Investment (Property) 3

Question 1

What is the loan-to-value (LTV) ratio?

Accepted Answer

The loan amount divided by the property's appraised value

Answer

LTV compares the loan size to the property value, indicating lender risk.

Question 2

Why is real estate often considered a hedge against inflation?

Accepted Answer

Property values and rents tend to rise with inflation

Answer

As prices rise, property values and rental income typically increase, preserving purchasing power.

Question 3

What is depreciation in the context of investment property taxes?

Accepted Answer

A deduction reflecting the building's wear over time

Answer

Depreciation lets investors deduct the cost of the building over its useful life, lowering taxable income.

Question 4

What does 'house hacking' typically involve?

Accepted Answer

Living in one unit while renting out others to offset costs

Answer

House hacking means occupying part of a multi-unit property while renting the rest to cover the mortgage.

Question 5

Which factor most directly affects a property's rental demand?

Accepted Answer

Location and proximity to jobs and amenities

Answer

Location, jobs, schools, and amenities drive tenant demand more than cosmetic factors.

Investment Practice Test