Pre-License Math Review

10 Questions on state test

Calculating physical dimensions of Lot & Structure

• Lot size 450 X 484• = 217,800 sq. ft.

• Structure size • 60 feet X 40 feet• = 2,400 square feet

450 feet – Front Foot

484 feet

40 feet

Spot’s House

Lot 1 , Block 1, Brown Acres

60 feet

Easy street

Calculating sizeLot is 450’ x 484’ = 217,800 square feetFirst # is front foot (street)

Land in this area sells for about $30,000 per acreWhat is the market value of this lot?

217,800 / 43,560 = 5 acres x $30,000 = $150,000

What is property value?

What is value of house?

Spot’s house is 60’ x 40’ = 2400 square feet

Only heated and cooled area above ground is included in living area

Comparable homes sell for about $120 per square foot plus land cost

2400 square feet X $120 per sq. ft. = $288,000

Land and House

What is the market value for this house and land?2400 x $120 = $288,000 + $150,000 land = $438,000

Market Value, Price, and Cost are not necessarily related

• Except in new construction

• $438,000 Market Value

• How much is a 10% commission?

• How much is a 5% commission?– Divide the 10% fee in half to $21,900

• Listing broker splits 50/50 with selling broker• Listing agent gets 60/40 split with company • How much was check to agent?

• 438,000 X .05 =• $21,900 total commission

• 50% to selling broker = $10,950

• Listing broker then splits• 60% to listing agent = $6,570• 40% to listing brokerage = $4,380

• LTV = Loan to Value• New buyer got an 80% LTV mortgage• How much was loan?

• VA 100%• Rural 100%• FHA 96.5%• Conventional 80%

• $438,000 X .8 = $350,400 conventional loan

• Buyer paid origination fee of 1 point– A point is 1 % of loan, not purchase price– How much for fee?

• $3,504

• Buyer paid 3 discount points – Increases lender’s yield by 3/8 %– How much for points?

• $10,512• Loan points are based on loan amount• May be added into loan

• Interest rate is 6% on $350,400• How much is payment (amortized loan) of 30 years

• Rate chart 30 years @ 6% = Factor of 6

• 350.4 X 6 = $2,102 payment of Principle & Interest– Taxes and Insurance will be on top of P&I

• It’s a PITI the payment is so much

• $2,102 monthly payment

• $350,400 loan X 6% (.06) / 12 = interest first month• $21,040 annual interest / 12 months = • $1,752 first month interest

• $2,102 payment - $1,752 interest = $350 principle– Entire first year’s principle will only be about $4,200– First year’s interest will be about $21,000

• Second month loan balance• $350,400 - $350 = $350,050

• Second month interest• $350,050 X .06 = 21,003 / 12 = $1,750

• Proration

• Closing on 21th of month• Use banker’s year of 360 days, 12 months, 30 day month

– Unless told to use calendar year• Prepay interest for 10 days, includes day of closing• $350,400 X .06 = $21,024 / 360 = • $58.40 per day X 10 days = $584.00

– Pays interest for balance of month of closing• First payment will be due the 1st of second month

– Will include interest for first month after closing

• Decimal to percentage• 0.25 = 25%• 0.9 = 90%

• Percentage to decimal• 33% = 0.33

• 10% commission – Multiply sales price by 0.10

•  • “T” Formula• ________Results________ $10,000 Commission Paid• Base Rate $100,000 Sales Price .10 (or 10%) Commission Rate• Rate is expressed as a decimal

• Multiply bottom #s or divide top # by bottom # Base X Rate or Results / Base or Results / Rate

• Results / Base = Rate 10,000 / 100,000 = .10• Results / Rate = Base 10,000 / .10 = 100,000• Results = Base X Rate 10,000 = 100,000 X .10

X X: : : :

Results

Base Rate: :

X

$10,000 Commission Paid

$100,000 Purchase Price 10% (.10) Commission Rate

Results

Base Rate: :

X

Property sold for $100,000Commission was $3,000

What was Rate?

$3,000

Results

Base Rate: :

X$100,000 0.03

Results

Base Rate: :

X$3,000

$100,000

If the numbers are in the wrong place, you will know it

3333%

Results

Base Rate: :

X

Commission was $8,000Rate was 8%

What was price of property?

$8,000Results

Base Rate: :

X .08$100,000

Results

Base Rate: :

X

Seller wants $100,000 Seller said add commission to priceCommission is 10%

What is selling price?

$100,000

Results

Base Rate: :

X 100% - 10% = .90$111,111

Results

Base Rate: :

X

Discount Points2 points = 2% of prepaid interestPaid $4,000 in discount pointsHow much is loan?

$4,000Results

Base Rate: :

X .02$200,000

Results

Base Rate: :

X

Seller made $25,000 profit on $100,000 sale

What is profit %

25,000

Results

Base Rate: :

X100,000 – 25,000 .33 or 33%

Results

Base Rate: :

X

Investor expects a 10% ROI (return on investment)Monthly net income is $1,000

What will investor pay for property?

$1,000 X 12Results

Base Rate: :

X .10$120,000

Results

Base Rate: :

X

What did an investor pay if they made 10%And, sold the home for $100,000

$100,000

Results

Base Rate: :

X 100% + 10% = 1.10$90,909

Results

Base Rate: :

X

The value of a house is $91,000 today.What was the original cost if it has depreciated 5% per year for the past seven years?

$91,000

Results

Base Rate: :

X 100% - (5% X 7) = .65$140,000

Results

Base Rate: :

X

If a home is worth $91,000 today and has appreciated 5% for the past 7 years, what was the original price?

Results

Base Rate: :

X

$91,000

100% + (5% X 7) = 1.35$67,407

Results

Base Rate: :

X

What did the owner originally pay for their home if they sold it for $98,672, which gave them a 12% profit over the original cost?

$98,672

Results

Base Rate: :

X100% + 12% = 1.12$88,100

Year % Change Index2000 1002001 12.4 1122002 7.03 1212003 12.4 1352004 11.8 1512005 16.3 1762006 14.7 2022007 -0.1 2012008 -10.7 1802009 -19 1462010 -0.7 145

Home Prices

Results

Base Rate: :

X

If you get a 90% loan on a $88,500 house, how much more money must you put down after your $4,500 earnest money?

$8,850

Results

Base Rate: :

X$88,500 .10

$8,850 - $4,500 (Earnest Money) = $4,350 Additional $

Results

Base Rate: :

X

What did the owner originally pay for their home if they sold it for $98,672, which gave them a 12% profit over the original cost?

$98,672

Results

Base Rate: :

X100% + 12% = 1.12$88,100

• Capitalization Rate = Return on investment “T” Formula• Results• Base Rate• Investor demands a 10% Return; could be 15% or any number• This as the Rate in the “T” Formula - Must change to decimal .10

– Rate always goes on bottom right• You may not get the net income, but be given the numbers to calculate it• The way to calculate net income is GIVEN • GI $100,000 Gross Income: 100 apartments renting for $1000 per month• V - $5,000Vacancy is 5% (of Gross Income) • E - $30,000 Expenses are 30% (of Gross Income) • N = $65,000 Net Income (Before Taxes)

• Net income for one month, so multiply by 12 to get annual income = $780,000• $780,000 is the Result,(top #) • you know the Rate (bottom right #) is .10 • you want the Base (bottom left)• Divide the Net Income (Results) of $780,000 by the Rate of .10

: :X

Results

Base Rate: :

X

$780,000

.10$7,800,000

• _____________$780,000___________• $7,800,000 .10

– Capitalization Rate in this example is 10%

• This apartment has a market value of $7,800,000 – at a capitalization Rate of 10%

• What if it sold for $5,000,000?• This means that the market (investors) require a higher rate

of return of 15.6% Calculator said 0.156• With the “T” Formula, if you get an answer that look wrong, swap

the Base # with the Result # and recalculate• 7,800,000 / 780,000 would give a rate of return of 1000% and you

would know that is wrong• Remember to move the decimal point two places to the right to

get the percent .10 = 10%

X: :

Results

Base Rate: :

X