Illinois Real Estate Practice Exam

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Study for the Illinois Real Estate Exam. Prepare yourself with comprehensive quiz assessments that involve multiple-choice questions, offering hints and insights for each question. Equip yourself for success on your upcoming exam!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

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What is the value of an apartment building using the income approach if it generates a gross income of $60,000, operating expenses of $10,000, and a capitalization rate of 8%?

500,000
525,000
600,000
625,000

The correct answer is: 625,000

To determine the value of the apartment building using the income approach, you'll start by calculating the net operating income (NOI). The net operating income is found by subtracting operating expenses from the gross income. In this scenario, the gross income is $60,000, and the operating expenses are $10,000: Net Operating Income (NOI) = Gross Income - Operating Expenses NOI = $60,000 - $10,000 = $50,000 Once you have the net operating income, you can calculate the property value using the capitalization rate. The formula used is: Value = Net Operating Income / Capitalization Rate Given that the capitalization rate is 8% (or 0.08 when expressed as a decimal): Value = $50,000 / 0.08 Value = $625,000 Therefore, the correct value of the apartment building, according to the income approach, is $625,000. This aligns with option D. This calculation exemplifies how the income approach is utilized in real estate appraisals, focusing on the income-generating capability of the property, which is fundamental in evaluating investment properties.