The total rent for a four-plex is $4,000 a month. The annual vacancy rate is 10%. Additional income of $1,000 is earned annually from parking meter fees. Annual operating expenses are $11,000. If the appraiser determines the market area CAP rate at 10%, what is the market value of this property?

Rationale

$382,000

To calculate the market value of the property, we first need to determine the net operating income (NOI). The total annual rent is $48,000, the vacancy loss is $4,800, and additional income is $1,000. After deducting the operating expenses of $11,000, the NOI is $33,200. Using the CAP rate of 10%, we find the market value to be $382,000.

A ($382,000) CORRECT

This choice correctly reflects the market value calculated using the formula: Market Value = NOI / CAP rate. With an NOI of $33,200 and a CAP rate of 10% (0.10), the market value is $33,200 / 0.10 = $382,000.

B ($442,000) YOUR ANSWER

This choice is incorrect because it suggests a higher market value that does not align with the calculated NOI and CAP rate. For this amount, the implied NOI would be $44,200, which is not achievable given the annual rent, vacancy loss, and operating expenses provided.

C ($402,000) YOUR ANSWER

This option is also incorrect as it implies an NOI of $40,200, which again cannot be supported by the data. The calculations show that the actual NOI is $33,200, making this value unattainable based on the financial information given.

D ($332,000) YOUR ANSWER

This choice is incorrect because it would imply a lower NOI of $33,200, which is misleading. The CAP rate application here does not match the calculated NOI, indicating a misunderstanding of how to determine market value correctly.

Conclusion

The market value of the property is determined through careful calculation of the net operating income, factoring in total rent, vacancy rates, additional income, and operating expenses. With a correctly calculated NOI of $33,200 and a CAP rate of 10%, the market value comes to $382,000, confirming the accuracy of choice A while highlighting the errors in the other options.

The total rent for a four-plex is $4,000 a month. The annual vacancy rate is 10%. Additional income of $1,000 is earned annually from parking meter fees. Annual operating expenses are $11,000. If the appraiser determines the market area CAP rate at 10%, what is the market value of this property?

$382,000

Related Questions

Related Quizzes

How familiar were you with this question?

Report an Issue

Rate this Practice Test