Which of the following best describes equity in real estate?

Equity in real estate refers to the ownership interest that an individual has in a property, calculated as the difference between the property's current market value and any outstanding debts owed against it, such as mortgage loans. When a homeowner builds equity, it indicates that they own a portion of the property free of debt.

This concept is fundamental in real estate as it provides insight into a homeowner's financial position regarding the property. If a property appreciates in value, or if the homeowner pays down the mortgage, the equity increases, providing potential financial benefits if the property is sold or refinanced.

In this context, the other choices do not accurately describe equity. The current market value of a property represents how much the property can be sold for; the total amount owed on a mortgage reflects the liability rather than the ownership interest; and rental income pertains to cash flow generated by the property, not the value of the property itself or the equity position held by an owner. Thus, the definition that focuses on the difference between market value and outstanding obligations correctly illustrates the concept of equity.