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.
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.
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.
Cheryl Caldwell has been a licensed Realtor in the Greater Newburyport area since 2006 and has been a consistent multi-million dollar producer. Her prior 15-year experience as a commercial and residential real estate paralegal in Boston and then Newburyport has proven a valuable asset as she assists her clients, both buyers, and sellers, in navigating through the paths to buying or selling real estate. She prides herself on her hands-on approach to each and every client, property, and challenge that comes her way. Working extensively with builders and developers on new construction as well as renovated homes has provided her with a skill set that benefits her clients every day.
