Through careful management, a property manager increases an apartment building's monthly income from $3,000 to $3,500. With a cap rate of 8%, what is the increase in value?

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Study for the Washington Real Estate Fundamentals Rockwell Exam. Utilize flashcards, multiple choice questions with hints and explanations. Prepare thoroughly for your real estate career!

Multiple Choice

Through careful management, a property manager increases an apartment building's monthly income from $3,000 to $3,500. With a cap rate of 8%, what is the increase in value?

The important idea here is that under the income approach, value roughly equals NOI divided by the cap rate. When NOI goes up, the value rises proportionally by the amount of the NOI increase divided by the cap rate.

In this problem, monthly income rises from 3,000 to 3,500, a monthly increase of 500. Annualize that: 500 × 12 = 6,000 more NOI per year. With a cap rate of 8% (0.08), the increase in value is 6,000 ÷ 0.08 = 75,000.

So the value increases by 75,000. The other options would require different annual NOI increases (for example, 50,000 would imply only a 4,000 annual NOI increase), which isn’t the case here.

Through careful management, a property manager increases an apartment building's monthly income from $3,000 to $3,500. With a cap rate of 8%, what is the increase in value?

Study for the Washington Real Estate Fundamentals Rockwell Exam. Utilize flashcards, multiple choice questions with hints and explanations. Prepare thoroughly for your real estate career!

Through careful management, a property manager increases an apartment building's monthly income from $3,000 to $3,500. With a cap rate of 8%, what is the increase in value?

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