Monthly gross rent is $5,200. Apply an explicitly annual-basis gross-rent multiplier of 10.0 after converting rent to twelve equal months. What value results?
Correct Answer
C) $624,000
5200×12×10 = 624000. Common errors: applying the annual multiplier to monthly rent gives $52,000; annualizing the result a second time gives $7,488,000; dividing by the multiplier instead of multiplying gives $6,240.
Why This Is the Correct Answer
Option C is correct because $5,200 x 12 = $62,400 annual rent, and $62,400 x 10.0 = $624,000. An annual multiplier must be applied to annual income, the same level of income from which it was derived. Converting first keeps the basis consistent.
Why the Other Options Are Wrong
Option A: $6,240
Option A, $6,240, comes from dividing by the multiplier instead of multiplying: $5,200 x 12 / 10 = $6,240. The correct value is $62,400 x 10.0 = $624,000.
Option B: $52,000
Option B, $52,000, applies the annual multiplier to monthly rent: $5,200 x 10 = $52,000. The rent must be annualized first, giving $5,200 x 12 x 10 = $624,000.
Option D: $7,488,000
Option D, $7,488,000, annualizes a second time: $5,200 x 12 x 10 x 12 = $7,488,000. The rent should be converted to annual only once, giving $624,000.
Same period, then multiply
Annual multiplier needs annual rent, monthly multiplier needs monthly rent; convert once if they differ.
How to use: Use this when a rent multiplier and rent are stated on different periods.
Exam Tip
Check the multiplier's stated basis before calculating; the size of the multiplier often hints whether it is monthly or annual.
Common Mistakes to Avoid
- -Applying an annual multiplier to monthly rent
- -Annualizing rent more than once
- -Dividing by the multiplier
Concept Deep Dive
Analysis
This question tests matching the income period to the multiplier's basis. The multiplier is annual, so monthly rent must first be converted to annual rent and then multiplied by 10.0. The distractors come from skipping the conversion, doing it twice or dividing instead of multiplying.
Background Knowledge
Gross rent multipliers can be based on monthly or annual rent, and the multiplier's size depends on that choice. Residential forms often use a monthly multiplier, while an annual multiplier must be applied to annual rent.
Real-World Application
An appraiser extracts annual gross rent multipliers from sales of small rental buildings. For a subject renting at $5,200 per month, the appraiser annualizes the rent to $62,400 and applies the 10.0 multiplier.
More Income Approach Questions
Which model describes yield capitalization of property benefits?
An appraiser is valuing a duplex. A market survey of recent duplex sales reports prices at 10.8 times potential gross income, with stabilized vacancy and credit loss of 10% of PGI and no other income. The subject's rent schedule is unavailable, but the property manager's records show collected income of $54,000 a year, in line with market rent and the 10% market loss. What value is indicated?
The subject property is a fourplex with annual EGI of $72,000 and operating expenses of $28,800. Of those expenses, $18,000 is fixed and $10,800 varies in direct proportion to EGI. The owner's annual mortgage payments are $21,000. An appraiser projects that EGI will fall 10% because of higher vacancy. What is the projected NOI?
Annual NOI available for debt service is $168,000 and total annual mortgage principal and interest debt service is $120,000. What is NOI ÷ debt service?
Annual PGI is $250,000 and combined vacancy and collection loss is explicitly 12% of that same PGI base. There is no other income. What annual EGI remains?
Annual PGI is $360,000 and combined vacancy and collection loss is explicitly 8% of that same PGI base. There is no other income. What annual EGI remains?
Annual PGI is $640,000. Combined vacancy and collection loss is 6.25% of PGI. There is no other income. What EGI remains?
An appraiser is updating a prior appraisal of a triplex with potential gross income of $60,000 and no other income. The prior appraisal used vacancy and credit loss of 5% of PGI, and a new survey of competing rentals indicates 8%. The operating expenses of $24,000 are property taxes, insurance and contract services that do not vary with occupancy, and the market overall rate remains 7.5%. By what percentages do effective gross income and indicated value decrease?
Annual potential rental income is $600,000 and vacancy loss alone is $36,000. What percentage of potential rent does that loss represent?
In the subject's market, lenders on fourplexes have lowered their typical loan-to-value ratio from 70% to 60%. The annual mortgage constant remains 5% and the equity dividend rate remains 10%. The subject's NOI has not changed. How does this affect the overall rate indicated by the band of investment and the indicated value?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam