Creating Sweat Equity in your next home

You can create sweat equity in your future house. But the biggest gains don’t come from sweating. Those “homerun” gains come from the employment of a “Strategy”. The Strategy needs to be well articulated BEFORE you sign an Offer to Purchase also known as a Contract to Purchase, or in New Hampshire a Purchase and Sale Agreement.

You can sweat all you want but if it’s not done strategically, you’re wasting your perspiration droplets.

Sweat equity needs to be strategic.  Since we’re not John Henry (no, not the Red Sox owner – I’m referring to the American folk hero steel-driving man), nor do we want a fate similar to his at the end of a whole house remodel, we need to pick a lane.

I’ll explain how to do that, but first we need some background.

Did Sweat Equity Die?

• The Silent Generation installed their own decks on Saturday mornings and then in the afternoon they mortared their own masonry while listening to strike calls and bat cracks through a transistor radio hung by a small vinyl hand strap on a nearby door handle.

• Boomers enlisted their Silent Generation father and uncles to re-roof their first house while they mixing lemonade and slicing garden tomatoes for cold-cut sandwiches in prep for the lunch break.

• Gen X used the equity from the house (which they bought for $129,000) to pay for granite counter tops and a Sub-Zero fridge.

• Millennials watched YouTube videos about sanding floors and then transported rented sanders from the Home Depot in their Corolla.

• Gen Z soaked in IG Reels about how to “Dopamine Décor” their apartment and subscribed to therapy to help them cope with rent prices.

This article will detail the scary truth behind the evaporation of sweat equity and why the average age of homeownership just spiked to age 38.

Coincidentally, in “dinosaur years” 38 was the same millennium of the volcanic activity that led to dinosaur extinction. Are young homeowners being pushed into extinction?

How do I create sweat equity in my next home?

Creating sweat equity requires you to define your “unique ability” to apply to your future home before you decide buy it. This may sound foreign to you. As most sweat equity guidance show photos of bare studs and a sledge hammer while conjuring images of reno’ing Michael Keaton in Mr. Mom holding a chainsaw.

Defining your unique ability is a much smarter (and easier) way to build sweat equity than trying to find a home with “great potential’. I refer to this as the “strategic way” to building sweat equity.

For example a house with a blown off roof may represent great potential – but since you’re not a roofer nor are you making a cash offer, it’s not for you.

On the other hand if you’re an internet super sleuth like you attended Xavier’s School of Hacking for Gifted Youngsters, you may be able locate an off market deal before the vulture realtors do. Think internet research isn’t real work? Even super sleuth Cloie from the series 24 would sweat when the stakes got high.

Let’s break it down.

Every successful real estate developer has a “secret sauce”. No successful developer or flipper wanders into a string of deals without having a particular competitive advantage.

If you want to make the most of your sweat equity then you’ll need to re-think the topic and act like a real estate developer even if it’s only for your first home.

Chip Gaines of the home renovation show Fixer Upper admits his marriage to Joanna Gaines created a partnership that led to creating equity in their rentals.  Ultimately Joanna’s talent in design and staging led them into doing home flipping.

Both Chip and Joanna identified their unique ability and leaned into it with everything they had. Hint: the mega store Target also discovered Joanna Gaines eye-for-design and picked up her brand Magnolia Home with their own Target specific line of Hearth & Hand^TM.

It is possible that some people have TWO unique abilities (for example my dentist is great at his day job but he also builds miniature replica three mast schooners – with full rigging – inside of glass bottles with small openings as his way of relaxing).

Joanna Gaines in the book Capital Gaines also had a nearly obsessed ability to manage the books, budget, finances, payable and receivables for their co-created small business, a 2^nd Unique Ability if you will.

In this article I’ll provide you with firsthand examples of where clients of GoldCoast have leveraged their unique ability to successfully launch a real estate project. These examples may help you see that your talent doesn’t need to come from willingness to endure dust while swinging a sledgehammer.

Furthermore you don’t always need to actually sweat to gain sweat equity in your home.

Sweat Equity comes in many forms

Let’s explore this. And be sure to stay for the advice at the bottom – it ties back in with Chip and Joanna Gaines.

Enjoyable Sweat Equity

Therefore if you actually enjoy using a spray bottle to soak old wallpaper and find it satisfying to generate the longest furl of sun-bleached and 3nd-hand-smoke sogged wallpaper, then you’ll love working on homes last updated in the 1970’s! Scour online photos for the bedrooms in homes no one bothered to update into the current century.  They left some Meat-On-The-Bone. Just for you. I say this in jest. Sort of.

But a little more realistic, let’s say you love to paint. It’s just oh-so-satisfying to you (personally I resist the prep-work, but once I psych myself up to the point of mixing fresh paint, I usually miss meals because I’m coating trim work or rolling out another wall).

Your future house needs to the one with a baby-blue-solid-colored bedroom, aqua-green bathroom, and dark oak kitchen cabinets with brass hardware. The house other people walk out of without that “must have it” motivational vibe.

My personal sweat equity story:

I became the king of “what’s underneath” (or what’s above, or what’s behind).

My first 300% victory started with me peeling back outdated linoleum. That linoleum was attached to plywood hadn’t been invented yet at the time the property was built. So I crowbarred it up. Underneath? I hit gold. Solid hardwood blond maple boards. Boom! I ordered kitchen cabinets in the same maple wood and the final product was design magazine worthy.

In another case – poking through a plaster ceiling for wiring, curiosity got the best of me.

A mirror allowed me to see that two feet of space above the ceiling was reserved for piping of early state-of-the-art GAS LIGHTING. Also stuffed in the ceiling was remnants of an 100-year-old HVAC system that relied on a rotating finned roof turret vented into pipes to create draft flow (all disconnected and long ago antiquated).

But the walls in the upper ceiling section reveled hidden exposed brick.

I nearly passed out with surprise.

40 trips (with full barrels) to the dumpster later, that ceiling and those walls were GONE. What happens to the value of a 3 bedroom condo with 7 foot ceilings when it gets transformed to 9 foot ceilings? Compliment those higher ceilings with exposed acid-washed brick-walls washed with custom recessed lighting?

It triples.

Especially since I was the first person in the 36 unit condo building to expose the brick (or even know about it).

Now back to you, the painter.

What about that cracked vinyl sided ranch? You know the one with zero curb appeal. It’s racked up 137 days on the market? The siding has to go. And re-siding is a vision that wouldn’t do this 1930’s beauty any justice. Perhaps the prior owner got talked into “siding over” paint peeling on quartersawn cedar clapboards. Well now you, the house painter, just found your “happy place”. On a step ladder for all of next spring.

GoldCoast Tip:   Make a list of home repairs that you would enjoy doing – keep an eye out for houses that fit those needs.

Non-sweat Equity

I joked above about being an internet sleuth. But to quote former president Joe Biden, “that’s not a joke”.

One of our clients closed on a new house in August. His internet sleuthing led him to an opportunity (contacting the estate of a recently deceased 105 year childless widow).  He took a risk and knocked on a door of a strangers house (actually he called first). He introduced himself and long-story-short he struck up a deal to buy it.

The buyer was rewarded with a first swing bat-to-ball hit.

Then two good things happened because of that door knock.

1. The buyer also skipped the game “tryouts”. Tryouts – where a buyer bids on a home but doesn’t win the bid – typically last 12 or more months. One of our current clients has been bidding seriously (but not urgently) for 47 months.

And the bonus?

• He eliminated paying inflated costs on the property. Inflated costs arise by adding a sales commission (typically 5%) payable to the listing broker.
• Another example of dodging potential inflated costs is the elimination of a competitive buyer. In any bidding situations there are always buyers with more financial resources than you have. Had one of those more (financially) resourceful buyers entered the equation our buyer may have been outbid. Thankfully our buyer made up his lack of financial resources with better internet sleuthing resources by purchasing directly from the estate.

There are easily another dozen examples of (non) Sweat Equity. Can you think of any?

Motivation for creating Sweat Equity.

At the forefront of your mind should be the Capital Gains exemption. This exemption could give you a tax free pay loft of up to $20,833+ per month. This is worth repeating. If you hit a homerun and work hard (sweat or not) then you could receive compensation of up to $250,000 a year for two years. This income is FEDERAL TAX FREE (for a married couple if they time the property flip in the 2 year minimum).

Cutting the line of standard wealth creation.

We’ll explain more about this deeper in the article. But you may be well compensated for the work you are about to undertake. In the best case scenario you could earn $520 per hour … tax free.

Let that sink in.

Finish your 40 hour workweek. Then go to your 2^nd job and toil over that part time job, for a boss you don’t like, making $17 an hour.

Or alternatively (and happily) spend every evening with your partner, ripping the radial arm saw, putting together crown molding in an 0oh-so-satrisfying way and watching your home transform by the day. Then deposit the sale proceed check for $400,000 get a free pass on it from the IRS.

Selecting the right home (based on your Unique Abilities)

Just like not every person you date gives, or receives, a diamond engagement ring – not every home will be worth your Sweat Equity.

If your goal is to increase your future home’s value (your equity) by infusing gallons of sweat – then it is imperative you select the correct house to undertake your two year (or more) project on.

For instance an antique home basement with a dirt floor may never be “design magazine worthy”. This is especially true if you can’t get the basement stabilized and healthy. It’s hard to select modern paint colors with earthen air infiltrating the air ducts.

Yet identifying your unique ability will start you down the correct path for greater potential.

Reminder: Creating sweat equity requires buying the correct home to create sweat equity with.

OCD? Fastidious cleaner. Did you test your skills at a car detailing small business after college? Then 2^nd hand appliances for your future home are your game. Save thousands on a kitchen remodel. Where everyone else has to order their stove and then wait for appliances –  you’re pulling a Thermador dripping with unknown liquids off Facebook Market place on a dolly. For free.

Using your unique ability to create sweat equity.

I call this “reverse engineering” the sweat equity. It’s one reason why licensed contractors do so well at flipping houses.

I’ll use Fred who owns a backhoe for an example. Fred discovers a house for sale with a long sewer line that has collapsed. The collapse sewer line has impacted the sale of the home for weeks now, going into months. Then Fred comes along. He literally says, What’s the big deal. That’s not a problem for me! He knows he can do that repair cheaper and easier than anyone else. It’s almost like he hit the lottery.

But now reverse engineer that scenario. Instead of stumbling across the listing with a collapsed sewer pipe, Fred seeks out his future home WITH a collapsed sewer pipe. Fred hires his niece to set a Google Alert for “Home for sale sewer pipe”. While he’s comfortable living in the newly renovated, cleanly flushing home, his Google Alert is watching for his next home.

An electrician searching for a house to purchase gets excited when he sees that the electrical panel contains old-style fuses and non-modern circuit breakers. He knows that he can save $20,000 by doing the work over a few evenings or a single marathon weekend.

In fact, I’ll take it one step further. Most elections would prefer to buy a house with an outdated electrical system.

A painter may ponder an untouched pre-war bungalow in Amesbury, complete with horsehair plaster with a discerning artists eye. She may view it as a literal canvas for a color wash, dry brush, or venetian style décor delight.

Plumbers or kitchen designers look at a GE pink built-in stove from the 70’s as an opportunity.

Other potential buyers run away from the mess – but you lean in.

What is your unique ability in real estate?

Did you work landscape construction during the summer in college and keep in touch with your former boss? If so, the house lot where the prior owners wrestled with washout erosion during their entire tenure now becomes an instantly solvable problem for you. You see a place for the foundational placement of interlocking block walls to create two terraces. And you know you can do this without breaking the bank.

AirBnB and VRBO as a specialty

If you navigate AirBNB like a champ, then you eyeball your future home (with a detached ADU) with dollar signs dripping like saliva from your mouth.

Bonus Ability tip – the person with the inner-suppressed design-talent wins. Property within 5 miles of the beach? Then stand a surfboard, amongst rattan furniture and adorn an open porch with a ceiling fan – adorn the property a cutesy gold-leaf-lettered nameboard: Driftwood Delight. Then watch the summer booking months shade to “Unavailable” while you sip your cold brew.

Your Relationships can build equity in your home purchase

Does you Father-in-Law sell replacement windows wholesale to the trades? Well now you’re more than half-way to de-lead-ing this post-war built colonial that is hitting the market for only the second time since built.

Granted it’s unlikely you are HVAC tech. But what if your recently graduated nephew in the field is just starting out full time. He has weekends available to help and knows where the supply house to order equipment on a contractors discount. And you can help him with his new truck payment in return.

Is being a People Person a unique ability?

If your lane is humor and sociability, that means your God-given talent should be applied to finding an off market deal. By walking your dog in your desired destination neighborhood (a pet-less current client has borrowed one) every evening you’ll meet people and befriend them. It will ultimately lead to conversations. Those conversations lead to unmet needs (yours being a house in their neighborhood to purchase and theirs, privacy concerns about publicly listing their home for sale).

If you get into a conversation like this take it slow. Don’t lunge. Take it over many conversations. It’s like pre-baiting an unloaded mouse trap. And call me for coaching on this topic that we have had dozens and dozens of successful “at bats” on this topic.

Newsflash for folks timid about sales – sales is nothing more than empathetic problem solving. Seller (or buyer) has a problem. Buyer (and seller) brings solutions that work for each party.

It’s not sales.

It’s problem solving.

If you don’t think that example is sweat equity, think again.

Anytime you don’t need to hire a professional to do work on the project you have just created sweat equity.

That future invoice you’re displacing? Whether it was to be paid to a person who has yard signs in the trunk of her BMW — instead of a ladder on the roof racks of their truck — it’s still savings.

Because their job attire is dress shoes (and not work boots) that does not detract from the savings you are about to experience ($100 saved = $100 in equity created).

Other talents that could equate into significant sweat equity could be having access to a trades person in the family who is willing to train you to do the work your future home needs.

Any edge can help you. Any edge WILL help you.

Summary Take-Away Pointers:

• Remember, if it’s fun it’s not work.
• Your sweat equity type work may be professional. It doesn’t’ always mandate your physical performance leveraging a crowbar.
• Like Chip and Joanna, figure out your specialty/ability and lean into it. If you have not defined that ability. Stop the process and back up. You can’t do it all. And you can’t do nothing. Go and find your secret sauce BEFORE YOU START BIDDING.
• Commit to owning a piece of the project that will provide you with “Your Equity”. Is the future home on a busy street and could benefit from privacy fencing? And you’ve previously rented a two-person gas-powered post-hole auger? Taking that home from double-yellow-striped street scene (for the past 40 years) to private shaded yard oasis — what’s that worth in future equity?
• Exercise patience. Employ strategy. ACT on every opportunity – each opportunity is practice. Failed deals serve a purpose – never forget this.

Resources:

Curious about exploring your Unique Abilities deeper? There’s a workbook for sale that helps you discover these about yourself. There’ also a program and workshop that goes pretty deep. See more  with the hyper link if you’re up for the self improvement lessons – Unique Abilities.

Clifton strength finders is also a good tool to find what you are good at (and not so good at!).

Totally lost on where to start? Check out our article titled: What is the First Step to Buying a Home?