Olivia is interested in purchasing a two-unit residential building as an investment. Appraiser Luke researches recent sales in the area and finds a similar though slightly nicer duplex in another neighborhood that just sold for $420,000 where each tenant pays $1,400/month. The two tenants in the building Olivia wants to buy each pay $1,200 per month. Using the gross monthly rent multiplier, what might be an acceptable offer for Olivia to make?

approximately $360,000

Explanation:

to determine the gross monthly rent multiplier of a similar duplex, we divide the similar duplex's value by its monthly rent:

$420,000 / $1,400 = 300

Now we just multiply 300 by the expected monthly rent of the duplex Olivia wants to buy = $1,200 x 300 = $360,000

$360,000 is the approximate amount that Olivia should pay for this duplex

Answer: The options are given below:

A. $420,000

B. $360,000

C. $180,000

D. $192,000

The correct option is B. $360,000

Explanation:

First, we will find the Gross Monthly Rent Multiplier thus:

Divide sales price of the apartment by the total monthly rent

= $420,000 / $2,800 = 150.

Then multiply the total monthly rent of the building Olivia wants to purchase by the Gross Monthly Rent Multiplier to find the value thus:

$2,400 x 150 = $360,000.

Olivia would be willing to pay $360,000 for the building.