I grew up in a family that was a huge believer in sweat equity. My family managed their own rental and did 90% of repairs themselves. My husband and I were a chip off the block. Our first home was a foreclosure, and we practically gutted the entire thing from the inside out. We redid bathrooms, painted the house, redid cabinets, relandscaped the lawn … I could go on forever!
Over the three-and-a-half years of our home ownership/rental adventure I have learned many things. I think one of the biggest lessons I’ve learned is my own definition of sweat equity.
What is Sweat Equity?
Sweat Equity: Contribution to a project or enterprise in the form of effort and toil. Sweat equity is the ownership interest, or increase in value, that is created as a direct result of hard work by the owner(s) — Investorpedia
In the beginning, this definition, to me, meant buying an undervalued asset, fixing it up, and renting it out. My hard work (or in most cases, my spouse’s) only in the physical sense created this increase in value.
As time moved on, my definition of sweat equity changed.
My New Definition of Sweat Equity
As investors, the area where we first lived didn’t make sense. We stumbled on to this amazing neighborhood in Charleston by pure accident. The key in this area was short sales. We learned a lot by trial and error but it was still worth while. While they were tedious, annoying, and nothing but short, they had their moments. They were a great benefit financially.
We stumbled by pure accident onto self-management. Although I didn’t want to self-manage at the beginning, after trying it out we realized that it was exactly the right thing for us. In the end, it became the thing that has added the biggest value in all of our real estate strategy.
Over time I have decided that sweat equity can be anything that adds value. Although we love gutting homes, and hope to sometime soon gut another one, we have done equally well doing short sales combined with self-management. My new sweat equity definition includes just that.
Don’t limit yourself to the traditional way of adding value. Also, don’t underestimate the value of hard work in other areas. There are tons of stories about the pains of self-management, and while we have had many moments (the worst when we had to hire a lawyer), it was still a drop in the bucket compared to all we had financially gained by self-managing.
How do you add value? Is your definition a traditional one or is it like me — a little crazy?0