New Jersey Real Estate Practice Exam Practice Question
An apartment building has a potential gross income of $72,000, but a vacancy rate of 10%. Operating expenses average $500 per month. The owner of the building expects a capitalization rate of 8%. What is the value of the property?
Correct Answer: B
Rationale: To determine the property value, first calculate the effective gross income by adjusting for the 10% vacancy rate. This results in an effective income of $72,000 - ($72,000 × 0.10) = $64,800. Next, subtract the annual operating expenses, which total $6,000 ($500 × 12). Thus, the net operating income (NOI) is $64,800 - $6,000 = $58,800. Finally, the property value can be calculated using the formula: Value = NOI / Capitalization Rate. Therefore, $58,800 / 0.08 = $735,000.
Options A, C, and D do not align with this calculation, as they reflect incorrect interpretations of income or expenses.
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