Real Estate Math

Question 1

What is the annual property tax on a $100,000 home that is assessed at 40% of its value in a town with a millage rate of $20 per $1000?

Answer 1

Equation: Annual Tax / ((Assessed Value/1000) x Millage Rate) = 1

Answer: $100,000 x .4 = $40,000 $40,000 / 1000 = 40
40 x $20 = $800 in Taxes

Question 2

GRM

How much is a house renting for $1000 a month worth if the average monthly GRM in an area is 200?

Answer 2

Equation: Sales Price / Gross Rent = GRM

Answer: $1000 x 200 = $200,000

Question 3

Cap Rate
How much is a property with an NOI of $10,000 worth if properties in the area have an average cap rate of 5%?

What is the cap rate for a property with an NOI of $5,000 and a value of $100,000?

Answer 3

Equation: NOI / Sales Price = Cap Rate

Answer: $10,000 / .05 = $200,000

Answer: $5,000 / $100,000 = .05 or 5%

Question 4

Cash on Cash Return

How much is a property with cash flows of $20,000 retuning on an investment of $150,000?

Answer 4

Answer: $20,000 / $150,000 = 0.13 or 13%

Question 5

Recording Stamps

A property sold for $505,100 in Suffolk County. How much does the grantor pay for recording stamps?

Answer 5

Stamps cost $2.28 per $500

Answer:
$505,100 rounds up to $505,500
$505,500 / $500 = 1011 stamps
1011 stamps x $2.28 per stamp = $2305.08 fee

Question 6

Real Estate Commission

Problem Type #1
A seller wants to net $100,000 after paying your 5% commission. What should they sell for?

Problem Type #2
A seller wants to net $210,500 on sale of their home. They will pay a 6% commission plus estimated expenses of $1212. What should the property sell for?

Problem Type #3
A brokerage pays an agent a 1% commission on the first $500,000 of any sale plus 2% of any selling price over that. What was the sale price if the total commission was $6,000?

Answer 6

Formulas:
Sales Price x Commission % = Commission $
Sales Price – Costs (Including Commission) = Seller’s Net Profit

Answer 1:
$100,000 / .95 = $105,263.16

Answer 2:
210,500 + 1212 = $211,712
$211,712 / .94 = $225,225.53

Answer 3:
$500,000 x .01 = $5,000 $6,000 - $5,000 = $1,000
$1,000 / .02 = $50,000
$50,000 + $500,000 = $550,000

Question 7

payments on an amortized loan

Answer 7

(Loan / 1000) * PI = Monthly Payment.

PI is the first half of PITI, or the payments of Principal, Interest, Taxes, and Insurance. So, using the above table, the payments on a $150,000 loan at 5.5% interest amortized over 25 years would be calculated as:
($150,000 / 1000) * 5.43 = $814.50

Question 8

Tom has a loan for $100,000 for 30 years with 6% interest. The monthly payment of principal and interest is $530. What is the outstanding principal after the first monthly payment?

What is the outstanding principal after the second payment?

Answer 8

$100,000 x .06 = $6000 / 12 = $500 1st month interest
Payment: $530
Lender’s Interest: $500
Amount Applied to Principal: $30 Outstanding Principal: $99,970

$99,970 x .06 = $5,998.20 / 12 = $499.85 2nd month interest
Payment: $530
Lender’s Interest: $499.85
Amount Applied to Principal: $30.15 Outstanding Principal: $99,939.85

Question 9

Proration
A landlord is selling their property on June 20th. Their tenant paid the rent of $3000 on the first of the month. How much does the seller owe the buyer?

Answer 9

the exam will specify if the date of closing belongs to the buyer or the seller (if no one is specified it belongs to the seller), and the exam assumes a 360-day year unless otherwise specified. Also note that property taxes run on a fiscal year from July 1st – June 30th.

Answer
$3,000 / 30 days = $100 per day
Seller keeps: 20 days x $100 = $2000
Buyer receives: 10 days x $100 = $1,000