Faro Labs / Tools / Equity growth calculator
Equity growth calculator
Rentals build wealth two ways at once: the value rises and the tenant pays down your loan. See how your equity grows year by year from appreciation and principal paydown.
In 10 years, $146,164 comes from appreciation and $49,977 from loan paydown: wealth built on top of your $85,000 down payment, before any cash flow.
Equity year by year
Property value, remaining loan balance, and the equity between them.
| Year | Value | Loan balance | Equity |
|---|---|---|---|
| 1 | $437,750 | $336,376 | $101,374 |
| 2 | $450,883 | $332,501 | $118,382 |
| 3 | $464,409 | $328,355 | $136,054 |
| 5 | $492,691 | $319,177 | $173,514 |
| 10 | $571,164 | $290,023 | $281,141 |
How rental equity compounds
value = purchase price × (1 + appreciation)ʸᵉᵃʳˢ
loan balance = amortized down each month by rent
Equity grows from two independent engines. Appreciation lifts the numerator, the property's value, and compounds on the full price, not just your down payment, which is the leverage effect that makes real estate powerful. Principal paydown lowers the denominator, the loan, funded by your tenant rather than out of pocket. Neither requires you to add cash after closing.
The honest caveat
Appreciation is a projection, not a promise. It's the least certain part of any real-estate return and can go negative in a downturn. Principal paydown, by contrast, is close to guaranteed as long as the loan is serviced. A conservative analysis leans on paydown and cash flow, and treats appreciation as upside rather than the plan.
Equity questions
What are the two sources of equity growth?
Appreciation, as the property's value rises, and principal paydown, as rent reduces the loan balance. Your down payment is the starting equity, and these two forces grow it over the hold: appreciation on the full property value, paydown on a fixed amortization schedule.
Is appreciation guaranteed?
No. Property values fall as well as rise, and appreciation is the least certain part of a real-estate return. Principal paydown is far more reliable because it happens on a fixed schedule as long as the loan is paid. Model appreciation conservatively, 2 to 3 percent is a common long-run assumption, and treat anything above it as a bonus.
Does this include cash flow?
No. This tool isolates equity, which is value minus loan balance. Cash flow is separate money you collect along the way. Combine equity growth with cumulative cash flow for a total-return picture; the cash-on-cash calculator handles the income side.
Every calculator
See equity and cash flow together.
Faro projects equity over your whole holding period next to the income: paste a listing to see both.
Estimates for analysis and educational use only: not financial, investment, tax, or legal advice. Verify every number independently before making a purchase decision.