27. An investor pays $500,000 for an eight-unit multi-family property. Each unit rents for $1,000 per month. If the management fee is 15%, what is the annual management fee?
Answer: C
The annual management fee is $12,000.
To calculate the annual management fee for the multi-family property, we first determine the total monthly rental income and then apply the management fee percentage.
A) $7,650
This option is incorrect. To arrive at this figure, one would need to miscalculate the rental income or the management fee percentage. The total monthly income from all units is $8,000, leading to an annual income of $96,000, which cannot yield a management fee of $7,650 at 15%.
B) $8,000
This option is incorrect as well. This amount does not represent the correct management fee derived from the property's total rental income. At a 15% management fee on the annual income of $96,000, the correct calculation shows that the management fee would be significantly higher than $8,000.
C) $12,000
This option is correct. The total monthly rental income from the eight units is $8,000 ($1,000 per unit). Over a year, this amounts to $96,000. Calculating 15% of $96,000 results in an annual management fee of $12,000.
D) $40,000
This option is incorrect. A management fee of $40,000 would imply an unrealistic fee percentage of over 40% of the total rental income. Given the standard fee of 15%, this figure does not align with the calculations based on the provided rental income.
Conclusion
The correct answer, $12,000, is derived from accurately calculating 15% of the annual rental income of $96,000. All other options either underestimate or miscalculate the management fee based on the established rental income, confirming that they are incorrect.