Real Estate

A Low Capital, High Labour Real Estate Strategy

Attention:  There’s a wager riding on this post.  If you’ve done something like this (or know someone who has), please leave a comment with details!  Specifically we’re interested in a) how much of the persons OWN money had to be invested, b) what their construction experience was BEFORE they did this for the first time and c) whether they were able to do this part time (did they have another job).  Please do watch the comments to see how the wager plays out in the comment (I can almost taste that beer already).

Thanks, Mr. Cheap

There’s always an interest in real estate strategies that don’t require a lot of money.  Happy to fill the void, a variety of get-rich-quick-through-real-estate types offer information on bird-dogging, rent-to-own, flipping and other questionable practices.  Sadly, these strategies have major challenges (legal, ethical and business) associated with them and are unlikely to provide what the person pursuing them is looking for.  An alternative, presented today, is something I haven’t done myself but have heard being done second hand from a number of sources.  It’s possible anywhere in the world, but is particularly well suited to Canada (and our taxation laws) and to small and medium sized communities.

The basic idea is to buy a piece of land, verify zoning and get permits and build the house yourself.  Do as much of the labour as possible, and anything you can’t do, hire someone to do it for you.  Once the house is finished, move into it.  Start working on another house.  Once this second house is finished, sell the house you’re living in and move into the new house.  Repeat as needed.

When I was studying in my undergrad, a friend of mine told me his father did this (and they’d lived in 8 different houses while he was growing up).  Apparently this was his father’s preferred form of recreation (he’d finish up at work, then head over to the building site to swing a hammer for a couple of hours each night).  A friend of my father’s has just recently stopped doing this (he did it for years and has finally “retired”).  He was an electrician, so was in the enviable position that he could do the electrical work himself, and had a number of contacts in the construction industry so he knew the other work would be done properly.  He even did this for investment properties (where instead of making a private residence for himself to move into, he built apartment buildings).

I was talking to a woman about this recently, and she said her grandparents did this is Romania (however they did it because it was the only way they could have a house:  not as an investment).


The large benefit of the Canadian tax code for this type of thing is that we can sell our primary residence and not pay taxes on the capital gains.  In contrast, Americans pay tax on this, but can deduct their mortgage interest.  Canadians can’t deduct the building materials and expenses of construction, but these should be quite a bit lower than the sale price (so it’s better to get the tax free sale than to get the tax deductions on your costs).  Living in the house is an important step in the process (if you just build it than sold it you’d be in the construction business).  Obviously you’d want to read up on CRA‘s definition of a primary residence and make absolutely sure each of your “stays” qualified.


SOME money will have to be put into this strategy, since you’ll have to pay for the land, materials and labour as the house is being built.  A construction loan helps with this.  Basically you show the lender exactly what you’re going to do, they approve the plans and provide money at each step in the process.  This is completely different than the standard process of getting a mortgage, but in some cases it’s possible to convert the construction loan to a mortgage upon completion.

My understanding from people who’ve done this is that being involved in the process, EVEN if just as the general contractor, saves quite a bit of money.  Plus, if you decide to live in the house long term instead of continuing with this strategy, you’ll know that it’s a well built home.

Carrying Costs

There will be costs that will need to be paid during construction (such as property taxes and whatnot).  Part of what might makes this approach less appealing in a large city would be that these costs and the “opportunity cost” of having a construction site where work proceeds SO slowly (since at times only one person may be working) would undermine any gains.  Vandalism and whatnot might also be considerations and could stop this from being worthwhile in a hurry.

Required Knowledge and Ability

The more you know about construction (like the electrician mentioned above), the better off you’ll be.  Early on when I first met Mike and his wife, I was very impressed at the scale of renovation they’d embarked on with their house.  At the beginning, despite Mike’s engineering background, they didn’t know much about home construction, but launched into some very aggressive plans.  The place looked great when they showed me around (I met them after construction was completed).  Not everyone would have the energy and willingness to learn how to do the various tasks then actually do them for the amount of time to construct a house (but both are required if you’re going to build your own house).

Why I Wouldn’t Do This

I have pretty close to zero renovation / construction / home maintenance experience.  A buddy and I spent the better part of a day anchoring a runner for drapes in the ceiling once (think about two guys off of “The Big Bang Theory” with a drill and you get the picture).  If I was serious about doing something like this, I’d obviously work up to it by getting involved with some renovation projects (at home or with friends) first.  Hell, someone doing reno work will probably be happy to train you if you’ll do work for them, so it’s a way to benefit both people.

Beyond lack of ability, building a house would be A MASSIVE amount of work.  Given that I try to earn a living staring at a computer monitor (or a nice book) and not getting sweaty, this would not be for me.

That being said, maybe others aren’t as lazy as I am.  A number of people have built their own houses before, so the information and possibility is out there.  There’s also 911 hits on Amazon for “build your own house”.

31 replies on “A Low Capital, High Labour Real Estate Strategy”

I definitely don’t recommend this strategy to anyone unless you are very experienced in construction, have a LOT of capital (unlike your premise) and can work on the house full time.

The amount of time you need for a project like this is huge – to do it “a few hours at a time” would take forever. It sounds like maybe your friend’s Dad just wanted to get away from his family. 🙂

You also need money for materials – these are not cheap at all. Insurance is also an issue – you won’t be able to get normal house insurance for a house that is not built.

It sounds like you are suggesting to buy it in the middle of nowhere so the land would be cheap – but anywhere else, the land alone would be quite a few $$ which could add to the cost of the project.

One strategy that I’ve heard of and I think is a lot more realistic for the “average joe” is to buy a fixer-upper house that you can live in and then just fix it up room by room over time. I personally wouldn’t do this because it means living in a construction zone for 5+ years and the renovations will be never ending. If working on a house is a passion then it might work for you.

Mike: I could be wrong (it happened once before). As I mentioned in the post, my info on this comes third hand.

Materials would be bought with the construction loan. I wasn’t aware insurance would be such an issue.

The house could be in the middle of nowhere, or it could be in an under-developed lot (a number of my parent’s neighbours have double lots and they’ve started selling off the second as they’ve gotten older). Again, the construction loan could be used to purchase the land.

I’ll bet you a beer that someone will comment in the next 24 hours saying they (or someone they know well) have done this.

Mr. Cheap – I don’t think this strategy is “wrong”. It’s just that it won’t work out very well for most people (in my opinion).

Another thing I didn’t mention was that doing a big project like this entails a LOT of red tape and non-construction tasks. Setting up drawings for city hall – zoning etc. Assuming you will be hiring some people for some things then looking after them will take a huge amount of time. Hiring them, planning, helping them (in some cases) – a lot of work. Trips to home depot, buying things etc.

My point is that if you start building a house thinking you will spend 90% of your time doing hands-on construction work (tiling, drywall) then you will be in for a shock. If you do EVERYTHING yourself then you might spend a 75% of your time doing “real” construction work. The more people you have to hire, this percentage goes down drastically.

I was once met this Self Made Millionaire and this is what he does. He died 3 years after retiring from it.

I run rental properties but not this type. I’m not a handy. Fixing a door will take me 4 hours. lol.. Instead, I pay someone to do it. My priority are my kids. I want to spend more time with them.

I also invest in REITS. I think that’s another alternative for any investor. My brother works at the largest Canadian Land lords company. I jokingly told him that while they work so hard to manage those Apartments, I’m receiving a dividend pay everymonth without working in it.

My worry would be leaving my partially constructed house unsecured most of the time. Construction materials are expensive, and thieves watching the house would quickly see that it would not take much effort to steal things from a house that is only watched for a few hours each day.

I don’t think I would sleep very well if I undertook something like this.

Mike: I think we may still be able to have a wager here :-). In your first comment I took it as you saying it wouldn’t work, which fair enough if that isn’t what you were saying. Were you saying:

1 ) It wouldn’t be profitable
2) It would take lots of money (i.e. taking exception to the “low capital” portion of the title), only people with extensive construction experience could do this and you couldn’t do it part-time (basically the first paragraph of your comment) – disagreeing with these three ideas from the post
3) That it’s hard work, with a good part of the work being paperwork rather than labour (I *think* I clearly mentioned both of these in the post)
4) Something else I’m not understanding

I’d be willing to make a wager on 1) or 2) (I think we agree on 3) and probably on 4 (let’s hear it!).

Alexandra: Yes, I definitely agree that would be one of my biggest concerns to. Some of my friends from elementary school, after I lost touch with them, went on to become vandals at local construction sites.

There are probably ways you could secure things against teenage delinquents, but you’re right there might be enough valuable materials to tempt serious thieves…

I was saying #2. What kind of wager are you proposing?

As for #3 – I was just adding on to the idea of hard work in that it might be WAY more hard work than you could imagine.

If I may do one more rant… 🙂 The other problem with doing this kind of project is that you end up doing a lot of crappy, dirty grunt work which nobody enjoys. Yes, you can try hiring labour to help but you still end up doing a lot of crappy stuff yourself.

Mike: As I proposed in comment 2, a beer :-). As Sherlock Holmes said “the game is afoot”.

Jess: Since you’ve already commented on this, can you verify if that man you knew doing this was able to:

a) with low capital (not putting a lot of his own money into the process)
b) without extensive construction experience (when he FIRST started doing it, but it’s very nature you’ll get experience doing it)
and / or
c) working on this part time (was he doing something else while the property was under construction.

We’re betting that someone (or a combination of people) can post that they’ve built a house by:

a) not putting a lot of their own money into it (e.g. they got a construction loan and did a joint partnership)
b) have limited construction experience when they FIRST START (obviously going through the process of building a house will give them a lot of experience)
& c) were able to do this part-time (they weren’t building the house as their full-time job)

I have until 10 am tomorrow to get someone (or a combination of people) to comment who have personal experiences (e.g. a counter-example) along these lines which contradicts your assertion that:

I definitely don?t recommend this strategy to anyone unless you are very experienced in construction, have a LOT of capital (unlike your premise) and can work on the house full time.

I’ll let you decide whether the comments prove this or not (and readers are encouraged you heckle you if you deny that it has been proven when it clearly has :-).

You can follow up with commenters or do whatever you want to validate comments (if you think they’re not genuine, I have no intention of faking comments).

Mike: Deal! Just to warn you, I’ve already e-mail Mrs. Pillars and most of the Canadian PF community, so hopefully they’re all on my side 😉

I never answered your point about profitability. Yes, I think you can make a profit doing this although your time will be the cost. If you are good at it and can complete the project in a reasonable amount of time then you can probably make a decent $/hour wage.

Of course if you are going to sell the house when finished, then you better hope the markets has gone up enough to cover the transaction costs.

@Mr. Cheap,

I’ll answer it with just a brief story.
He?s a high school drop out and he works at construction at first. Then he?s doing it part time fixing and renovating homes. He uses what he made from his services and started building his own and selling them or Fixing an existing home and reselling it. He keeps doing it (Which he loves) until he became a Millionaire. He said, you can get rich by doing the things that most people hate to do.

I didn?t ask more about his business at that time (2001-2002) because I was just starting out.

After he died, all of the wealth goes to his wife. After just a few years, his wife went broke. Sad story. This is why sometimes I push my wife to study Financial so she will be able to manage the financial if in case something happened to me.

Well, I know two cottages built by the owners. Unfortunately, neither one was getting into it as a business (i.e., rinse, repeat), and neither one obtained construction financing.

A friend’s dad is building a new cottage from the ground up to be a full-year (i.e.: winterized) retirement home (that is, a place to retire to, not an institution). He’s doing a lot of the labour himself. He was a car guy and a tinkerer in his day job, so no real construction experience per se, but he’s definitely not an amateur around a drill or saw (or electric circuit or blowtorch for that matter). He’s financing it by selling the principal residence and downsizing in the city. They started this fall and expect to be done next fall. They also demolished the old cottage on their own, though I guess that labour isn’t quite as skilled 🙂

I’m in favour of do it yourself in just about everything. I sold my own house and fought my own (err wife’s) traffic tickets. So I’m all for DIY here too even though it took me almost a whole day to put in a hood fan for the stove (while my wife was away at work, thank-fully, or I would never have heard the end of it). I would do it small bits over time after work and on weekends — it’d be almost like a form of recreation with exercise and fresh air, healthy stuff. There is some technical stuff, but the Internet gives you a lot of info.

I’m with Mike on this one (sorry Mr. Cheap). It takes forever to build a house if you plan to be your own general contractor and supply your own labour on many projects. Some people enjoy it and hey, if they can make some money, that’s just a bonus. Personally, I’d rather do something else with my time.

In the area where I currently live, this is fairly common, though the goal is not usually to make money and the process is anything but fast.

Most people in my area work in another province for part of the year and live here (in NL) the rest of the time. When they are “home” for the season, they work on the house (if it’s their first house, they typically stay with their parents until it is completed, which can take years.) Then they move in and eventually see how they could have done things differently, or run out of space, or for whatever reason decide they want to build another one. Since they have no mortgage (and never did, since it’s built using income from working away), they just start over again and sell the “old” house.

What is throwing a wrench in this strategy is the fact that building materials are becoming more and more expensive and professional installation is becoming mandatory for many things (septic and foundation work, for example.)

Melanie: Thanks, that’s exactly what I was hoping to hear! If Mike goes for it I owe you a big kiss ;-). Heck, who am I kidding? I’ll happily give you a big kiss whether Mike agrees or not ;-P

Mike: Do you accept Melanie’s comment or is there some part you disagree with? She says they work on it over the course of years, part time while working elsewhere (c), they do it to save money (a), except now that building materials are getting expensive, and repeat the process (add-on from comment 12). Implicit in her comment is that numerous people are doing this, not just people in the construction industry (b).

My BIL and SIL just built a home here on the farm. It took several years to get the building permits, easements AND get power, water, sewage hooked in. THEN they had to build the thing. Digging for the well was not fun (will there be water?) Gaw! No water means NO PERMITS. FUN! Plus, buying land isn’t exactly cheap. They hired a very experienced contractor with team to raise the roof. Seriously, building a home from scratch isn’t for the casual weekend warrior handyman.

Keep in mind from the construction loan side, depending on institution, you usually have to own the land outright and have anywhere from 20%-50% cash reserves for the build. Constrution loans are typically lawyer administered with a series of progress draws after an inspector/appraiser qualifies what percentage complete your property is.

A trick I suggest to clients, would be to setup a Home equity Line of credit on your primary residence for the construction cost. Assuming you have the equity, you will save thousands in legal fee’s as each disbursement of funds is a cost to you for the lawyer. Using this plan you could get a raw land mortgage, usually 20%-50% down for the property and float it, and the LOC interest only until the property is complete.

I do know people who have lived through reno’s and were quite successful at either selling once complete or moving onto the next and holding as a rental.

Much easier to do if your single.

Just my thoughts…

Mate, if you put as much effort into building your house as going after this beer it’d be a Vaughan-esque mcmansion for sure. If you win the bet ask for a pricy Belgian bottle!

I know several people who likely have the construction chops and skilled/helpful friends to do this but not the time. Working on someone else’s site all day and then going to your own is burnout, social suicide and/or divorce in the making for sure.

Sorry, a little late into this conversation. I think it’s definitely possible to be a general contractor without previous “handy” experience. A bunch of my friends built their houses by being a general contractor, many of them now are on their second house. Mind you, they do have Engineering backgrounds, but no real construction experience.

A thing to take note of, it takes a lot more time to build a house than you think! The sheer amount of details, trying to arrange sub contractors, re scheduling everyone down the line when someone doesn’t show up etc etc etc.

I’ll accept Melanie’s comment as evidence that people do this although I’m not sure about the “doing it without putting in much of their own money” part. They need to buy the land, pay taxes, buy materials etc.

I guess if they take long enough to do the building then the costs get spread out.

My brother-in-law does this. He started out about five years ago by building a house for himself. I’m not sure on every detail but I’m pretty sure he got an offer on the place before he was finished. After building a couple more and selling them he packed up and moved to Alberta and cashed in on the boom times. To date he’s built nine or ten houses out there and is still going strong.

I once read it somewhere that you shouldn’t fall in love with a particular investment.

I find it myself that If I DIY, I have chances of falling in love with it. Be it in Real Estate, Portfolio, or Internet. For example I have renovated a Condo and it turned beautiful. I couldn’t let it rent for a few months. So it cost me money to maintain it and finally giving out my control over it. I learned the hardway.

” I?ll accept Melanie?s comment as evidence that people do this although I?m not sure about the ?doing it without putting in much of their own money? part. They need to buy the land, pay taxes, buy materials etc.

I guess if they take long enough to do the building then the costs get spread out.”

That’s pretty much it. They do put in a lot of money, but it’s a “pay-as-you-go” strategy. They usually use family land and we don’t have property taxes here so all the money goes into materials.

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