Decide where you want to place your furnace. Usually they are placed about 50 to 100 feet away from the house, but close enough to be hooked into the central heating system. It is necessary for your furnace to be placed on a level surface, and keeping it away from direct eyesight is a good idea as well, because these furnaces can be ugly to look at.
There is usually a lot of metal and steel involved in making these furnaces. If you are unfamiliar with metal working, then you should consider asking someone who is to come with you when you purchase the metal for your project. It is probable that you will need to make several trips to a hardware store for this project, as each individual house and furnace requires a slightly different materials list.
Weld the steel together to make a box at least 35 cubic feet. Leave one end open to attach the water door. Attach the door using sturdy hinges and a door sealer. It is important that no water gets into the firebox. Cut a small round hole in the top of the box for the chimney flu.
Place the firebox inside the water jacket. Secure it solidly, using a steel base or wire to attach the box inside the water jacket. Make sure that the firebox can be reached from the outside of the water jacket. Ensure that there are no leaks in the water jacket. Measure from the hole in the firebox to the roof of the water jacket. Cut a hole out of the top of it as well.
Weld and brace steel pipe together to make a chimney the size of the holes you cut into the boxes. Use a chimney sleeve to secure it to the water jacket and firebox. Place a cloverleaf chimney cap inside the chimney. Build a flu to go inside the chimney to direct the smoke.
Use insulated water pipes to bring the heated water into the house. Attach them to your current heating system and water heating system. Consulting a professional for this part of the job will be a good idea if you are not familiar with heating systems. Place the pipes about three feet under the ground. Use plumbing fittings to attach the pipes inside the water jacket.
Wood should have to be replaced about every 12 hours with constant use. Fill the water jacket with the 200 gallons of water and build a fire to heat the water. If used properly, the outside wood furnace should be able to cut your heating bills down by about 1/3 to ½ of your current heating bills.