Could some one explain sweat equity.

[Steven J.]

I've heard the term sweat equity plenty of times before and I understand it very basically as working your butt off in exchange for discount on the price of the home. But, I really don't understand how a deal is written up and negotiated under these terms. For example, if I bring up the value of a home $20k by putting my time into fixing it up how do I then secure the deal? I've raised the property value 20k and how do I secure the rest of the property?

[Matt Devincenzo]

@Steven J. I think you may have confused a statement that was likely written here on BP somewhere to mean that "sweat equity" would be part of a purchase agreement of sorts. I imagine you're talking about a rehab and you read something like:

"You find a rehab property and then get a partner to fund the purchase the home, and you perform the sweat equity to get the property rehabbed for sale."

Something like that or similar?

The others above are correct in their description of sweat equity. And no you really can't write the "sweat equity" portion into a purchase contract. What you would be doing is partnering with someone to get a deal done, likely because you don't have the cash to do it.

So looking at the example above, you find this property and get it under contract. Now you need money obviously and shop it around and find your money partner. What you would want is to get a JV/partnership agreement drawn up.

That is what dictates how your sweat equity is figured into the deal not the purchase agreement. It would lay out how any proceeds would get split between you and your money partner. And the sweat equity you provide could be as simple as having found the deal and then managing the contractors for the rehab not that you actually need to perform the repairs yourself.