5 Major Risks of Being an Owner-Builder

(April 26, 2015)


What does "Owner-Builder" Mean?

If you were thinking about being your own general contractor, or what is otherwise known as being an "owner-builder", you should consider these risks before you start on your next remodel project. The term basically describes a situation where you, the homeowner, serve as your own general contractor. As an owner-builder, you, not anyone you hire, assume all responsibility for the entire job.  

I've experienced the financial devastation of projects gone wrong.  In fact, we buy houses with incomplete projects because a regular sale is out of the question.  Lenders won't lend on houses with unfinished remodeling.

Risk #1 - Extra Legal Responsibilites

You are not only responsible for the actual work, but also everything else that goes with being a general contractor. These things include state and federal taxes, worker's compensation, and all other legal liabilities that go with the construction project.

Risk #2 - Subcontractor Injuries

As you can see, serving as your own general contractor does not mean that your only requirement is to hire the various subcontractors you need for your project and schedule them. For instance, if one of the subcontractors is injured while working on your property, you may be liable to pay to cover their injury through your homeowners insurance policy or worse yet, personally. When you sign a building permit application at your city or county building office, you are assuming full responsibility for the project.

Risk #3 - Unlicensed Contractors

Unlicensed contractors can do a job incorrectly, they can leave with your money for completing the job and ultimately leave you, the owner builder, to deal with finishing the job.  You could end up paying twice for the same job.

Risk #4 - Mechanic's Liens

Also, subcontractors and suppliers who are not paid on time may file mechanics liens against your property. So make sure that you have adequate funds to cover all the expenses of your project (not only labor but materials, too). Make sure you know everything there is to know about mechanics liens and preventing them before starting your project.

Risk #5 - Unlicensed Consultants

Worse yet, do not hire an unlicensed "consultant" to help you manage the project. Hiring one of these consultants absolutely does not save you money at any point. Hiring a licensed contractor with experience ensures that the contractor is responsible for the entire construction project. As you can see, and less you are knowledgeable about construction, it is much better to hire a licensed contractor and have them take all the responsibility.

Consider the Risks

While on the surface, serving as an owner-builder appears to be a major cost saver, it can easily cost more.  If any of the above risks occur, you could be looking at extensive financial issues.  We've bought houses where it was a small project that wasn't finished and we've purchased properties when an entire house remodel ultimately was unfinished.  Unless you have managed a project before, or are prepared for the risks, it's best to hire an experienced licensed contractor for your project.

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Jennifer Shenbaum

Written by Jennifer Shenbaum

Jennifer Shenbaum is a real estate investor based in Southern California. She is a veteran of the housing market crash of 2007. Best of all, she offers free remodeling ideas to all who ask.

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