How to calculate sweat equity??

Question

I understand that when you fix up a house it increases it's value. I am curious how you really determine how much it increases the value. Is it just by how much you spend on the improvements? or is there another calculation that I can do to make sure that I am getting out what I am putting in?

Jake S. · Answer

Hey Adam, Basically you want to take a look at comparable "after repair value" properties in the area to get an idea just how much value the property will gain.The quality of materials and extra work you do, will increase the value, but at a certain point you reach a point of diminishing returns, so you definitely need to find that sweet point

Jim K. · Answer

@Adam Ferro

Calculating after-repair value (ARV) is not as easy as it is often portrayed to be. Ultimately, what a property is worth is what someone will pay for it, and different people are willing to pay different amounts for any property. What might appeal to someone else might not simply not appeal to me, or worse, what someone else sees as a must-have feature I might see as a negative selling point. Never take anyone else's ARV calculation for face value, especially people who have something to gain from an inflated ARV. You'll find that most wholesalers trying to make money in what they do have absolutely zero shame about more than doubling what would be to someone with actual skin in the game a realistic ARV assessment.

Calculating the value of sweat equity is a whole different beast. I came into this business traveling a significant distance to draw down a teacher's salary. In addition, I also knew the skills that I would be gaining would be useful elsewhere. So starting off, I felt it was reasonable to imagine that my time spent renovating wasn't worth more than $10/hr, a typical general apprentice's starting wage in my area at the time. Then, when the property was done, I would go back, rerun my value numbers, and see what the property had actually ended up paying me for my efforts. I was almost always pleasantly surprised.

I think that's a good place to start if you're determined to go down the handyman self-education route. I haven't regretted it.

Adam Ferro · Answer

@Jake Stuttgen Thank you! being confident in the calculations is posing to be difficult.

Adam Ferro · Answer

@Jim K. That makes me feel a lot better about it. Luckily, My oldest brother is a contractor so we work along side him in the repairs around the house. He is substantially cheaper than other local general contractors and I am learning a ton however the process is very slow since all of us have full time jobs as well. That is a great way to look at it thank you Jim for the info!