there are a lot of general contractors and home owners that buy their material from where they currently reside instead of buying from where they are building. This happens for many reasons; one of the main ones is that the general contractor will shop the “build package” to several different places to get the best price to get the job. You might think that this is good for you as the home owner because it sounds like a cheaper way to go. In the long run it can actually cost you money, more money than if you just would have got the material locally.

A couple things that can raise the cost are as follows;

·         Most lumber yards will charge delivery if the building they are supplying is out of there area. Even if they claim free delivery that only applies when they are shipping you a full load of material (a full tractor trailer load).

·         Construction has become a 12 month of the year industry, with custom homes taking a year or more to build, this means that you are building through all four seasons. Lumber suppliers will be reluctant to ship you loads of material when the weather conditions are less than ideal. This means delays in the build process waiting for the material to be delivered.

·         Being forced to have full loads delivered, material sits outside in the elements and will warp or absorb large amounts of moisture. Also the longer material is onsite the more chance it has of being stolen or damaged from heavy equipment.

·         Most build sites are not very large, so it can be very difficult to store large quantities of material onsite. Material onsite then will have to be moved several times to allow the build process to continue, this adds cost in labour for the homeowner.

·         When you price a “build package” you get a better rate from lumber yards/building centers, so you get a set discount rate on everything you buy for that build. But if the supplier is too far away to deliver a small amount of material that you require to keep the project moving, you will have to buy it from the local dealer and will have to pay more because you will not get the bulk discount that you would if they were getting the whole house build.

·         Certain areas require special material because of ground conditions, weather conditions or building codes. A local lumber yard/building center will know these things when they price the job and price it with the appropriate material. The supplier that is not from the area will not know these conditions and you will have to pay more when you request a different product then what was specked.

These are just some of the things that can cost homeowners money when using a lumber yard/building centre that isn’t from the area.

A couple of simple things that local building centres are able to do that can save you time and money are as follows:

·         Drop off small orders while making other deliveries. Orders as small as a box of framing nails that are only worth $60.00. If they didn’t do it you would have to pay someone to get in a vehicle and drive to the supplier and drive back. This costs the homeowner more money and time in the end.

·         They are able to take back or pick up any unused material and give you credit for it. Suppliers from other areas will not do this.

·         They will waive all delivery fees.

·         A lot of lumber yards that are local will send extra hands in the delivery truck to help speed up the unloading process if it has to be done by hand.

·         They know the local conditions and can send the appropriate delivery vehicle. If the location is very tight or muddy, then they might send a 3 wheeled hitchhiker to deliver the material instead of a large boom truck.

·         They have contacts for you if you require a trade or a special service.

Most lumber yards/building centres are affiliated with a national organization that they do all of their purchasing from, so if you think that you can only get a speciality item from a building centre in your area you would be wrong. They all order from the same manufacture and can order in the same things for pretty much the same price.

If you have any warranty issues with anything you bought from them, you should be able to take it back because they know you personally as a client.

So remember when building that new house, please try to buy locally, it’s not just good for you, it’s also good for the local economy.

Rob Abbott

Operations Manager

Village builders Inc.

Why being your own general contractor can cost you!

The problems with being your own general contractor.

When thinking about taking on a large renovation or project there are some things you need to know before you try to general the job on your own.

• First things first, insurance. If you don't have a general contractor your going to have to make sure that your insurance company will cover you if there is damaged caused by you or the trades that you hire, this usually comes with a fee and can be a real headache if something does happen.
• You have to check every trade person you hire to make sure that they have the proper insurance, not just the insurance to protect your property but that they are wsib covered. If your trades are not covered by insurance or wsib (workers safety insurance board) then if one them gets hurt at your home they will not be covered for there lost time or medical bills, they could end up suing there employer and you to make them hole again.

• Something that most home owners don't understand about hiring there own trades is that without a general contractor if someone gets hurt or killed you are the general contractor. This means that under Ontario law you are liable. This means that if you witnessed say someone working on the roof without any safety lines on and they fell off the roof and died you could be charged with criminal negligence causing death or even man slaughter. You could do up to 20 years in prison and or face large fines.
• Dealing with trades will be difficult because you only represent a finite amount of money. This means that you are only one job out of many they are doing. This means that when a contractor calls a trade he has more pull with him because he can generate work all year long for that trade were you can only generate a one time job.
• If you don't keep up with all the new building methods and products you could end up using out dated products or methods. Also you could end up not understanding what the trades are doing and end up wasting money on things you do not need or want.
• When you are scheduling trades you are going to have to make yourself available to them most of the time they are on your property. Your time you have to put a value on, if it means taking time off work, there will be days when trades don't show up because of emergency calls or scheduling conflicts.
• Warranties are enforced by general contractor's, when contractor's buy materials they understand the warranties and where they can get the product fixed or replaced, home owners are left to do this themselves. This can cost you money and more time lost.
• Trades will take instructions from the home owner, so if the home owner tells the trade that he is worried about the cost the trade will help lower the cost by using cheaper less reliable products. Home owners don't realize that by complaining about costs they can be putting themselves at financial risk with sub standard equipment.
• The actual hiring of trades can be a difficult process, where do you find them, how do you know they are reliable and that they have a high standard of work. If you think that you can call them in for an interview you will be lucky to have them show up.
• What do you do about permits? Do you apply for everything in your name? Contractor’s will do all this for you, if you have to do this you will have to meet with building inspectors and you will have to take responsibility for all there work. With electricians you can't call for inspections, you have to rely on them for this.
• If you have problems with trades bills and you do not pay them you could end up in court or with a lean on your home. General contractor's get quotes, even if there is no quote they will know what fair market value is and can force trades to stick to them.
• General Contractor's employ people to do the general labour things that are required in a site, things such as cleaning up. This might sound like a simple thing but when you have multiple trades in your home at one time not everything will be cleaned up like you think it should. It will fall to the home owner to do the clean up and removal of waste. This can be a safety issue as well, because drywallers will not work in an area that has not been prepared for them, especially if they are walking around on drywall stilts. Things such as signage to warn people of hazards in the site are your responsibility and installing temporary railings and stairs are also up to you.
• General Contractor's know in what order trades should be aloud to install in a home. If a home owner gets the order wrong he could end up having one trade remove another trades work and have to get the first trade back again to redo his work. This will cause you money and time. It also causes ill will with the trades as they all believe they should be in a job first.

These are just SOME of the issues that you will run into if you make the choice to general the job on your own. So please before taking this route, sit down and consider the money you could waste, the time you would waste and the stress you will go through. If you do the numbers you will probably come to the realization that it will cost you the same amount or less to get a contractor and will allow you the free time to enjoy the renovating process without all the stress and headaches.

If you want a quote or need some advice you can reach me at robabbott@villagebuilders.ca

Rob Abbott

Village Builders Inc.