If you’re thinking about buying a fixer-upper or are interested in flipping homes, it’s important to understand sweat equity. This concept has to do with the time and effort you put into improving a property. Because it’s not based on dollar amounts, it's difficult to calculate. However, there are major pros and cons to investing your time as sweat equity in a home.
Pros of Sweat Equity Investment
Lower Upfront Cost - A home that needs repairs and improvements will cost less than a turnkey home. Therefore, you need less capital to get started on the investment. After the initial purchase, every improvement you make will add value.
Personal Satisfaction - For those who love to DIY, there are few better projects than improving a fixer-upper. All the labor you put into renovations and repairs will add value not only in the monetary sense but also in quality of life. If you live in the home while improving it, you’ll be able to enjoy the new upgrades before anybody else.
Cons of Sweat Equity Investment
Living With Renovation - Living in a construction zone is stressful and messy. If you choose to live in the home you’re improving, your sweat equity might not be worth the chaos. If you choose interim housing, this also means paying rent somewhere else—an expense that would not factor in to your total sweat equity. Major renovations take a long time, so make sure you consider how much of that time you’ll be living in the middle of it.
Trends and Demands Change - If you don’t work fast enough, you might miss certain trends at their peak. All the labor and time you put into installing that surround-sound speaker system or basement bar might not turn a profit if these trends are no longer at the height of their popularity. From countertop materials to paint colors to layouts, trends are always changing, and you may end up investing too much in something with limited returns.
Sweat equity is difficult to quantify but makes an enormous difference in your home’s value and price. Consider these benefits and drawbacks to determine whether your sweat is worth the equity.
About the Author
Angie Morales-Link
Military wife and mother of 2, Angie is a proud real estate agent in Clarksville, TN. She moved to Clarksville in 2016 when her husband's orders took them to Fort Campbell after completing nine years in Savannah, GA. She wanted to take her love for serving her community and renovating homes to a new level, so she decided to dive in head first into real estate. In the past six years, she has become an expert in VA home loans to help other military families, new construction homes and first time home buyers. She also invests in properties, flips, renovates, and runs Airbnb homes. She is ALL-IN when it comes to real estate and knows first hand the best approaches ensure your family makes a smart investment AND falls in love with Clarksville.
