What is "sweat equity"

Sweat \Sweat\, n. [Cf. OE. swot, AS. sw[=a]t. See Sweat, v. i.]

1. (Physiol.) The fluid which is excreted from the skin of an animal; the fluid secreted by the sudoriferous glands; a transparent, colorless, acid liquid with a peculiar odor, containing some fatty acids and mineral matter; perspiration. See Perspiration.

   In the sweat of thy face shalt thou eat bread.
   --Gen. iii. 19.

2. The act of sweating; or the state of one who sweats; hence, labor; toil; drudgery.
   --Shak.

3. Moisture issuing from any substance; as, the sweat of hay or grain in a mow or stack.
   --Mortimer.

4. The sweating sickness. [Obs.]
   --Holinshed.

5. (Man.) A short run by a race horse in exercise.

   Sweat box (Naut.), a small closet in which refractory men are confined.

   Sweat glands (Anat.), sudoriferous glands. See under Sudoriferous.

   sweat suit A suit comprising a top and trousers, having full arms and legs, used while performing physical exercises, esp. out-of-doors.

   Sweat equity The rights to a portion of ownership or profit, hypothetically owned by a worker who participated in producing a product, such as in improving a piece of real estate.

n. (context idiomatic real estate business English) An investment of labour, typically by the owner and often his or her family, usually in a small business or personal residence that increases the value of the business or residence.

n. interest in a building that a tenant earns by contributing to its renovation or maintenance

Sweat equity is a party's contribution to a project in the form of effort and toil, as opposed to financial equity such as paying others to perform the task. Sweat equity has an application in business for example where the owners put in effort and toil to build the business, in real estate where owners can do D.I.Y. improvements and increase the value of the real estate and in other areas such as an auto owner putting in their own effort and toil to increase the value of the vehicle.

The term sweat equity explains the fact that value added to someone's own house by unpaid work results in measurable market rate value increase in house price. The more labor applied to the home, and the greater the resultant increase in value, the more sweat equity has been used. The concept of sweat equity was first employed in the United States by the American Friends Service Committee in the Penn Craft self-help housing project beginning in 1937. The AFSC began using the term in the 1950s when helping migrant farmers in California to build their own homes. It is perhaps most popularly associated with a successful model used by Habitat for Humanity, families who would otherwise be unable to purchase a home contribute sweat equity hours 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 living in their new home, the family then make interest-free mortgage payments into a revolving fund which then provides capital to build homes for other families.

More recently sweat equity has been used to describe a party's contribution to a project in the form of effort -- as opposed to financial equity, which is a contribution in the form of capital. In a partnership, some partners may contribute to the firm only capital and others only sweat equity. Similarly, in a startup company formed as a corporation, employees may receive stock or stock options, becoming thus part-owners of the firm, in return for accepting salaries that are below their respective market values (this includes zero wages). The term used to refer to a form of compensation by businesses to their owners or employees.

The term is sometimes used to describe the efforts put into a start-up company by the founders in exchange for ownership shares of the company. This concept, also called "stock for services" and sometimes "equity compensation" or "sweat equity" can also be seen when startup companies use their shares of stock to entice service providers to provide necessary corporate services in exchange for a discount or for deferring service fees until a later date, see e.g. "Idea Makers and Idea Brokers in High Technology Entrepreneurship" by Todd L. Juneau et al., Greenwood Press, 2003, which describes equity for service programs involving patent lawyers and securities lawyers who specialize in start-up companies as clients.

Sweat Equity is a television show on the DIY Network that shows home owners performing most of the renovations to their house in order to save money and boost the value of their home. The show is hosted by Amy Matthews who is a licensed contractor and personal trainer.