Quote from @Andrew W.:
Thank you for the insight. My question is really on obtaining the financing. What I am trying to do is construct the home while learning from my father-in law who has been a licensed home builder for over 30 years. I don't want to have to associate my father-in law with the loan. However, I can certainly just use him as the GC if that is the only way to get the loan. I wouldn't call working with my father-in law who is a licensed builder circumventing the GC relationship. Also, my local municipality in CT does not require the use of a licensed contractor for an owner/builder permit. As far as insurance, as you probably know, it can be complex. But ensuring everyone is properly ensured (including myself) is a given. Builders risk, general liability, etc. are all purchasable by the owner.
@Andrew W. I think you are missing the point @Stuart Udis and I are trying to make. It's not can you finance this without a builder (of course you can) it's should you? And do you understand the long tail risk of a self build?
If your intention is to live in the property and learn while you build it. Yeah. Good strategy. If your intention is to sell the property upon completion this is not a good strategy.
1. Yes, CT will allow you to pull the permit as an owner/builder but a permit and inspections will not shield you from construction defect litigation. As an unlicensed builder your GL will not cover completed operations. So you will have naked liability here for 10 years.
2. Most states with a license requirement forbid the subsequent sale or rental of an owner build for some period of time. Where these restrictions exist, they are recorded on the title. Meaning you will not be able to furnish a clean title within the time period. Without a clean title this property will not qualify for a conventional mortgage.
3. Listing your father in law as the builder will not tie him to the loan. But it will tie him to the outcome of the build. See point's 1 and 2 above.
So my question is what is your strategy here? If you are trying to build a construction business this is an excellent strategy. If you are trying to pinch pennies on a development project than you simply have a bad deal and need to bail.
As I stated in an earlier post, the land value is already well short of the equity required for a construction loan. You will need to come up with an additional 15-25% of the LTC to get the loan. More importantly, as a first time builder, even with guidance, you are not going to hit your number. If the deal does not work with a 50% overrun in the cost of construction than the deal does not work.
So. If the goal is to learn the business and start a portfolio. Great idea. If the idea is to save money by "being your own GC" this is a recipe for failure.
