Wisconsin Real Estate License Real Estate Math and Calculations 2 — Questions and Answers
Question 1: An investment property generates $36,000 in annual net operating income and is valued at $400,000. What is the capitalization rate?
- 8%
- 9% (Correct answer)
- 10%
- 11%
Correct answer: 9%
Cap rate = NOI ÷ value: $36,000 ÷ $400,000 = 0.09 or 9%.
Question 2: A rental property sells for $300,000 and generates $2,500 per month in gross rent. What is the gross rent multiplier using monthly rent?
- 8
- 10
- 100
- 120 (Correct answer)
Correct answer: 120
GRM (monthly) = sale price ÷ monthly rent: $300,000 ÷ $2,500 = 120.
Question 3: A buyer takes out a $200,000 mortgage at 5% annual interest. What is the interest charge for the first month?
- $750
- $833 (Correct answer)
- $1,000
- $10,000
Correct answer: $833
Monthly interest = $200,000 × 0.05 ÷ 12 = $833.33.
Question 4: A buyer pays 2 discount points on a $180,000 mortgage loan. How much are the points?
- $1,800
- $2,700
- $3,600 (Correct answer)
- $5,400
Correct answer: $3,600
One point equals 1% of the loan amount; 2 points = 2% × $180,000 = $3,600.
Question 5: A buyer's gross monthly income is $6,000. Their front-end debt-to-income ratio should not exceed 28%. What is the maximum allowable monthly housing payment?
- $1,200
- $1,440
- $1,680 (Correct answer)
- $1,800
Correct answer: $1,680
$6,000 × 0.28 = $1,680 maximum monthly housing payment.
Question 6: A property was purchased for $200,000 and sold three years later for $230,000. What is the total percentage appreciation?
- 10%
- 13%
- 15% (Correct answer)
- 20%
Correct answer: 15%
Appreciation = ($230,000 − $200,000) ÷ $200,000 = $30,000 ÷ $200,000 = 15%.
Question 7: Straight-line depreciation is applied to a commercial building valued at $300,000 (land excluded) over 39 years. What is the annual depreciation deduction?
- $5,000
- $7,692 (Correct answer)
- $7,800
- $10,000
Correct answer: $7,692
Annual depreciation = $300,000 ÷ 39 years = $7,692.31.
Wisconsin Real Estate License Real Estate Math and Calculations 2
An investment property generates $36,000 in annual net operating income and is valued at $400,000.
What is the capitalization rate?