What Is Sweat Equity And How Can It Impact Your Home Value?

Making repairs, paying property taxes, and mowing the lawn are part of the responsibility of owning a home. All of these things also help maintain your home’s value. However, with some careful planning, you can begin to increase your home’s value with sweat equity. Whether you’re fresh to home ownership or an old pro, read on to learn more about sweat equity and how you can increase the value of your home without draining your bank account.

Equity is the difference between your home’s market value and what you owe your lender. Think of home equity as the amount of your home that you own. As you make payments on your mortgage, you reduce the principal loan balance, which increases your home’s equity.

The term “sweat equity” refers to the efforts a homeowner makes in adding value to their home that isn’t monetary in nature, typically in the form of labor and time. Home improvements can be expensive and inconvenient for busy families. Coordinating contractors, moving furniture, and dealing with the inconvenience of it all is a lot to take on. Then layer in the costs of labor and materials, making improvements might seem like a long-term goal you’ll get to after you win the lottery.

This is where sweat equity can help expedite your home improvement plans. By taking on projects themselves, homeowners can build sweat equity through DIY renovations and repairs to increase the value of their homes, at their own pace, carefully budgeting along the way. Rocket Loans^SM can help you with a personal loan to cover home improvement costs, so your sweat equity doesn’t break the bank.

You won’t know exactly how much your time and energy are worth until you’ve sold your home and calculated the proceeds, but you can estimate the value of sweat equity with the following equation.

Start with the current selling price and subtract the home’s original purchase price, the percentage of market value fluctuations and the cost of materials for the project. The remaining amount is the value of your sweat equity.

Let’s show our work with an example. Our friend Koi purchased a home in 2019 for $300,000. They were able to invest $7,500 in material to remodel their kitchen. Their home value grew by 17.2% during the time they owned the home. Koi was able to sell their home for $375,000. What is the value of their sweat equity kitchen improvement?

By investing just $7,500, Koi’s DIY kitchen renovation added an additional value of $15,900 to their home sale.

Painting

We’ve done the research and found a few DIY projects that provide the most return on investment (ROI). You’ll notice we’ve given each project a skill level of beginner, intermediate and advanced. Beginners will likely have had very little experience with power tools but can lift items, clean, sand, paint, etc. Those that are considered intermediate skill level would be for people who have done light maintenance and have a good understanding of how to safely operate hand tools. An advanced homeowner is someone who may have a home workshop with a variety of tools and is very comfortable operating power tools.

While we have confidence in you, make sure you feel confident in yourself and your skills. Your home is your largest asset, and you want to make sure it maintains and increases in value. Some projects seem simple on the surface, but a lot can be revealed during a renovation. If you’re not comfortable performing a task, call a professional for advice and guidance.

Interior Painting

Skill Level: Beginner

Investment: $100 - $300 Per Room 

Painting is a great project to start your DIY home improvement journey. Painting doesn’t require an incredible amount of skill or strength, but it can completely transform the look and feel of your home. Take the time to research best practices when painting an interior space and make a list of the necessary tools you’ll need for your project to get the job done. Properly cleaning and preparing the surface is vital to a great paint job. When taking on the challenge of painting yourself, you can work at your own pace, room by room until its complete. Depending on the size of the room, most can be prepped and painted in one day.

Exterior Painting

Skill Level: Intermediate

Investment: $1,771 - $4,342

Painting the exterior of your home is one of the best ways to boost curb appeal and ensure your home looks up to date and well maintained. Exterior painting is a much larger project than painting an interior space, that’s why this is considered an intermediate project. You won’t need to operate major power tools, but you will need to get comfortable using the tools of the trade. Depending on the height of your home you may need a ladder, lift or scaffolding to reach all areas of the home safely. Planning and preparation are key when painting any space, especially outside in the elements.

Do your best to protect landscaping with drop cloths and trim back tree branches that might scuff or scratch wet paint. Take extra care to ensure the surface you’re painting is prepped and clean. You’ll need to plan around the weather and accommodate for prep time, drying time, and any surprises you find along the way. Painting the exterior of your home could take a week or longer depending on the weather and how you plan to pace yourself.

Garage Door Replacement

Skill Level: Advanced

Investment: $754 - $1,586 

Installing a new garage door is a huge undertaking and is only recommended for those with an advanced knowledge of tools and general maintenance. That said, if you’re handy, a new garage door will likely give you a full return on your investment. Modern smart garage door systems have security features like remote open and close and Wi-Fi enabled security cameras that help you secure your home whether you’re there or not.

Installing a new garage door will likely take a full day to complete and you’ll want to have someone around to assist with heavy lifting and making adjustments. If you’re changing any structural parts of the garage, be sure to check with your building department to determine whether you’ll need a building permit.

Front Door Replacement

Skill Level: Intermediate

Investment: $200 - $3,600

Installing a new entry door not only adds to a home’s curb appeal, it can give you peace of mind knowing your home is secure. Exterior doors must withstand the elements like intense heat, freezing temps, and high winds so keep that in mind when choosing a door for your project.

Pre-hung steel door styles that include the frame and hardware range $200 - $500 and can be installed in an afternoon. Solid wood doors cost a bit more ranging $500 - $2,500 and will require a more advanced skill set to install. Any additional features you want to add like side lights or smart locks will add to the cost and increase the level of skill necessary to get the job done.

Re-Stain Wood Floors

Skill Level: Intermediate

Investment: $500 - $1,000

Re-staining wood floors can transform a dark and dingy space into a bright and airy place. You’ll need to sand the surface, apply stain, and follow up with a polyurethane or other protective coating. Sanding and staining will likely require the use of a floor sander or belt sander that you can rent from a local home improvement store. You’ll also be working with chemicals that will require special care when applying, so this is considered an intermediate level project.

Minor Kitchen Updates

Skill Level: Advanced

Investment: $5,000 - $60,000

Depending on the areas you choose to update, the cost of a kitchen renovation can vary greatly. When approaching a kitchen renovation, it’s helpful to list the overall goals of what you want to accomplish. Then choose the projects that you think you and your budget can manage. In 2021 the national average cost for a minor kitchen renovation was $26,214 with a resale value of $18,927. Meaning a minor kitchen renovation with new counter tops, appliances, flooring, and paint has an ROI of 72.2%, according to this 2021 Remodeling Cost vs. Value Report.

Landscaping And Gardening

Skill Level: Intermediate

Investment: $500 - $5,000

Depending on the size of your property, the location, and your ideas, landscaping can be a fun DIY project for the whole family. Planting flowers, trees, and shrubs is a great way to boost curb appeal and provide a place to relax and unwind in nature. The average landscape overhaul in 2021 cost $3,363. If you plan to DIY most of your project, you’ll like spend $1,326 - $5,656.

There’s no shame in hiring a professional to make your renovations a reality. But for those of us who love to get our hands dirty tackling home improvements, the sense of pride when a project is completed is almost as good as the increase in equity. Remember to be thorough in your research and keep good notes for reference as you prepare to maximize your return on investment.

Want more home renovation inspiration? Check out remodeling ideas for small homes and get some insight on how you can transform your cozy space in a snap!