My father's hobby is property investment. Well, it's a bit more than a hobby, he owns around 10 houses.
He does as much work as possible himself, or when I was living at home, by getting me to do it for free (well, I get inheritance one day).
The amount of money he's managed to save by doing his own work is staggering. We saved at least $10,000 by building a retaining wall ourselves. We mixed up over 6 tonnes of concrete in a 200 L concrete mixer.
Every fence on his properties he's put up himself, I've helped out with about 5. You're probably saving $5000 per fence (for a timber fence, 6 foot high). He does a lot of his own painting and drywall work as well. He does a lot of his own electrical work as well since he's qualified to do it, which saves boatloads of money.
We even installed the pool at the family house on our own, saving 5 figures (he did pay for a earthmoving company to dig the hole though).
He's probably managed to save several hundred thousand dollars by doing his own work. He basically spends any time that he's not working at his day job working on his properties.
Building your own house from scratch isn't really worth it these days though. It's cheaper to get a frame preassembled, then trucked in and erected. Doing your own concreting isn't really worth it either, same for bricklaying.
A good friend of mine owns around 50 houses and apartments, and does 95% of the work himself. He is super smart and impressive, however he is his own limiting factor in his growth. He literally can’t keep up with the work and refuses good deals. Learning to lead others effectively is key to growth in real estate investing and it’s a hurdle many unintentionally self limit their growth.
Many people self running a real estate business are interested in a sustainable income, not necessarily growth.
At 50 properties, your friend probably could start leveraging a team and either get more properties and more income or simply get more time for himself and still have enough income. But, a lot of people will have topped out at 10 or so properties, if you're paying other people to do the work there, you may not be making enough income to grow your assets.
This is not just an issue in real-estate investing. This sounds like it is a general principle that can be applied across-the-board. A lot of small business owners/franchisees fail because they don’t know how to create processes and delegate. A good book on this is The E-myth Revisted.
> Learning to lead others effectively is key to growth
My personal pet-peeve: In 99.9% of cases, when people talk about "leading" in the business context, what they really mean is just "managing". Let's not infest our language with corporate newspeak.
Leadership is about making people genuinely want to do things. Jesus, Napoleon, Lenin, Steve Jobs - they were leaders. Managing, on the other hand, is about handling employees, who are doing what you tell them to do only because you pay them.
No, they were managers. They just understood that good management is being a leader. Trying to micromanage and compel people to do what you want is inefficient compared to inspiring people to want the same things as you, and helping them coach them so they grow into more effective, productive versions of themselves.
Presumably, to get the truck pricing you have to buy by the truckload which is too much concrete for some projects. If doing it onsite was cheaper at quantity, you'd never see a concrete truck on the road -- all the big construction sites would be saving money by mixing onsite.
Your father sounds kind of like some of my family. You can rent the equipment to dig the holes if he ever wants to learn how to do that. If you are the general contractor you can save whatever their markup is (at least twenty years ago).
You can get a construction loan in some States and in those States you are allowed to build your own house. Now the bank may have some requirements (show them your plans etc...) on you but you can generally act as your own general contractor. Still I think a reputable builder + home inspector + real estate attorney is the better way to go. At least if the contractor is registered with the State you can usually get access to State funds if the GC screws up.
If some places you can structure it such that the bank will give you x amount once y work is complete. Eg they give you 20k, and once foundations are signed off by the council (or whoever) the next install will be handed to you for framing or subfloor. On completion of that another amount can be borrowed. It’s a good way to go.
I have not seen a lender that will give an "owner-builder" a construction loan without being a licensed general contractor. There are various common ways to structure a deal with a general contractor - fixed price, "cost-plus", or construction manager (where you convince them to "use" their license and they check your work).
Several of my family members have gotten such a lot, so as of 15 years ago it was still possible.
Building your own house is a good way to get end up in divorce. It hasn't happened in my family but they tell me that the stress is too high. You have to get that house built quick because the loan terms only give you a few months before you have to refinance.
Some of my fondest childhood memories are from periods of major DIY home rennovation projects. Remodeling the kitchen, replacing the windows, installing tile and hardwood floors, all sorts of fun and hugely educational experiences.
These were times of pleasure, excitement, and productive collaboration for the entire family.
When I see comments like these it makes me wonder what sort of dysfunctoinal marriages people have got themselves into, and if taking on any sort of project requiring teamwork is simply forcing a realization of an already failed state.
True. The barrier here is then convincing the bank to give you the construction loan. The big construction companies (in some states in the US) move through homes so quickly and have found ways to reduce the amount of material used in certain parts of the build. They don’t necessarily provide a better home than you could build yourself. If you have recourse against them due to poor workmanship then that sounds like a good option. Most people don’t have the desire and/or network to become their own general contractor (it’s definitely not impossible though). What would you be using the real-estate attorney for?
Owner-built homes rarely use banks. My experience has been the way to go is a mortgage broker who can get you private money. It's more expensive than banks, but it works.
Enforcement of the building contract and also what to put in the contract. You will find that despite the written agreement, the builder or sub will usually cut some corners.
As I think about it (not in depth, though), does it matter? If you're building it yourself, you can't go that fast. The amount of building materials you can buy each month with what would amount to a mortgage+taxes+insurance payment each month would be just about what you could use up. So it would probably work out OK.
Our land loan had similar interest to a mortgage, but was interest only with a balloon payment after 24 months. The bank's intent was to issue the loan and roll it into a construction loan with similar terms (which is what we did). This was all through a small local bank where the loan officer inspected the house himself prior to each construction draw.
The biggest challenge we had with the loans for land, construction and the eventual end-loan was "Why are you building a 1900 sq-ft house? You really shouldn't be building a house under 3k sq-ft."
I’d have called that a medium to large house with 3k being huge - what is typical?
Looking where I live, we are typical for 1960s, and just over half the current average of 205 square metres. Guess my idea of large is actually small.
A mortgage is not a requirement to building a house, but making that tradeoff will induce a number of constraints and require non-standard ways of living for a while that may be more than you or your family find acceptable. The main ones are being uncomfortable in the short term, and probably living in a rural setting where land is less expensive.
Here is a link to a book that lays out a very good strategy:
(warning: although I read this book and considered it's approach, I used a slightly different strategy towards home ownership without a mortgage that allowed me to purchase existing homes)
In the US, I know there is a sort of convertible building loan - you need to present the bank with a plan for something that will in short order be a house that can secure a mortgage. Once the house is complete with a CoO, it turns into a mortgage.
I'm guessing the loan underwriters will be uncomfortable with the risk profile of a decade long project of self improvement, but what do I know?
I'm not from the US :) By "self-build", you mean you actually build it yourself? Doesn't the bank require professionals who can present invoices and such?
In Czech republic they do offer self-build mortgages and you dont need any license (up to 150 sqm). Money are released by achieving milestones and inspection from bank, no invoices required.
Most actually go a lot further than that. We're in the process of building right now with a large-ish builder + separate lender. We can't even do the painting ourselves, the mortgage company requires that we hire it out.
I'm short on free time anyway so it's not that big of a deal but finding a lender that would let you do everything is probably a bit tricky.
Finding a contractor who will take a few bucks under the table in exchange for putting their name on the paperwork and checking your work prior to code inspections is not usually that hard.
You are in charge of the build typically you do some of the PM your self and hire contractors to do the heavy lifting - if you have the skills some do bits themselves
$2k gets you a general contractor licence in my area (Canada). The fact someone is licensed means almost nothing at all for general contractors. Its more important they have insurance.
Maybe, maybe not. It really depends on many variables that are different for everybody.
If you work (or have worked) in construction you have the experience to do it at less cost. If you have friends who will all share labor to build their own houses, then you quickly get the experience.
If you can't earn more money in your spare time (burn out from working too many hours at your "day job" is very real!) then your labor is worth zero and you save money. Even if you could earn more elsewhere, if you enjoy working in construction once in a while your time is less valuable.
There might be market distortions that mean labor for construction gets paid more then the real value. Thus making you more competitive.
You might have a job that is less valuable than construction, and thus your time building your own things is worth less than the person you might hire.
You might have reasons (valid or invalid) to believe the professionals would do a bad job.
You might be a complete klutz that should never touch a tool. You might hate building things. You might be disabled. You might want to do something else with your time. All of these are valid reasons not do something.
In order to build a house you need to become the contractor. In order for contractors to make money they mark up the price of the building beyond subcontractor fees and materials. Twenty years ago there was a twenty percent mark-up in certain places in the country. When my family built our home we never bought anything at full price. One of my uncles installed all the flooring for free because it was his full-time job normally to install carpet etc. (I’m pretty sure but not positive). The cabinets that went into the finished main kitchen were like 90% off. If you are acting as the contractor and you have the time to wait to purchase certain material (when there are sales) you can potentially get below the costs of what some of the contractors are getting their material at. The cookie-cutter subdivision houses—in some parts of the US—are extremely poorly built with sub-par material (they are trying to make as much profit as possible).
He's basically arguing comparative advantage. You're better off spending the hour programming and paying the contractor a (well, maybe) lower rate for them to do the job faster and better.
Which is fine as far as it goes for theoretical economics. But, in practice, as in your example, the mother probably doesn't have a way to get paid for doing some other task rather than cutting the daughter's hair--and would likely take even more time to go to the barber anyway.
It does make sense to pay for some tasks you could do yourself. But in a lot of cases you're not actually saving money especially if you're not earning money by the hour and are maxed out on how much time you're able to spend earning.
You'd be surprised. I've met some general contractors making about 2-3x what a senior developer makes. That's in Vancouver where there's a roaring real estate market, and senior developers earn half what they do in the US.
I return my cans and bottles for the deposit. Every time I do it I think it's completely illogical because I'm losing $50 each time over just spending the time programming. I justify it to myself as getting paid $5 to take a walk. I can't spend every waking hour programming or I'll burn out. I'm not sure I'm not just trying to rationalize irrational behavior though.
Of course I look like a homeless person walking down the street downtown with two big bags of cans, but I don't let that enter into my calculation.
I don't disagree, hence my parenthetical :-) Took me over a year to get a plumber scheduled as part of a rather small bathroom remodel in Massachusetts. The construction trades are still hard work but they seem to pay well enough in areas where they're in demand.
I used to hate dealing with bottle deposits because it felt like throwing money away even if it was a modest amount. Now my town recycling lets you bring in deposit bottles and leave them in a shed for the local animal shelter which works just fine for me.
It sure raises some questions about the typical advice to get a degree. Much more so if you get a degree in something nearly useless like English Literature.
I dropped out of Computer Science at my university, but I've done better than my friends who stayed and graduated with honors. My take away is there's no one best formula in life, rather there are more paths to success (and more ways to define success) than we have imagination to think of.
Well, the economy is not working properly: there's so much overhead with each step of capitalism involved in buying a home.
This is just one aspect:
Take for example taxes: 33% is a double whammy. If you build it yourself, it's like making your own bed: you don't pay 1/3 of the labor cost for making your own bed. But, if you pay someone to make a home for you: First your take home pay is cut by 1/3 by your income taxes, and the person your paying or companies, their labor is taxed at another 1/3. In addition to the income taxes, that company has many other taxes to pay as well, not to mention impact fees, environmental fees, etc, etc and the lumber company they buy from has to pay even more taxes,etc.
as another example, look at the difference in cost between what someone charges and what they actually earn. For example: here in the bay area, a plumber will charge 180$ but, after expenses and taxes, he's left with about 20-30$/hr.
Maybe for the better. With current divorce law mess loosing something you have built yourself would ramp up male suicide rate even higher then it already is.
He does as much work as possible himself, or when I was living at home, by getting me to do it for free (well, I get inheritance one day).
The amount of money he's managed to save by doing his own work is staggering. We saved at least $10,000 by building a retaining wall ourselves. We mixed up over 6 tonnes of concrete in a 200 L concrete mixer.
Every fence on his properties he's put up himself, I've helped out with about 5. You're probably saving $5000 per fence (for a timber fence, 6 foot high). He does a lot of his own painting and drywall work as well. He does a lot of his own electrical work as well since he's qualified to do it, which saves boatloads of money.
We even installed the pool at the family house on our own, saving 5 figures (he did pay for a earthmoving company to dig the hole though).
He's probably managed to save several hundred thousand dollars by doing his own work. He basically spends any time that he's not working at his day job working on his properties.
Building your own house from scratch isn't really worth it these days though. It's cheaper to get a frame preassembled, then trucked in and erected. Doing your own concreting isn't really worth it either, same for bricklaying.