For many, owning and building a custom home that fits your lifestyle is something that we all strive for. And, not only do custom homes offer full customization opportunities to match your style, but it also increases in value as you increase your equity and build it out more — as opposed to renting where you’re spending money every month and fixing it up without seeing anything for it by the end of your time there.
When considering the value of your custom-built home and its future, you might feel that it’s not — to use a somewhat corny term — your “forever home.” In that case, knowing that you plan to sell it down the line, you’ll want to maximize the return you get when you do sell.
Here, sweat equity can help you improve that. Future you will thank you. Here’s why:
Custom Home Sweat Equity & How it Works
The bottom line of sweat equity is super simple: putting in your own work to improve your home, AKA building a custom home.
Along with that, there’s the implication of increasing your home’s value in the process. In this regard, sweat equity refers to the process of improving that value, whether it’s open land, or a broken-down home that needs renovations.
When considering sweat equity for custom homes, or homes in general, the changes to your home don’t have to be super huge or intense; even simple upgrades like changing the flooring to something less dated — consider how many times you’ve seen a place improved by replacing a shag carpet — or improving small details can make your home more appealing and in return give more equity to the home.
Think about how much you enjoy being in a space that feels like it reflects a certain level of quality instead of past trends in homemaking or interior design — now consider that your appreciation for that improved quality is likely something that other potential homebuyers or custom home builders would agree with and be willing to pay for.
As for the financial logistics, it depends on how significant your undertakings are here; for some smaller jobs — maybe you’re just replacing some light fixtures or improving the quality of old, superficial materials — you’ll likely be able to do that without any significant financing moves other than paying out-of-pocket for materials.
On the other hand, if you have more ambitious sweat equity endeavors, you can use home equity for a cash-out refinance. (This is especially helpful for first-time homeowners or custom home builders).
Benefits of Sweat Equity in Your Home
Essentially, as you’ve put in your own time and energy to improve your home or build your custom home — both the quality, comfort, and any characteristics associated with that — make it more appealing if you decide to sell it down the line. If you do choose to sell, that means all else held constant it’ll be worth more to potential buyers.
Of course, while some people will just buy a property, gussy it up, and flip it, much of the impact of sweat equity comes simply from improving your own home to your own liking, or custom home building. If you do it right, you’ll improve your quality of life within your home while also increasing your profit if you sell it down the line.
After all, while working with a custom home builder will allow you to make certain decisions about what you want for your home, there can be certain limitations within their offerings — from there, you can personalize your home further to especially suit your tastes and build the equity further.
For some, even just minor aesthetic upgrades can significantly improve their sense of home and their life within it.
Furthermore, while this will improve your quality of home life while you live there and increase your income if you do sell your house later on, you potentially could also lower your taxes in the process. That is, due to some expenses associated with improving your home/ building your custom home through sweat equity, you can likely deduct some of them when filing taxes for that year and save there too!
Calculating It (hint: it’s super easy)
If you’re renovating your home or building a custom home not just for your own quality of life while living there but also with the understanding of how you could improve its value when selling it later on, you’ll likely want to quantify the value you’re bringing forward.
Begin with the price you paid for your home when buying or building. After you renovate, or build your custom home, it can be appraised where the value should be quantifiably improved as well. That increase in value should be reflected if you sell, meaning you’ve just earned X% greater income on your sale, minus the materials cost you put in, than had you not put in this work.
That being said, there are housing market fluctuations to consider — while you’ll be improving your home’s value all else held constant, there is the possibility of a market crash or other, less dramatic changes that mean you might sell for less or more than expectations.
In the end, building a custom home is first and foremost for you: the ability to own and live in a home that reflects your needs, tastes, and lifestyle. At the same time, you can also keep an eye on the future if you anticipate that you won’t live in this home forever.
Sweat equity, custom home building, and home improvements associated with it help accomplish increasing the equity of your home — you can improve your living circumstances and at the same time get more in return from your custom home down the line.
