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Thinking about DIY Building Your Own Home? You may want to think again...

It is the American Dream to own your own home … and many people think they will save an enormous amount of money by building  their  own.  This  could  be  a  costly  mistake  financially,  emotionally,  and  physically.  Many  aspects  need  to  be considered and the purpose of this brochure is to help you think about avoiding some of the pitfalls and what you can do to make this a successful undertaking. There are several questions you will need to answer.

Ask yourself….Do I really have the time to undertake a project so time consuming? Is it worth the time? How stressful will it be on my family? Do I really have the skills to build a home properly? Do I have the correct tools for those jobs I plan to do? If not, how much money will I spend on those tools? Will I use them again once the home is completed? Your home is the single largest investment you will make in your lifetime. Do you have the expertise to make sure this home will last you a lifetime?

Arranging Financing
Arranging and applying for a home loan can be quite involved and should be one of the first orders of business. Even if you feel that you have enough cash to do the job, applying for a home loan to allow for inevitable overruns due to increased material  and  labor  costs  or  upgrades  is  always  advised.  Most  mortgage  companies  will  not  lend  money  to  cover  the unanticipated costs on a home on which construction has already begun. As a self contractor, some lenders will not lend you more than 80% of the projected cost of your home.  House plans, specifications and an itemized list of documented costs and bids must be provided to the lender. In calculating costs, do not allow for “sweat equity” as most lenders do not recognize this as a legitimate cost.

Bookkeeping Responsibilities / IRS
The IRS requires that you send any sub who earns $600.00 or more a 1099 form at the end of the year. In the event you are audited, be prepared to prove that the sub is a registered independent contractor ­ that is, you did not have to supervise his work and you did not dictate what time he reported to the job.

Tracking Materials Purchases
It is very important to be on the site or have someone you can trust to document delivery slips. Returns must be accounted for since inaccurate billing can run up costs. You will need to check all invoices and account for all materials. Waste can add hundreds if not thousands to the cost of your home.

Construction Management
Do not take this area for granted. There is much more to building a home than meets the eye. Be realistic about your level of skill and the amount of time you can spend on the jobsite. Base your decision to put “sweat equity” into your home, consider your experience, skills, available time and the amount of stress you and your spouse are able to manage. Your ability to handle long-term disruption of schedules is just as important as your ability to swing a hammer. And there’s more!

Deposits
Deposits will be required by all utilities before construction can begin. Make deposits early as some may take weeks to get their services connected.

Insurance
Do you know why builders carry Builder’s Risk, General Liability and Workman’s Compensation insurance on all of their building projects? Because they know what their liabilities are and YOU, as a self contractor, may have to assume the same liabilities.

Upon completion of the home and closing the loan, you will want to convert this policy to a homeowner’s policy. Your lender or insurance agent can explain this to you. 

General Liability
Your lender may or may not require this type of insurance, but as a self contractor, the permit purchaser and the property owner, YOU are responsible for any third party injuries that may occur on your property. Without the proper general liability protection, YOU will be held liable if anyone gets injured on the project, including children injured while playing on the jobsite.  If you are not in the business of building homes, you may not be required to carry workman’s compensation insurance; however, it would  be  prudent  to  require  any  sub­contractors  you  hire  to  provide  certification  of  their  workman’s compensation  coverage.  Also,  it  is  important  to  know  that  any  subcontractor  who  employs  any  number  of  workers  is required by law to carry workman’s compensation insurance.

Friendly Warning
Do not accept a release of injury in lieu of a sub having workman’s compensation insurance as the release may not be binding in a court of law.

Workman’s Compensation
There  is  an  issue  which  has  been  of  increasing  concern  to  property  owners    there  is  a  fine  line  between  being  an employer and a do-it-yourself minded builder. A recent case in Oregon ruled that, since the property owner was serving as their own general contractor and had the right to control the worker, they were employers and therefore liable for workman’s compensation  insurance.  This  presents  a  legal  issue  about  which  property  owners  should  be  knowledgeable.  Your attorney or insurance agent can explain this exposure to you.

Licensing
Requiring  the  Minnesota  Building  Code  statewide  means  that  every  citizen  in  Minnesota,  whether  hiring  a  licensed contractor, an unlicensed contractor, or doing the work themselves, will still be required to build the structure according tithe Minnesota State Building Code.

Time constraints
Be prepared to spend at least 35 hours per week for probably 5­6 months. This is calculated for an average 1,500 sq. ft. home. If the home is larger, figure accordingly. Does your present employment allow enough flexibility to spend this amount of time away from your job?

Selection & Scheduling of Subcontractors
Remember subcontractors have other jobs in progress besides yours. Their loyalty may be to those builders that give them the most work during the year. Will they be available to you at the proper time? For example, do you have the toilet installed before or after the flooring? One sub cannot do their work until another has completed theirs. Delays are costly, frequent, and frustrating.

Bidding Expertise
Do you really know how to properly analyze a cost break­down? Are you able to distinguish high bids, low bids and work quality? Are you allowing for all of the materials you’ll need? For example, everyone knows to buy tile … what about grout, thinset and spacers? Is everything that will be needed to complete the task included in the bid? Do you know enough about the work to realize if it’s not? Remember, the lender will require that your cost break­down be documented and if you have not projected costs efficiently and run short of funds, the loan amount cannot be adjusted after it is approved.

Technical Expertise
As  the  general  contractor  of  the  home,  it  will  be  your  responsibility  to  hire  qualified,  licensed,  insured  and/or  certified subcontractors. Do you have the technical expertise to oversee if the work is done properly? If, after inspection, the work is rejected by the Codes Department, who will absorb the cost to redo the work? While this work is being redone, time will be lost, and other subs may have to be rescheduled.

Occupational & Safety Health Administration (OSHA)
As the general contractor of your own home, you can be held responsible for all sub­contractors who do not adhere to the construction site OSHA safety requirements. Specifics such as regulations involving stairways and ladders have been a major source of injuries among construction workers. OSHA has set out about 17 detailed rules that govern stairway and ladder use. Other OSHA standards for a job site include postings of emergency numbers and instructions in the event of an injury. If your job site became the target of an OSHA inspection, penalties for any infractions could be very costly. For example, in Texas one inspection of a single home under construction resulted in $20,000 worth of citations. (Source:NAHB Business Management)

Warranty Responsibility
The  2010  Minnesota  Statute  327A.01  Housing;  Statutory  Warranties,  effective  Aug.  1,  2009,  requires  builders  of  new homes to provide certain warranties that extend over periods of ten years, depending on the nature of the defect. If you build your own home and sell it to another party, you will be responsible for any of the legitimate defects within the given 10­year time frame. In the case of your death, your estate would be responsible for claims. As far as the law is concerned, you will be the builder and responsible for claims brought by subsequent owners of the home. For a copy of the New Home Warranty Act, contact our office at (218) 722­5707. Lien Laws In the event any of your subcontractors fail to pay their suppliers or laborers, a lien can be filed against your property. A lien is a claim against a piece of property and can cloud the title or deed to the property. These suppliers and laborers, if not paid, can file a lien against your property, even if you have paid the sub­contractors.

Permits
Building permits and periodic inspections are required even if you are self contracting. It can be a tedious and frustrating experience if you are not familiar with the system and all of the “red tape” requirements, which must be complied with before commencing work. Mistakes here can be costly and time-consuming.

Minnesota State Building Code and Building Inspections
As of August 1, 2008 the State Building Code is required statewide. Anyone building a house in any part of the state must build it according to the code. The only exceptions to this new law are agricultural buildings. These codes are rather detailed and complex. Failure to comply with these codes can result in your project being shut down, fines & penalties. Before  you  undertake  to  build  your  own  home,  you  should  have  a  thorough  understanding  of  these  new  building requirements or hire a licensed professional familiar with these codes. This article is provided by the Arrowhead Builders Association in an effort to promote public safety and awareness.

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