Sweat equity

From Free net encyclopedia

Sweat equity is a term used to describe the contribution made to a project by people who contribute their time and effort. It can be contrasted with financial equity which is the money contributed towards the project. It is used to refer to a form of compensation by businesses to their owners or employees. The term is sometimes used in partnership agreements where one or more of the partners contributes no financial capital. In the case of a business startup, employees might, upon incorporation, receive stock or stock options in return for working for below-market salaries.

The term can also be used to describe the value added to real estate by owners who make improvements by their own toil. The more labour applied to the home, and the greater the resultant increase in value, the more sweat equity that has been used. Some home improvement projects have the potential to create more value than do other projects. Wallpaper, floor coverings and paint can dress up an old residence and make it more appealing to buyers. Improvements to bathrooms and kitchens are the most valuable sources of additional value. An owner-built home offers the greatest opportunity to accrue sweat equity. In an owner-built home, owner-builders might perform only those parts of the construction for which they are qualified and allow experienced trades people to complete other parts of the project. An owner built home can allow residents to express individual preferences in their architectural choices.

In a successful model used by Habitat for Humanity, families who would otherwise be unable to purchase their own home (because their income level does not allow them to save for a down payment or qualify for an interest-bearing mortgage offered by a financial institution) contribute 500 hours of sweat equity to the construction of their own home, the homes of other Habitat for Humanity partner families or by volunteering to assist the organization in other ways. Once moved into their new home, the family makes monthly, interest-free mortgage payments into a revolving "Fund for Humanity" which provides capital to build homes for other partner families. Template:Realestate-stub