Glossary
Equity (home equity)
Equity is the value of a property minus what you owe on it. A $250,000 house with a $180,000 loan has $70,000 of equity.
Equity grows three ways: you pay down the loan, the market rises, or you add value with a rehab. Investors focus on the third because it is the one they control.
Lenders also look at equity. It sets how much you can borrow against the property, and it is your cushion if values fall.
How to calculate it
Equity = current value minus all loan balances. For a fresh rehab, use the ARV backed by solid comps.
- ARV
- $200,000
- New loan at 75% LTV
- $150,000
- Equity left in the property
- $50,000
- All-in cost (purchase, rehab, costs)
- $160,000
- Equity created (ARV minus all-in)
- $40,000
Run The Deal scores equity created of 20% of all-in as good and 10% as marginal by default.
Equity is not cash
You can only get equity out by selling or borrowing against it with a cash-out refi. Lenders cap the loan at a share of value (LTV), so some equity always stays in the property. Each refi also has closing costs, so pulling equity out is never free.
What to watch
- An optimistic ARV creates equity on paper only.
- Selling costs eat into equity. A sale often costs several percent of the price.
- Partner deals split equity too. See sweat equity.
See equity created on your deal with the BRRRR calculator.
Keep going
Free tools
Run your next deal before you write the offer.
Run The Deal is in an invite-only beta. Ask for a spot and we will email you when it opens.