TX 122 Real Estate Principles II-Lesson 1 Flashcards
Real Estate Math
What does a mortgage calculator typically calculate?
- Principal and interest payment
- Estimated taxes
- Insurance
What is a proper fraction?
A fraction less than one
What is an improper fraction?
A fraction greater than or equal to one
How can you reduce a fraction?
Divide both numerator and denominator by their greatest common divisor
What is the lowest common denominator?
The smallest number that can be evenly divided by all denominators
True or False: To multiply fractions, you multiply the numerators and then the denominators.
True
How do you divide fractions?
Invert the divisor and multiply
How do you add or subtract decimals?
Line up decimal points and add or subtract as with whole numbers
How can you convert a fraction to a decimal?
Divide the numerator by the denominator
What is the process for multiplying decimals?
Multiply as whole numbers and move the decimal point left based on total decimal places
What is the dividend in a division problem?
The number being divided
What do you do if both the dividend and divisor contain decimals?
Shift the decimal points to eliminate them before dividing
How do you change a decimal to a fraction?
Write the decimal as a whole number and place it over a power of ten
How do you eliminate decimals in division?
Shift the decimals in both the divisor and dividend to the right
This process helps in simplifying the division operation.
What is the result of dividing 640 by 8?
80
How do you change a decimal to a fraction?
Write the decimal as a whole number over ‘1’ followed by zeros corresponding to decimal places
For example, 0.25 becomes 25/100.
Convert 0.25 to a fraction.
1/4
Convert 0.123 to a fraction.
123/1000
What is the definition of a percentage?
A portion of a whole expressed as parts out of 100
What does percent mean?
Per hundred
What is 40% expressed as a fraction?
40/100
How do you convert a percentage to a decimal?
Divide the percentage by 100
What is 2% expressed as a decimal?
0.02
How do you convert a percentage to a fraction?
Place the percentage over 100 and reduce if possible
Convert 175% to a fraction.
7/4
How do you convert a fraction to a percent?
Divide the numerator by the denominator, convert to decimal, then multiply by 100
What is the formula to find the amount paid?
Divide made by the rate
What is the T-bar formula used for?
To solve percentage problems
What is a percentage lease?
A lease where additional payment is based on the tenant’s sales
What is the first step in calculating percentage rent?
Determine the total sales subject to the agreement
What is the formula for profit?
Sales price - cost
What percentage profit results from a $150,000 profit on a $350,000 cost?
43%
What is the calculation for determining profit percentage?
Profit / original cost
What is the gross annual rent?
The total amount of rents paid by the tenant or tenants
What does a percentage greater than 100% indicate?
More than one whole unit
What is the percentage of profit if an item is sold for $280,000 after being purchased for $200,000?
40%
Fill in the blank: To convert a percentage to a decimal, you move the decimal point ______.
two places to the left
True or False: A percentage can be used to express probability.
True
What is the primary objective for a client’s investment in property?
Rapid appreciation in value
What is Gross Annual Rent?
The total amount of rents paid by the tenant or tenants on the property for one year
How is the Vacancy Rate expressed?
As a percentage of Gross Annual Rent
What is Adjusted Gross Annual Rental Income?
Gross Annual Rent minus rental income lost through vacancy
What does T.I.M.M.U.R. stand for in Basic Rental Property Expenses?
- Taxes (Annual Property Taxes)
- Insurance (Property & Business/Liability Insurance)
- Maintenance Expenses
- Management Fees
- Utility Costs
What are Replacement Reserves?
Funds set aside from the adjusted gross rental income for repairs or structural component replacements
How is Net Rental Income calculated?
By subtracting Basic Rental Property Expenses from Adjusted Gross Annual Rental Income
What is Annual Cash Flow?
Net Rental Income minus debt service (Annual Principal & Interest on Any Loans)
What is a rule of thumb for estimating property taxes?
1.25% of the price of the property
What is the suggested figure for property insurance as a percentage of the property price?
0.75%
What is a common rule of thumb for maintenance expenses?
10% of the adjusted gross annual rental income
What percentage do management fees typically range from?
10% to 15% of adjusted gross rental income
What is the suggested percentage for utilities expenses?
2% of the adjusted gross annual rental income
How is the Annual Net Income calculated?
Gross Rental Annual Income minus total expenses
What is the formula for determining an acceptable offering price using the IRV formula?
Income = Rate of Return x Property Value
What is the effective annual pre-tax return if the property is purchased for $300,000 and generates an Annual Net Income of $17,628?
5.876%
True or False: Interest is the cost incurred for borrowing money.
True
What determines the amount of interest paid on a loan?
Annual interest rate, principal amount, and term of the loan
Fill in the blank: The formula for calculating simple interest is Principal x Annual interest rate x _______.
Time (in years)
What is the difference between simple interest and compound interest?
Compound interest adds each period’s interest to the principal before the next interest payment is calculated
What does amortization mean in the context of real estate loans?
Gradually reducing a debt by making payments over time until fully paid off
What is level amortization?
Payments are all equal except possibly the last one
What is an amortization schedule?
A chart showing the beginning principal balance, payment dates, interest portion, principal reduction, and remaining balance
How can you determine the future balance of a loan?
By creating an amortization schedule
How do you calculate the monthly interest on a loan?
Multiply the principal balance by the monthly interest rate
What is the monthly principal and interest payment for a $350,000 loan at 4.75% over 25 years?
$1,995.41
What is a formula to determine monthly payments?
Use online calculators to determine payments quickly
Many calculators are available, but may have ads for lenders
What is the purpose of a Mortgage Amortization Schedule?
To list every monthly payment along with principal and interest, and the remaining balance due
It shows how the portion of each payment changes over time
How does the portion of monthly payments change over time in an amortization schedule?
The portion paying interest decreases while the portion for principal increases
This reflects the reduction of the loan balance over time
What is the Loan-to-Value Ratio (LTV)?
Loan amount divided by the value of the property
LTV determines how much can be borrowed relative to the property’s value
If a buyer puts down 10%, what is the maximum LTV allowed?
90%
This is based on the home’s value
How do you calculate the loan amount given a purchase price and appraisal?
Value * Rate = Loan
Use the lesser of the sale price or the appraised value
What is the formula to compute annual interest on a loan?
Total amount * Rate
For example, $220,500 * 0.06 = $13,230 annual interest
How can monthly PI payments be calculated without a calculator?
Create a personal table based on $1,000 amortized for 30 years
Published tables or lender quotes can also be used
What is a discount point?
1% of the loan amount paid to lower the interest rate
Commonly used in mortgage loans
How do you calculate the cost of discount points?
Loan amount * Number of points
For example, $220,000 * 0.04 = $8,800
What happens if a bond’s coupon rate is lower than the market rate?
The bond sells at a discount
The discount reflects the difference between the coupon rate and market rate
How is the break-even point determined for discount points?
Divide the cost of points by the monthly payment difference
This shows how long until savings offset the cost
What is the yield spread premium (YSP)?
A premium paid for a mortgage with a higher interest rate than the market rate
This can be used by lenders to cover closing costs
What is the process of proration in real estate?
Fair division of costs and benefits in a transaction
Used for things like taxes and HOA fees
Fill in the blank: The Loan-to-Value Ratio (LTV) is calculated as ______.
Loan / Value
True or False: The buyer can always pay discount points for FHA loans.
False
Initially, sellers were expected to pay the points, but this changed in 1992
What does a higher yield to the lender imply when discount points are paid?
It increases the lender’s rate of return
Each discount point increases the yield by approximately 1/4 of 1%
How is proration applied to a group of individuals buying cookies?
Each individual’s contribution determines their share
Example: Tori pays 60%, Jordan and Gabby each pay 20%
What is proration?
Making a fair division of the costs and benefits of a financial transaction
In real estate, it involves dividing costs like taxes and fees.
What are the two types of items in proration?
- Accrued items
- Prepaid items
How do you calculate the amount of expense or income per day if it’s an annual amount?
Annual amount divided by total days in the year
What is the difference between calendar year and banker’s year?
- Calendar Year: 365 days (or 366 in leap year)
- Banker’s Year: 360 days (each month has 30 days)
When prorating through the day of closing, who is responsible for the day of closing?
The seller
What is an accrued item?
An expense that has accumulated on a purchase and will be paid by the buyer
What is a prepaid item?
An expenditure that has already been paid by the seller and is part of the buyer’s purchase
How is interest paid on loans typically structured?
Interest is almost always paid in arrears
In a new loan, how do you calculate daily interest?
Annual Interest divided by Days in Year
When a loan is assumed, how is the interest proration treated?
Debit to the seller and credit to the buyer
What should the buyer pay for if the seller has not paid homeowner’s fees in advance?
The seller’s portion of the month
When prorating property taxes, what year is typically used?
A 365-day year, unless stated otherwise
What is the first step in determining property tax?
Local government budget determination and appropriation
What is the process of assessment in property tax determination?
Valuation of taxable property and conversion into assessed value
What is a mill levy?
Another way of expressing the rate at which property taxes are assessed
What happens to property tax liens during a mortgage foreclosure?
They are not cleared and still must be paid
What is the formula to calculate the tax rate?
Total budget divided by assessed value of taxable property
What is the due date for county and state taxes in many states?
Payable on October 1 and become delinquent on February 1 of the following year
What are the two types of days owed in proration?
- Own TO day of Closing
- Own FROM day of Closing
What does the term ‘accrued interest’ refer to?
Interest that has accumulated up to the closing date and is owed by the buyer
What is the significance of the closing date in proration calculations?
It determines who owns the days before and after the closing
What is the due date for property taxes?
October 1
When do property taxes become delinquent?
February 1 of the following year
What is a mill levy?
A rate at which ad valorem property taxes are assessed
How is the mill levy calculated?
Budget needs of the community divided by total property assessed values
What does 85 mills represent?
$85 of tax for each $1,000 of assessed valuation
What is the formula for ad valorem taxes?
Assessed valuation x mill levy
If property taxes are $1000 and mill rate is 55 mills, how do you find the assessed valuation?
Divide $1000 by .055
What is the area formula for a right triangle?
1/2 x base x height
How do you find the area of an equilateral triangle?
Area = s² x √3 / 4
What does ‘s’ represent in the area formula for an equilateral triangle?
The length of any side of the triangle
What is the formula for the area of a circle?
Area = πr²
What is the approximate value of Pi?
3.142
How is volume defined in real estate?
The total space that something occupies (3-dimensional)
What is a common formula for calculating the volume of a cylinder?
Area of the circle x height
What is the total cost for renting warehouse space for 6 months at 22.5 cents/cubic foot/month for 80,000 cubic feet?
$108,000
What is defined as a legal description in real estate?
Information that a qualified surveyor can use to find the property and mark each corner
List the four accepted methods of describing real estate.
- Metes and bounds
- Rectangular survey system
- Recorded plat of subdivision
- Monuments and markings
What does ‘metes’ mean in metes and bounds?
Measurement
What does ‘bounds’ refer to in metes and bounds?
Direction
What is the point of beginning (POB) in metes and bounds?
The starting point for measuring the property boundaries
When preparing a metes and bounds description, how should directions be stated?
Recite the north or south direction first, followed by the direction of declination
How many degrees are in a circle?
360 degrees
What is the formula for the area of an isosceles triangle?
1/2 x base x height
What is the value of 1 mill in terms of assessed valuation?
$1 per $1,000
What is the formula for determining the mill rate?
Budget needs divided by total property assessed values
What is the total rent credit to the buyer if the escrow closed on April 15 at $700/month?
$1773.33
How is square footage calculated?
Length x Width
What constitutes living area in a residence?
Gross square footage of all heated and cooled space
What does lineal footage refer to in real estate?
Total length of all perimeter walls of the structure
What is the volume of a space or object typically calculated with?
Height, width, and depth, or length, width, and depth
What is the formula for calculating the volume of a rectangular prism?
Area of the base x height
What is 3 squared?
9
What is the area of a circle with a radius of 10 feet?
314 square feet
How many cubic feet are in a standard bushel?
1.244 cubic feet
If a silo has a diameter of 30 feet and a height of 150 feet, what is the radius?
15 feet
What is the income produced if 3 silos are full for 3 months at 7.5 cents/bushel?
$57,502.58
What is the unit of measurement used in a compass?
Degrees
A circle is equally divided into 360 degrees.
What does the compass needle always point to?
Magnetic north
The compass must be oriented so that the needle points at ‘0’ or north.
What are the components of a directional description starting from the Point of Beginning (POB)?
Direction, angle of declination, and distance
Example: ‘POB NIOE 250 feet’ defines the first segment of a property boundary.
How is the rectangular survey system also known?
Government survey method
This system uses numbered squares based on two sets of intersecting lines.
What lines run north and south in the rectangular survey system?
Principal meridians
Base lines run east and west.
How are townships defined in the rectangular survey system?
By two adjacent range lines and two adjacent tier lines
Each township is 6 miles square and contains 36 square miles.
What is the area of one township in square miles?
36 square miles
Each township is 6 miles on each side.
What is the legal description format for a township?
T[Township Number] [Range Number] of the principal meridian
Example: ‘T3N R4W’ refers to a specific township.
How many acres are in one section?
640 acres
Each section is a square, 1 mile on each side.
Fill in the blank: A _______ is 1/4 of a section.
40 acres
A quarter section is 160 acres, and further subdivisions can be made.
What is the formula to calculate acres in a rectangular survey system description?
Multiply all denominators and divide into 640 acres
This method simplifies acreage calculations.
What does a lot and block survey reference?
A prior metes and bounds or rectangular survey description
It is performed in two steps.
What is a datum in the context of land measurement?
A point, line, or surface from which distances or elevations are measured
It serves as a reference point for measurements.
What are bench marks?
Permanent reference datum points established throughout the U.S.
Usually, they are embossed brass markers set into solid bases.
How is the area of a rectangular parcel calculated?
Multiply width by depth
Example: Area = 31 feet x 123 feet.
What is the price per acre or price per square foot considered in real estate?
An important figure in real estate
It helps in determining property value.
True or False: The rectangular survey system is used in all states.
False
It is not used in Texas.
What is the typical orientation of latitude and longitude lines on maps?
Latitude lines are horizontal, and longitude lines are vertical
North is typically at the top of the map.
What was the asking price of the home Mary bought for $150,000?
$187,500
The asking price was calculated by dividing $150,000 by 0.8, since Mary paid 80% of the asking price.
Why do we use 0.80 instead of 0.20 in the asking price calculation?
Because Mary paid 80% of the asking price after a 20% discount
100% - 20% = 80%.
How do you calculate the time needed to travel a distance?
Divide the distance by the distance traveled in one minute
Example: If traveling at 55 miles per hour, calculate miles per minute by dividing 55 by 60.
How far can you go in one minute at 55 miles per hour?
0.917 miles
This is calculated by 55 miles per hour divided by 60 minutes per hour.
How long does it take to travel 30 miles at 0.917 miles per minute?
33 minutes
This is calculated by dividing 30 miles by 0.917 miles per minute, rounding up to 33.
Fill in the blank: Mary bought a home for $150,000, which was _______ less than the asking price.
20%
This indicates the discount applied to the original asking price.
