Net worth tracking for real estate investors: debt, equity, capex, rents

According to the IRS, residential rental buildings are typically depreciated over 27.5 years under MACRS—an accounting rule that quietly shapes reported returns and taxable income for millions of small landlords (IRS Pub. 527, 946). In the same period, housing costs and financing swung hard: shelter inflation surged in 2022, and mortgage rates climbed to multi-decade highs before easing recently (Freddie Mac PMMS). The common misconception is that “net worth” for property is purchase price minus mortgage balance. The real picture blends debt amortization, equity changes from price moves, capex that becomes basis, depreciation schedules, and rent rolls that drive cash flow. This article shows a practical way to track those pieces in one view—so planning, taxes, and portfolio decisions line up.

Key Takeaways

1. Track equity the grown-up way: market value ± capex basis changes − depreciation taken − loan balance, with time-stamped assumptions. Price references and rates matter for context.
2. Separate capex from repairs: improvements generally increase basis and are depreciated; routine repairs are usually expensed. Getting this wrong distorts both returns and taxes.
3. Use rent and vacancy reality, not wishful thinking: fold in local vacancy trends and CPI shelter context when setting assumptions.
4. Debt is not static: amortization, rate resets, and refis shift risk and cash flow; note the terms that actually govern payments.

Equity Isn’t Just “Value – Mortgage”

Equity should capture basis, depreciation, and actual debt paydown—otherwise, net worth gets overstated.

Textbook equity is simple. Real-world equity isn’t. For a rental, basis starts with the purchase price (allocated between building and land), plus capital improvements (capex), minus depreciation taken. Residential buildings typically use 27.5-year straight-line under MACRS with a mid-month convention; land isn’t depreciated.

So what? A property that “went up $40,000” might show little change in economic equity if capex was large and debt stacked on top. A clean ledger shows: (a) market value reference, (b) basis roll-forward, (c) accumulated depreciation, (d) loan balance from the amortization schedule.

• Hypothetical: An investor buys a duplex for $600,000; allocates $480,000 to building, $120,000 to land; spends $30,000 on a roof (capex). Building basis becomes $510,000. Year-one building depreciation is about $18,545 under MACRS (mid-month, 27.5 years). Equity should reflect basis + price reference − accumulated depreciation − debt—not just “Zillow minus mortgage.” 

Capex vs. Repairs: The Line That Protects Your Numbers

Improvements typically increase basis and are depreciated; repairs usually hit current expenses.

Why it matters: misclassifying a new HVAC, roof, or unit renovation as a “repair” may inflate short-term results and understate taxable basis, which later bites at sale. IRS publications detail treatment and recovery periods; many improvements follow building life; some components may have different class lives under MACRS (see Pub. 946). 

A practical approach many owners use:

• Keep a Capex Log with date, description, invoice, and which unit/building.
• Tie each capex line to a depreciation schedule entry.
• Let day-to-day fixes (leaks, patching, small appliance parts) flow through repairs & maintenance.

This separation keeps NOI clean, supports Form 4562 entries, and sets up an accurate gain calculation at disposition. 

Rents, Vacancies, and the Reality Check

The Census Housing Vacancies and Homeownership (HVS) series tracks rental vacancy rates, which can help set realistic downtime and lease-up assumptions. In a tracking sheet, three small lines add discipline:

• Economic vacancy (lost rent days × daily rent).
• Concessions and credit loss (move-in deals, uncollected rent
• Trailing-12 (T12) rent vs. pro forma—and a one-line reason if they differ.

Tie this back to net worth by rolling retained cash and basis each month. If NOI is sliding while a price index shows gains, the ledger makes the tension obvious.

Debt: The “Silent Partner” That Changes Every Month

Rising and falling rates shift cash flow, refinance math, and exit options—even if property ops look steady.

Freddie Mac’s weekly PMMS shows typical U.S. mortgage rates, and the 2022–2024 run-up followed by easing underscores why tracking the rate, remaining term, and any prepayment rules is as critical as tracking rent.

Simple, high-signal fields:

• Amortization schedule live link (balance, principal/interest split next 12 months).
• Debt service coverage (DSCR) from actual T12 NOI, not a rosy pro forma.
• Refi watch note when LTV and DSCR cross a threshold that might be actionable.

So what? Net worth benefits from debt paydown, but cash flow can get pinched by resets. A ledger that surfaces both keeps decisions honest.

Price References: Use Them—Don’t Worship Them

House price indexes are context, not gospel. The FHFA House Price Index shows national and regional price moves; it’s a credible context for valuation drift, especially between appraisals. But unique assets diverge. Pull in an HPI trend as a guardrail and pair it with local comps or appraisals when the stakes are high. 

A concise structure works well:

• Primary value anchor: last appraisal or BPO.
• Secondary drift anchor: HPI trend for the metro/state.
• Haircut for uniqueness/liquidity (e.g., −5% to −10% for highly idiosyncratic properties).

That keeps the net worth line responsive without letting indices rewrite history.

A One-Page “Investor Ledger” You Can Keep Forever

• Property card: address, units, purchase date, basis split (building vs. land).
• Capex schedule: date, item, cost, class life tie-in; auto-feeds Form 4562. 
• Depreciation roll-forward: opening accumulated, current-year, closing. 
• Debt module: rate, term, balance path, covenants; DSCR from T12.
• Rent module: T12 gross rent, economic vacancy, concessions, credit loss; forecast vs. actual variance note (one sentence).
• Value anchors: appraisal/BPO, HPI drift overlay.
• Equity math: value – debt – selling costs estimate + cash on hand – accrued capex payables.

Want to see how rental properties change total-portfolio risk and liquidity alongside stocks and cash? Some investors try free analysis tools like PortfolioPilot.com to bring real estate, brokerage, and retirement accounts into one tax-aware, time-stamped view.

A simple rule tends to stick: treat every renovation like an investment memo—log the capex, update basis, and let depreciation run. It disciplines cash decisions and keeps the equity number honest.

The following article is provided for educational purposes only and does not constitute personalized investment, tax, or legal advice. Any examples are hypothetical and for illustrative purposes only. Investing involves risk, and outcomes may differ materially from any projections or scenarios discussed. Readers should consult with a qualified financial, tax, or legal professional regarding their individual circumstances