Real Estate Mathematics

Question 1

1 side x 1 side =

Answer 1

area of a square.

Question 2

width x depth =

Answer 2

area of a rectangle

Question 3

½ base x height =

Answer 3

area of a triangle (remember a triangle is equal to ½ of a rectangle).

Question 4

In order to determine the area of an irregularly shaped lot, you must simply…

Answer 4

break down the lot into squares, rectangles, and triangles and add the areas of each together.

Question 5

1 Acre =

Answer 5

43,560 square feet.

Question 6

1 Hectare =

Answer 6

2.47 Acres

Question 7

Debt-to-Income Ratio is the…

Answer 7

percentage of a consumer’s monthly gross income that goes towards paying debts.

Question 8

The Debt-to-Income Ration formula is…

Answer 8

Recurring Monthly Debt / Gross Monthly Income

Question 9

Commissions are typically calculated as a…

Answer 9

percentage of the sales price (not the listing price).

Question 10

For example:
The broker and client agree to a 6% commission.
If the property was listed for $355,000, but the final sales price is only $330,000, the commission will be calculated as followed:

Answer 10

$330,000 x 0.06 = $19,800

Question 11

You may be asked to calculate the final sales price of property based on the…

Answer 11

commission given and the net amount the seller receives (after paying the commission).

Question 12

If a seller nets $213,750 (amount they receive after paying the broker their commission) from the sale of their house, what was the final sales price if they paid the broker a 5% commission?

To answer this type of question, divide the net received by the seller by the difference between the 100% and the commission rate:

Answer 12

$213,750 / 0.95 (100% minus 5% commission) = $225,000

Question 13

Cash on cash return (COC) is a…

Answer 13

percentage return on money invested in a property by an investor.

Question 14

The formula to determine COC (Cash on cash return ) is:

Answer 14

Annual Cash Flow / Down Payment = Cash on Cash Return.

Remember: you must use the ANNUAL cash flow. If a question only states the monthly cash flow, you must multiply that number by 12 months.

Question 15

If an investor purchased a property for $1,200,000 with a down payment of 25%, what is the cash-on-cash return if the property produces a monthly cash flow of $5,000?

First, you must determine the investor’s down payment. To determine this, simply multiple $1,200,000 by 25%.
$1,200,000 x 0.25 = $300,000

Next, determine the annual cash flow. Since the cash flow is stated as monthly cash flow, you will have to multiple $5,000 by 12.

Answer 15

$5,000 x 12 - $60,000

Finally, divide the annual cash flow by the down payment:
$60,000 / $300,000 = 0.20 or 20%

Question 16

You may be asked to calculate the amount paid in monthly interest on a loan.

For example:
A borrower has a $230,000 loan with an interest rate of 5%. What is the amount paid in interest each month?

To find the answer, first multiply $230,000 x 5%:

Answer 16

$230,000 x 0.05 = $11,500

Question 17

For example:

A borrower has a $230,000 loan with an interest rate of 5%. What is the amount paid in interest each month?

Since the 5% interest rate is an annual interest rate, $11,500 is what the borrower pays each years in interest. For this reason, you simply have to divide $11,500 by 12 to determine the amount of interest paid each month.

$11,500 / 12 = $958.33

Answer 17

$11,500 / 12 = $958.33