Modern Real Estate Practice, 18th edition At the end of this unit, the student will be able to: Use a simple calculator Compute fraction, decimal and percentage problems Explain capitalization rate Discuss percentage leases Work out measurement problems Compute prorations and mill rate problems Section 8: Real Estate Math Review To calculate the monthly mortgage payment (not including insurance and taxes) you can use this formula: r = monthly interest rate (divide your annual interest rate by 12 to get this number), n = number of payments ( usually, this is 30 years). Fractions which have the same value, even though they may look different. For all cost/price per square foot/acre/front foot problems when converting measurements to a cost or value per unit, divide the cost/value by the unit of measurement. Two important real-world calculations that you'll see on the real estate exam are mortgage calculations and proration calculations. Net operating income The total income of a property minus all operating expenses. Private mortgage insurance (PMI) is required if the buyer makes a down payment below 20% of the homes purchase price. The interest rate on the loan is 9%. Subtract the money out for debt service. Your email address will not be published. Shows how many parts are being counted. Investment An investment is the legal purchase of something that is not consumed today but will be in the future to create profit. Sellers proceeds of sale That's our answer. Any repairs the investor put into the property would also impact how much you make on the sale. She learns that a property there just sold for $550,0000, and had frontage on the lake totaling 550 feet. With these numbers we can calculate how much is due at closing. Multiply if the line between the figures is vertical to get the unknown, and divide if the line between the figures is horizontal to get the unknown. At what price must the property sell for (round to nearest dollar if needed)? As with other means of measuring things, the volume of a space or object can be expressed in a number of different ways. Between our real estate prep course, real estate practice exams, and video lessons there is no better way to prepare for your real estate exam. In order to do that we take the selling price and multiply it by the commission percentage. Down payment/amount to be financed Below is a list of the measurements and conversions you will need to master. So $500,000 x .25 = $125,000. The commission check is handed to the broker which is $16,800. Okay so first things first we have to find the total commission received by the firm. Tina agrees to list her property on the condition that she will receive at least $47,300 after paying a 5% broker's commission and paying $1,150 in closing costs. So if you purchase a property for $250,000, then sell it later for $280,000, your ROI would look like this: Keep in mind that this is gross income on the sale. The second, $1,000 a month, the third $2,225 a month, and the fourth $2,500 a month. Simply by dividing the top number (numerator) by the bottom number (denominator). Simple Calculation: If a tenant renting 2,000 square feet is responsible only for its share of property taxes, and property taxes for the entire 10,000-rentable-square-foot building are $50,000 per year, then this tenant must pay (2,000 / 10,000) * $50,000 = $10,000. Which means there is a 15% down payment. So if the purchase price is $100,000 and the buyer is using the traditional 20% down payment, you will have: In an investment property, the cap rate is the amount the investor makes and takes home as income on the property. So the agent would receive $5,250. This is the amount spent on the entire mortgage payment, interest, and principle. So the annual property taxes on the property is $2,160.00. Assuming there are no extra fees, and the broker is representing the buyer and the seller, what was the final sales price of a property if the commission rate was 6% and the broker received $24,000. Since the homeowner has the widow tax exemption we have to subtract $1,000 from $84,000. Weve seen our students get results time and time again so were proud to stand behind our content. Here is a list of real estate math definitions that are essential for both obtaining your real estate license and taking the real estate exam. Rate: 4.75%; Purchase Price: $325,000 .0475 x 325,000 = $15,437.50. Then take today's price of $91,000 and divide it by 65% which gives us $140,000 (our original cost). From there we have to take the sales price and subtract it by the commission percentage. Calculators are based on decimal points rather than fractions. Marissa buys a property and closes on July 1st. In this case, they give us the rate and what the broker received so we have to adjust the steps. The mill rate is the amount of tax payable per dollar of the assessed value of a property. So if you know the sales price or value, you can use this equation to find out the approximate square footage of a property. Most, if not all, real estate agents make money through commission. So in our case it would be 850,000/55,000 which equals 15.45! Now that weve covered pretty much everything you need to know you may be thinking what is the best place to get started? The buyer already paid $8,000 in earnest money so you have to subtract that to find exactly how much is due at closing. For that, just convert it (by multiplying by 12). 1. Calculating the cap rate would look like this: ROI tells you how much you make on a particular investment when you sell it. And yes, you can use a calculator on the real estate exam in most states! So in this case $500,000 x .03 = $15,000. r = Rate of Interest per year in decimal; r = R/100 A property's market value is $750,000. So take $24,000 x .45 = $10,800. Number of square inches 144 = number of square feet, Number of square feet 144 = number of square inches, Number of square inches 1,296 = number of square yards, Number of square yards 1,296 = number of square inches, Number of square feet 9 = number of square yards, Number of square yards 9 = number of square feet, Number of square feet 43,560 = Number of acres, Number of acres 43,560 = Number of square feet, Number of acres 640 = Number of sections (also Number of square miles), Number of sections (or square miles 640 = Number of acres, Number of cubic inches 1,728 = # of cubic feet, Number of cubic feet 1,728 = # of cubic inches, .10 means 1/10 as well as 10 parts per hundred as well as 10%, .01 means 1/100, as well as 1 part per hundred as well as 1%, .001 means 1/1000, as well as 1 part per thousand as well as .1%, .0001 means 1/10,000 as well as 1 part per ten thousand as well as .01%. An example is if a woman wants to buy her first home. Assuming there are no extra fees, and the broker is representing the buyer and the seller, what was the final sales price of a property if the commission rate was 5.25% and the broker received $8,000 (Round to the nearest cent). The math looks like this: Gross Rent Multiplier = Property Price / Gross Rental Income. The easiest way to break this down is by an example. The interest rate on the loan is 2%. That $24,000 is what your broker receives total. $200.00 Monthly Tax Paid $72,000.00 Total Tax Paid $83.33 Monthly Home Insurance $30,000.00 Total Home Insurance $28,178.67 Annual Payment Amount $845,360.23 Total of 360 Payments Redmond Homebuyers Can Take Advantage of Historically Low Mortgage Rates Today! The cheat sheet has definitions and formulas so its perfect to study with: Print that out and make sure to take it on the go, that way you can be as prepared as possible. A propertys market value is $280,000. An agent was to receive a 35% share of a 3% gross commission. Which means the annual rate of appreciation is 5.2%. Understanding real estate math and doing real estate math problems can not only give you an advantage when you become an agent; but make the real estate exam much easier! The assessment rate for the house is 25% with 55.75 mills and a $25,000 property tax deduction. Real estate is, Read More Inside Look: A Day In The Life Of A Real Estate AgentContinue, Kyle Fractions tell us how many parts the whole is divided into, as well as how many of those parts we are working with. Real Estate Exam Scholar takes flashcards a step further with its $39 all-in-one online preparation tool. The lot would cost $60,000.00. Gross Rent and gross income multipliers, Thank you. To find the original cost first you have to subtract 100% (total cost) by 35% (total depreciation) which gives us 65% (today's value). In this post, we covered a variety of real estate math topics, math formulas, and basic arithmetic skills that will need to know to pass the real estate exam and have a successful career. Gross Rent Multiplier is the ratio of the price of a real estate investment to its annual rental income before accounting for expenses such as property taxes, insurance, and utilities. The final sales price for the home is $555,000. Now lets say our local tax rate is 50 mills, which means its $50 per every $1000 or .05 or 5%. However, ultimately the price will depend on the above factors. The mill rate or millage rate is the amount of tax payable per dollar of the assessed value of a property. In the case of , 14 = .25. Own it. t = Time Period involved in months or years, Gross Rent Multiplier = Property Price Gross Annual Rental Income The first and easiest is to take the commission check and divide it by the price the property sold for. So for instance, if the annual interest rate were 3%, then the monthly rate would be 0.25%. 11/27/2021, Your email address will not be published. So do your research or contact your local tax assessor for complete details on property tax exemptions. A property's market value is $500,000. For example, in the fraction , the bottom number called the denominator, tells us the item has been divided into 4 parts; the top number, called the numerator, tells us we are working with 1 of those 4 parts. Finally, we can multiply our converted mill rate by the new (new) assessed value. That $27,900 is what your broker receives total. In order to do that we have to take the market value which is $2,250,000 and then multiply it by the assessment rate which is 15%. All points on the same meridian have the same longitude. A lot in a subdivision costs $300,000. 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