Investing metrics
Equity
The portion of a property you actually own — its market value minus what you still owe on it.
Glossary
Investing metrics
Equity is the share of a property’s value that is truly yours. You calculate it by subtracting the outstanding loan balance from the property’s market value: a home worth $400,000 with a $250,000 mortgage carries $150,000 of equity.
Equity grows two ways: as you pay down loan principal through amortization, and as the property appreciates. You can put it to work by selling, refinancing, or borrowing against it, though tapping equity adds debt and risk. It’s effectively the mirror image of your loan-to-value ratio — as one falls, the other rises.
Gross equity is a snapshot, not spendable cash
If a property is reasonably valued at $425,000, the first mortgage is $275,000, and a second lien is $25,000, gross equity is $125,000. The result changes with the valuation date, property condition, and every secured balance. An online estimate, tax assessment, appraisal, broker opinion, and actual sale price can each answer a different question.
Accessible or net sale equity is smaller than gross equity. A lender may apply combined loan-to-value limits and underwriting before permitting a new loan; a sale also has brokerage, transfer, legal, payoff, tax, repair, and closing costs. Do not put the full $125,000 into an acquisition budget as if it were cash in a bank account.
How landlord equity changes
Scheduled principal paydown can increase equity even if value is unchanged. Market appreciation or improvements can raise value, while depreciation in the everyday market sense, property damage, added debt, or unpaid secured charges can reduce it. Renovation spending does not guarantee a dollar-for-dollar value increase.
Use equity to understand leverage, refinance room, and a possible exit, but pair it with cash flow. A high-equity property can still have weak liquidity or negative operations, and borrowing against it converts ownership value into a secured repayment obligation.
Headline market equity is a balance bridge
A simple market-equity estimate is stated property value minus included secured debt. At a $600,000 value, with a $360,000 mortgage and $40,000 drawn HELOC, gross market equity is $200,000. Omitting the HELOC would overstate this figure by $40,000. The result changes with the value date and each payoff balance.
Equity is not automatically cash available
Market equity uses a current value estimate; book equity follows the entity’s accounting records; cash invested tracks contributions; and distributable cash depends on actual liquidity, obligations, reserves, and agreements. Sale proceeds may also be reduced by payoff amounts, other liens, transaction costs, taxes, concessions, and repairs.
Equity does not guarantee borrowing capacity, sale proceeds, return, or liquidity. Reconcile value to an appraisal or other defined source, debt to current statements or payoff evidence, and liens to appropriate records. Then show sensitivity: a 10% value decline from $600,000 to $540,000 would reduce this example’s gross equity from $200,000 to $140,000.