The maintenance expenses on a rental house you own average $200 a month and property taxes are $4,800 annually. The house cost $238,500 when you purchased it four years ago. The house was recently appraised at $247,600. If you sell the house you will incur $12,900 in costs. What value should you place on this house should you opt to use it as your professional office?

Question

Quizplus · Accepted Answer

To calculate the value to use the house as a professional office, we need to calculate the net operating income. 
Net Operating Income (NOI) = Revenue - Expenses
The revenue is assumed to be $0 as there is no mention of rental income. 
Expenses = Maintenance expenses + Property taxes = $200 * 12 + $4,800 = $8,400
NOI = $0 - $8,400 = -$8,400 (negative indicates a loss)
Therefore, the value of the house as a professional office should be based on the recent appraisal value minus the costs of selling the house.
Value = Appraisal value - Selling costs = $247,600 - $12,900 = $234,700
Hence, the best choice is C) $234,700.

The Maintenance Expenses on a Rental House You Own Average