What is Sweat Equity and How Does It Create Value?

Sweat equity is a term used often when talking about the creation or building process. It’s about doing the work — the hard work — to bring an idea to life.

That work becomes an investment in the project. It can be an investment as real as money or land.

According to Investopedia, an online financial resource, sweat equity is the “contribution to a project or enterprise in the form of effort and toil. Sweat equity is the ownership interest, or increase in value, that is created as a direct result of hard work by the owner(s). It is the preferred mode of building equity for cash-strapped entrepreneurs in their start-up ventures, since they may be unable to contribute much financial capital to their enterprise.”

In his 2009 book If I Had A Hammer: Building Homes and Hope with Habitat for Humanity, David Rubel wrote, “Habitat affiliates require only a small down payment because few low-income families can afford more than that. Instead, partner families are required to contribute sweat equity. The phrase sweat equity refers to an ownership interest created by the sweat of a person’s labor.”

At Habitat for Humanity, sweat equity is a new homeowner investing in their home or one for another family. It’s not a form of payment, but an opportunity to work alongside volunteers who give their time to bring to life a family’s dream of owning a home.

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What is Sweat Equity and How Does It Create Value?

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