What Is Sweat Equity And How Does It Affect My Home Value?
Ben Luthi5 minute-read
December 01, 2021
There are many different ways you can increase the value of your home. Investing in home improvement or renovation projects can be costly, however. Sweat equity is a great way to achieve your goal without breaking the bank.
Knowing the meaning of sweat equity and what it's worth can help you make the right decisions to maximize home value.
What Is Sweat Equity?
The term “sweat equity” originates from the business world, particularly among start-ups. The definition of sweat equity is essentially any efforts business owners make to benefit the company that aren't monetary in nature, typically in the form of labor or time.
Sweat equity also has meaning for homeowners: it means turning the sweat off your back into cold, hard cash. Instead of paying for labor, homeowners can build sweat equity by making DIY renovations and repairs themselves in order to increase their property value.
For example, homeowners may spend time doing spring gardening, and real estate investors may purchase a distressed property with the intent to renovate and flip it for a profit. It also includes the time you spend in homeownership education, such as reading real estate books and articles and listening to real estate podcasts.
Sweat Equity Examples
Beyond what you can do for your own home, there are other well-known examples of sweat equity. For example, Habitat for Humanity's business model is built on the principle, with homeowners often working alongside volunteers to build their home.
In some instances, property managers also engage in sweat equity by exchanging their labor for rent. But as previously mentioned, some of the most common forms of sweat equity include some kind of renovation that you do yourself instead of hiring a contractor.
Here are some DIY projects that you can undertake with a high return on investment (ROI) based on the 2021 Remodeling Cost vs. Value report. While some of them require a high skill level, we've also included some that don't require much experience.
Garage Door Replacement – 93.8%
Installing a new garage door can be a complicated endeavor, and DIY Network recommends it only for those with experience. But if you can make it happen, it'll not only return almost the full amount that you put into it, but it can also be safer and easier to operate, in addition to increasing curb appeal.
HomeAdvisor pegs the price of a new garage door at $300 – $1,100, depending on the size and quality of the door. Doing it yourself should take less than a day, and you'll save $300.
Manufactured Stone Veneer – 92.1%
Adding a true stone veneer to your home can cost you tens of thousands of dollars. But if you use manufactured stone, it's much less expensive but still provides durable siding and increases curb appeal.
The cost of manufactured stone veneer averages $5 – $8 per square foot, according to HomeAdvisor, so your cost will vary depending on the size of your home and how much you plan to cover.
As you can imagine, the process can be very technical, and if you make a mistake, it could lose some of its weather resistance. So again, the DIY Network recommends this to skilled homeowners only. With the right pace, you could finish the job in a couple of days.
Minor Kitchen Remodel – 72.2%
Depending on what you choose to update in your kitchen, the price tag and skills required can vary wildly.
For example, if you want to paint your cabinets, a gallon of paint costs $20 – $60, says HomeAdvisor, and you'll get two coats for each cabinet set for one gallon. While the process does require some skill, the learning curve isn't quite as steep as with other projects, and you could be done within a couple of days.
Alternatively, if you want to install new countertops, you'll pay $15 – $70 per square foot, depending on the quality of the material. Because of the need to be extremely precise with your measurements and installation, DIY Network recommends a high skill level for the job, and it can take a couple of days to complete it.
Entry Door Replacement – 65%
The cost of an entry door will be higher than an interior door because they'll need to withstand the elements and provide safety and security to you and your family.
If you purchase a prehung door, which includes all the necessary parts and is ready to install, it can cost you $200 – $3,600, depending on the style, quality and variety. For example, wood doors can be more than twice the cost of a steel door.
The project can be completed by even inexperienced DIYers, and it should take roughly half a day to complete it.
How To Calculate Sweat Equity
It's impossible to get an idea of how much your time and energy are worth until you've sold your home and calculated the proceeds. You'll take the final selling price and subtract the home's original price, the percentage of market value fluctuations and the cost of the materials for the project. The remaining amount is the value of your sweat equity.
To give you an example, let's say you bought a home in 2019 for $300,000. During the coronavirus pandemic, the value of your house grew by 17.2%, which was the median growth in listing prices year over year in April 2021, according to Realtor.com.
During that time, you invested $7,500 in materials to remodel some of your kitchen area. If you turn around and sell your home now for $375,000, here's how you'd calculate the value of your sweat equity:
- Multiply $300,000 by 117.2% to get $351,600.
- Add the $7,500 in material costs to get $359,100.
- Subtract that sum from the $375,000 sales price.
As you walk through these steps, the remaining amount equals $15,900, which is the theoretical value of your sweat equity.
The Bottom Line
Paying someone to make renovations to your home can increase its value, but if you have the time and skills necessary to do it yourself, you could retain more of the value the project adds to your home.
Instead of taking on all of them at once, though, be strategic by doing your research and gauging your abilities to find improvement projects that you can manage and that will help you maximize the return on your investment.
You can also figure out how much your house is worth to help you get a vague idea of what your sweat equity is doing for you.
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