I did the update through the custom recovery OTA zip. Kept data, but lost root and custom recovery. I used Wug's Nexus Root Toolkit and chose the Root and Install Custom Recovery option. It does require connecting your original N7 cable to a pc, but provides a way to install all the proper drivers to do so. You will only lose data if you have to unlock your bootloader. After Wugs, I want into custom recovery and installed Chainfire's SuperSu v1.43 to regain root. (It has been updated to v1.51 now, I think).