Alabama Real Estate Practice Exam

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Prepare for the Alabama Real Estate Exam. Utilize flashcards and multiple-choice questions, each coupled with hints and explanations. Ace your upcoming test!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

What is the capitalization rate used to express?

The interest rate of a mortgage
The appreciation rate of a property
The ratio of net operating income to property asset value
The percentage of annual rental income to the total value of the property

The correct answer is: The ratio of net operating income to property asset value

The capitalization rate is used to express the ratio of a property's net operating income to its asset value. This is typically used in real estate investment to determine the potential return on investment and the value of a property. Option A is incorrect because the interest rate of a mortgage refers specifically to the cost of borrowing money from a lender, not the rate of return on a property. Option B is incorrect because appreciation rate refers to the increase in value of a property over time, not its rate of return. Option D is incorrect because it refers to the percentage of rental income to the total value of the property, while the capitalization rate looks at operating income specifically.