Real Estate Math Flashcards
To familiarize yourself with various formulas related to real estate regarding commissions, appreciation/depreciation, square footage, Gross Income, Operating Income, etc...
Variable Lease Costs (CH 9)
NEW index / OLD index X cost per sq foot.
ex: A building rents for $15 per square foot with an index of 1.5 The index increases to 1.8 What is the adjusted rental rate?
NEW -1.8 Old 1.5 Cost Per sq ft $15
1.8/1.5 = 1.2
1.2 x $15 = $18
new rental rate is $18 per square foot.
Calculating Acreage (CH 10)
Important to note that 1 sq. mile =640 acres.
To find total acreage in a specified piece of land take the TOTAL ACREAGE of 640 and divide that by the bottom number of each fraction in the legal description.
ex: The SW 1/4 of the NE1/2 of the SE1/4 of a certain section contains how many acres?
Always start with the total acreage of 640
(There are 3 fractions so we will divide 640 by the first bottom number, then that total by the second bottom number and finally that number by the third bottom number)
640/4/2/4
640/4=160...160/2=80...80/4=20
OR
640/4/2/4
There are 20 acres in that section of land.
EQUITY (CH 12)
Current Market Value - Mtge Debt = Equity
EX: The current market value of a home is 312,000. The remaining mortgage on that home is 264,000. How much equity does the owner have in their home?
$312,000 - $264,000= $48,000
LTV (Loan to Value) (CH 12)
Loan Amnt. / Value (sale price) = LTV
REMEMBER- the purchase price or VALUE is equal to the loan amount PLUS any down pmnt.
Discount Points (CH 12)
Used to estimate Lender’s YIELD
Each discount point is equal to 1% of loan amount. 1pt=1%
Each point paid will increase the yield by 1/8 of 1% so…to estimate the lender’s yield, you must add 1/8% to the stated Mortgage Rate.
EX: A buyer obtains a mortgage at 5% plus 3 points.
5% + 1/8 + 1/8 + 1/8
5% + 3/8 =.375 (divide 8 into 3=.375)
5% + .375 = 5.375%
Q: If a lender wanted to increase their yield by 1 full point, how many discount points would need to be applied?
Remember 1 point increases the yield by 1/8 of 1% sooo….
in simple terms..1 point increases by 1/8, 2 by 2/8, 3 by 3/8 etc…so…8/8= 1
in order to INCREASE YIELD by 1 full point we would need to apply 8 discount points to the rate.
EX: A buyer obtains a mortgage at 6% plus 8 points.
6+ 1/8+1/8+1/8+1/8+1/8=1/8+1/8=1/8
6 + 8/8 or 1
6 + 1 =7
Housing Expense Ratio (HER) (CH 12)
- calculated by FHA lenders using gross monthly income to determine allowable percentage ratio to qualify for loan.
Uses monthly housing expenses for PITI added to the MIP (monthly mtge Premium) and divides that by the applicants gross monthly Income
PITI + MIP / Gross Monthly Income = HER
FHA Allows up to 31% HER
PITI + MIP / Gross Monthly Income = HER
EX: A prospective borrower has a projected PITI of $800/month and an MIP of $175. Their gross monthly income is $3400. What is their HER
800 + 175 / 3400
975 / 3400
.29
This person has a qualifying HER
Total Obligations Ratio (TOR) (CH 12)
This uses the PITI and MIP in addition to to Long term obligations (LTO’s) including credit cards, car payments, student loans, child support payments divided by the gross monthly income to get the TOR
PITI + MIP + LTO / Mthly Gross Income = TOR
FHA allows up to 43% TOR
PITI + MIP + LTO / Mthly Gross Income = TOR
ex: A prospective borrower has a projected PITI of $900/month, an MIP of $160, a student loan payment of $150 and a car payment of $200. Their gross monthly income is $3350 What is their TOR?
900 + 160 + 350 (car plus student loan) /3350
1410 / 3350
.42
This person has a qualifying TOR
Effective Gross Income (EGI) (CH 16)
PGI - V&C + OI = EGI
Net Operating Income (NOI) (CH 16)
- the income remaining after subtracting all relevant expenses (operating expenses) from the EGI.
this is the annual income (before Mtge &Taxes) that may be expected to occur over the remaining economic life of property.
EGI - OE = NOI
Overall Capitalization Rate (OAR) (CH16)
NOI / Value (sale price) = OAR
Gross Rent Multiplier (GRM) (CH16)
sale price / gross MONTHLY RENT = GRM
ex: a single family property sold for $229,400. This residential investment property earns a monthly rental income of $1850. What is the property’s GRM?
Gross Income Multiplier (CH16)
*used w/small income producing properties.
sale price / gross ANNUAL INCOME = GIM
gross ANNUAL INCOME x market GIM= value
Reproduction Costs
square footage x cost per square foot
Accrued Depreciation (CH16)
*important to note that when calculating depreciation, LAND is NOT depreciated-only buildings and other improvements
effective age / economic life x reproduction costs = estimated total accrued depreciation
ex: a 10 year old building has an effective age of 4 years and a total economic life of 60 years. The estimated reproduction cost is $225,000. What is the accrued depreciation?
4 / 60 x $225,000 = $15,000
Sales Commission (CH 14)
Sales Price x Commission rate = total commission
Ex: A broker charges a 6% commission. A home sells for $238,000. What is the total commission on the sale?
238,000 x 6% = 14,280
