What Is Sweat Equity?

Homeownership and mortgages come with all sorts of ways that you can spend or save money.

At this point in your timeline, you may be looking to buy your first house, sell your home, or maybe you’re refinancing your mortgage. With all of these things, you’re also probably taking home equity into consideration, but what about your “sweat equity”?

Read on to learn more!

What Is Sweat Equity?

Sweat Equity: What Is It?

Simply put, sweat equity refers to a person or company that puts some work or contribution toward an expensive project or business venture.

It’s essential to keep in mind that sweat equity usually doesn’t involve money of any kind. It stems from a source of physical and mental effort over a given period of time.

Now, you’re probably wondering: where is sweat equity usually found? Sweat equity is talked about in real estate and the construction industry. It is also found in the corporate world, especially when startups are involved.

Entrepreneurs and beginning business owners know a ton about pouring blood, sweat, and tears into their projects or business ventures.

How It Works

As you’ve probably pieced together from the previous section, the term “sweat equity” came about from the sweat someone put into a project. So when people talk about sweat equity, they are referring to the physical labor and mental effort, and time they put into a venture.

Sweat equity can be used to lower someone’s cost of homeownership. You see this a lot with real estate investors. These kinds of people flip houses for profit, but they use sweat equity to their advantage by doing repairs/renovations on their own or with a team of family or friends. All of this is done before the house goes on the market.

Paying crews of contractors or painters can get extremely expensive, so a DIY approach like sweat equity can help you save a lot of money when it comes time to sell.

Sweat equity is also important in the corporate world because people need to create value from the efforts of another person or another company.
Many startups are typically strapped for cash, so owners and employees accept salaries that are below the market value so they can have a stake in the company, which they hope to eventually profit from if the business is sold years later.
What Is Sweat Equity?

Sweat Equity Examples

The first example of sweat equity is something many people are familiar with: the relationship between a landlord and their tenants. The landlords do the maintenance work (physical labor), so building owners and landlords may have an equity stake in the property.

Another good example is an organization like Habitat For Humanity. HFH homeowners must put hundreds of hours of work into both their own homes and their neighbors’ homes. Only then are they allowed to live inside the house. The houses become more affordable because they were hand-built, and it gives the residents a sense of pride and accomplishment.

What Is Sweat Equity?

Overall

Is sweat equity needed in the search for a home? For most people, it is not.

Unless you want to be very hands-on with your house or you’re a house flipper, there really isn’t a need for sweat equity.

Of course, you’ll end up putting in your own version of sweat equity over time through renovations or new coats of paint, but it shouldn’t have that big of an impact on you and your family in the long run. Unless you want it to.

To learn more about sweat equity or homeownership in general, get in contact with a First Option Mortgage of Indianapolis representative today!

Get in touch with a friendly loan originator now to get answers to your questions, and/or to get the ball rolling on your mortgage approval!

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Get in touch with a friendly loan originator now to get answers to your questions, and/or to get the ball rolling on your mortgage approval!

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