An investor pays $500,000 for an eight-unit multi-family property. Each unit rents for $1,000 per month. If the management fee is 15%, what is the annual management fee?

Rationale

The annual management fee is $12,000.

To calculate the annual management fee, first determine the total monthly rent for all units, which is $1,000 per unit multiplied by 8 units, equaling $8,000 per month. The management fee is then 15% of this total monthly rent, resulting in an annual fee of $12,000.

A ($7,650) YOUR ANSWER

This figure does not accurately reflect the management fee calculation. To arrive at this amount, one might incorrectly apply the 15% fee to a lower monthly rent figure or miscalculate the total annual rent. Therefore, this choice is not valid.

B ($8,000) YOUR ANSWER

This amount represents the total monthly rent collected from all units ($1,000 per unit times 8 units). However, it fails to account for the management fee percentage. The management fee is a portion of this total, not the total itself, making this choice incorrect.

C ($12,000) CORRECT

This is the correct answer. The annual management fee is calculated by first finding the total monthly rent of $8,000 and then applying the 15% management fee, which results in $1,200 per month. Multiplying this by 12 months gives an annual management fee of $12,000.

D ($40,000) YOUR ANSWER

This value inaccurately suggests an excessively high management fee. It would imply an unrealistic monthly rent or management fee percentage that does not align with the given information. Thus, this option does not represent a valid calculation.

Conclusion

The annual management fee for the multi-family property is determined by calculating 15% of the total monthly rent from all units. The correct calculation leads to an annual fee of $12,000, highlighting the importance of accurately applying percentage calculations in real estate management scenarios.

An investor pays $500,000 for an eight-unit multi-family property. Each unit rents for $1,000 per month. If the management fee is 15%, what is the annual management fee?

The annual management fee is $12,000.

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