How is personal net worth calculated with rental properties?

[Robert Jones]

Whats up BP. I have a quick question about net worth and REI. Are rental property mortgages calculated in net worth? For example, If I purchase a 100k rental property for 20k down and take on an 80k mortgage, would my net worth after this purchase be -60k? And with similar purchases would I would go deeper and deeper in the negatives for net worth? Or is only the 20k equity counted? Am I looking at this wrong? Thanks.

[Ravi P.]

Originally posted by @Robert Jones:

@David D Painter @Victor N. So equity increases your net worth but mortgages do not decrease it?

@Marcus Johnson 20k equity (asset) - 80k mortgage (liability) = - (negative) 60k net worth

 @Robert Jones

Based on the example you gave your net worth/equity would be 20K.  You can calculate net worth by taking Value of the Asset minus the Liabilities. In this case it would be the 100K - 80K = 20K. 

If the Value of the real estate appreciated to 105K, then your net worth would be 25K.  105K - 80K= 25K.

Also, If the value increased to 105K and you paid the mortgage down to 78K and your net worth would be 27K.  

This does not take into account the cash flow. Money in the bank is an asset and would increase your net worth. 

Hope this helps.