Small Business Term: Negative Equity

by Greg DePersio

0 min read

Negative equity occurs when the money you borrowed to buy an asset, such as an office building, is more than the value of the asset. For example, say you borrowed $100,000 to buy an office building two years ago, and your outstanding mortgage is $80,000. The real estate market crashes and your office building is worth $70,000, which is lower than the amount of your outstanding mortgage. In this case, your office building is in negative equity.

When you have a property in negative equity, you need to pay off the difference between the loan and the property value before you can sell it. For instance, if the outstanding mortgage on your property is $80,000 but your property is worth $70,000, you need to come up with $10,000 to pay to your lender before you can sell the property.

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