‘Fore you knock the war, try to put your dogs in his

Ten-and-a-halfs, for a minute-and-a-half

Bet that stops all the grinnin and the laughs

When you play the game of life and the win ain't in the bag

When your options is none and the pen is all you have…

Jay-Z, “Justify My Thug”

When you play the game of life and the win ain’t in the bag, you gotta find some way to get ahead. To make up for my mostly average income, I super charged my net worth by adding sweat equity in the evenings and weekends. Since 2016, I’ve quadrupled my net worth, with 60% of that being real estate equity, and much of the gain in other net worth coming from real estate income. I consider that income a sweat equity dividend. You fledgling entrepreneurs can do it too, with some effort and an internet connection.

“When Your Options is None”

If you’re an idiot like me and you got an overpriced humanities degree, then your options are close to none for financial freedom. I owed $50,000 for my undergrad and was making between $30,000-$40,000 per year as an editor and then English teacher. All four of my grandparents were dead and they had left me no money. Even more depressing, my parents’ personal balance sheets were worse than mine.

Salaries for my skillset and resume, without taking on additional school debt, were going to top out at $60,000. With those stats, I’d be lucky to have $500,000 in a worthless state pension for my retirement. Sweat equity allowed me to arbitrage my free time into long-term passive income and real estate equity that would be paid down monthly until it could be refinanced and redeployed into new income streams. I took the $0 per hour I was making on nights and weekends and turned it into six figures of wealth.

“Bet that stops all the grinning and the laughs”

You thought it was funny when you saw me at Home Depot seven times a day every weekend for three years, strapping drywall sheets to my Prius roof like a clown. We’ll see who’s laughing when I flex this balance sheet in your face and shake it around a bit.

Between 2016 and 2020, I purchased and rented out five houses, with a total of eight units: two single family houses and three duplexes. I recently sold a duplex, so I’ve only included four houses in my charts. I personally completed most of the work on the houses, which is how I invested my sweat equity. When the budget permitted, I’d hire something out, like painting an interior dripping with tobacco stains, in order to save time and lease to a renter more quickly. I also always hired out refinishing floors because I didn’t have the equipment, it would take a lot of time, I would do a shitty job, and the CAPEX cost over the life of the floors was minimal.

The chart below shows the total equity and debt for all of my properties combined as of 7/2020.

I took a balance sheet approach to my numbers and made “equity” my asset and “sweat equity” combined with “contractors” my liabilities. Sweat Equity + Contractors = Equity. Also, Equity + Debt = Value. The “contractors” category represents money spent on both materials and outside contractors. This name helps to show that it was an expense paid to somebody else, whether another contractor or a vendor. This quick formula is the simplest way I could find to show the estimated value of my time as represented by the current market value of my properties.

If I divide my sweat equity into a 40-hr work week, across four years, I made an average of $16.22 in my spare time, or an extra $33,750 per year. This is just below my average teacher/editor salary, so I nearly doubled my effective salary.

My ACTUAL time spent was closer to 15 hours per week, which raises the hourly wage to $43.27. Much more impressive headline, but my net position is the same, which is all that matters. I would have done the same work for $7.83 per hour. The point is that I magically created money out of thin air and actively changed my piss poor probable retirement outcome. Who’s laughing now?

The next chart shows a more detailed breakdown for each of my four properties.

Debts are relatively high because my mortgages are less than five years old. This doesn’t matter much, because every year my “equity” bars are going to grow as I pay down the mortgages. What’s even better is that most of the money I paid in the “contractors” bars came from the cash flow savings generated by my rental properties. What’s even nuttier is that my total out-of-pocket costs were less than $25,000, including down payments and payments to contractors. “How?!” You ask? Listen to all 300+ episodes of the BiggerPockets podcast, put 3.5% down on your first house hack, figure out what the BRRRR method is, and get to work.

“…And the pen is all you have”

If Jay-Z is to be believed, he sold crack in the projects until he was worth over $100,000. He later used that money to finance his first record, Reasonable Doubt. He then went on to sell gazillions of records and be worth a ton of money. His options were none and he still found a way out. My options weren’t as grim as Jay’s, but I still had to do a bunch of shit that I didn’t want to do. Sweat equity isn’t about laboring because you want to. It’s about using whatever you have to claw your way towards financial freedom and put yourself in a position to get whatever it is you are after. If you’re making $120,000 already, you can probably hire out your own work or simply invest in some mutual funds. If you’re like me, and nights and weekends are all you have, fire up the YouTube, pick up the hammer, and justify your thug.