Equity explained please.

[Alfredo Villegas]

Sorry I’m sorry but I still don’t get what equity is. I’ve been interning for a big investor in Las Vegas and I’m motivated by what real estate can do for me and my future. Just a question that I’m to embarrassed to ask. I need a simplified version “for dummies” unfortunately. I’m grateful for any and all questions!

[Scott Mac]

Hi Alfredo,

Equity:

Alfredo just bought a house for $100,000 with a bank loan of $80,000 and a cash down payment of $20,000.

Alfredo has $20,000 in equity in the house.

1 year later the value of the house (if Alfredo wanted to sell it --based on comps-- is $120,000).

Alfredo now has $40,000 in equity. $20,000 cash + $20,000 rise in value.

2 years later the Real Estate market drops and the house value (based on comps is $80,000).

Alfredo now has Zero Equity in the house (but he can still rent it out).

Hope that helps.

Good Luck!