You own a house that you rent out for $1,200 a month. The maintenance expenses on the house average $200 a month. The house cost $89,000 when you purchased it several years ago. A
Recent appraisal on the house valued it at $210,000. The annual property taxes are $5,001. If you
Sell the house you will incur $20,000 in expenses. You are deciding whether to sell the house or
Convert it for your own use as a professional oﬃce. What value should you place on this house
When analyzing the option of using it as a professional oﬃce?

Question

Quizplus · Accepted Answer

In order to determine the value of the house for use as a professional office, we need to calculate the net profit from renting it out and subtract the expenses associated with converting it to an office.

Net profit from renting:
$1,200 rent - $200 maintenance - $5,001 property taxes = $995 monthly net profit

Annual net profit: $995/month x 12 months = $11,940

Expense to convert to an office: $20,000

Value for professional office use: ($11,940 x 10 years) - $20,000 = $119,400

Therefore, the best choice is D) $190,000, as this provides a conservative estimate that takes into account the property's current value and potential for appreciation, while also deducting the conversion expenses and factoring in a 10-year net profit projection.

You Own a House That You Rent Out for $1,200