In terms of real estate, “sweat equity” is understood as value-enhancing improvements made by homeowners. These improvements might be made to increase the immediate value of the home for re-sale, or to increase the usability, enjoyability, and value of the home to the owners as they live there.
Investing sweat equity into a home is a great option for anyone who can’t afford a more updated, expensive home but has the time and know-how, or willingness to learn, to make value-added improvements.
Does this mean you need to take out a large loan to upgrade your kitchen to match the sprawling houses of the rich and famous? Not at all! Simple, lower-cost but high-effort improvements offer the highest return on investment. In fact, investing in the wrong types of renovations might even devalue your home to prospective buyers. So, before you grab a hammer or paint brush and max out your credit card at the home improvement store, here’s how and where you’re most likely to add value to your home.
Projects that add the most value:
- Updating kitchen and bathrooms (painting cupboards, resurfacing counter tops, installing stainless steel appliances)
- Replacing or power washing exterior siding
- Updating interior paint
- Rejuvenating landscaping
- Updating/Installing trim and crown molding
- Refinishing/Replacing flooring (to higher-quality materials)
- Installing/Updating light fixtures and ceiling fans
Less-profitable and possibly value-damaging projects have one of three flaws: they’re expensive, they focus on a space not used every day, or they reflect too much of the owners’ personal taste (think unusual or extravagant fixtures, finishes, paint colors, hobby spaces, etc.).
Projects not guaranteed to add value:
- Converting part or all of the garage into a family room or hobby space
- Turning a spare bedroom into a home office
- Screening in an outdoor room
- Conducting a deluxe upgrade in anything but an upscale home
In addition to adding value to a home, sweat equity can empower homeowners and make them more knowledgeable about their house and how best to maintain its value in the long-term.