Equity

Equity = Property Value - Total Debt. On a $500,000 property with a $350,000 seller note and a $60,000 second note, equity is $90,000. Equity grows through: principal paydown (amortization), forced appreciation (NOI improvement), and market appreciation. In seller-financed acquisitions, equity is often created rapidly through forced appreciation - improving the property's NOI and thereby increasing its cap-rate-implied value. At refinance, the gap between the new loan amount and the seller note payoff is the equity captured by the buyer.