California Real Estate Practice Exam

An investor purchased a $140,000 four-unit apartment building. For a "Cap Rate" of 10%, what would the owner have to get monthly from each of the two-bedroom units?

1. $252

2. $272

3. $292

4. $342

The correct answer is: $252

To determine the monthly rent required from each of the two-bedroom units for a cap rate of 10% on a $140,000 property, we start by calculating the annual income needed to achieve this cap rate. The cap rate formula is: \[ \text{Cap Rate} = \frac{\text{Net Operating Income}}{\text{Property Value}} \] Rearranging this formula gives us: \[ \text{Net Operating Income} = \text{Cap Rate} \times \text{Property Value} \] Substituting the known values into the equation gives: \[ \text{Net Operating Income} = 0.10 \times 140,000 = 14,000 \] This figure represents the annual income the property must generate. To find the monthly income, we divide the annual income by 12: \[ \text{Monthly Income} = \frac{14,000}{12} \approx 1,166.67 \] Since there are four units in the building, we divide the monthly income by the number of units: \[ \text{Rent per Unit} = \frac{1,166.67}{4} \approx 291.67 \] Given the available options,