©2011 Cengage Learning. Chapter 6 Practical Real Estate Mathematics California Real Estate Principles ©2011 Cengage Learning

©2011 Cengage Learning

Chapter 6Practical Real Estate

Mathematics

California Real Estate Principles


Chapter 6 To solve problems related to investment,

discounting notes, appraisal, commissions, interest and loans, buyer costs and seller expenses, square footage and area, prorations and taxes.

• Use amortization and other tables to simplify real estate mathematical

computations


SOLVING MATH PROBLEMS

•Read The Question

•Write Down the Formula

•Substitute

•Calculate


CONVERTING FRACTIONS INTO DECIMALS

4 33 4 = .75

1/4

3/4

4 1 1 4 = .25

.25

.75

Divide the Bottom number (Denominator) into the Top number (Numerator)

14

34


Converting % to Decimals

•Remove the percentage sign, •Move the decimal point 2 places to the left.

8% converts to .0825% converts .259.5% converts .095100% converts 1.00105% converts 1.05


Variables Made (I) = % ( R) x Paid (V)

Made (I) / Paid (V) = % ( R)Made (I) / % ( R) = Paid (V)

(I) Made = (V) Paid x ( R) %

1.Income earned Amount invested % return 2.Commission Sales Price Rate of comm3. Doc transfer tax Taxable equity Transfer tax rate4. Monthly rent Invested amount Rate of return5. Annual NOI Property value Cap rate6. Interest Principal Rate x Time7. Discount amount Loan balance Rate of discount8. Area of property Length Width


CAPITALIZATIONIncome = Rate x Value

•What is the maximum price to pay if the investor wants a 9% investment rate?•$500 per month x 3 apartments = $1500 month•$1500 per month x 12 months = $18,000 year

$18,000 = 9% R x $? $18,000

.09 = $200,000 = Value©2011 Cengage Learning

Commission

PERCENTAGE

I = % x Sales Price•If $9,900 was a 6% commission, what was the sales price of the house?

$9,900 = 6% x SP$9,900 ÷ .06 = $165,000


INTEREST

6408000

Interest = Rate x Principal If you borrowed $8,000 for one year and

paid $640 interest,what rate of interest did you pay?

$640 = $8,000 x ?%

= 8%


PROFIT (or LOSS)

% x VB = VAA house sold for $60,000 for a 20% profit.

What was the original purchase price?

Value After = (100% + 20%) of Value Before

120% x $ ? VB= $60,000

60,0001.20

= $50,000©2011 Cengage Learning

SQUARES, RECTANGLES AND PARALLELOGRAMS

Area = One side (length/base) x the other One Side

(Width/Height)

Square 55’

One side (Height)

55’ One side (Base)

Rectangle 20’ One side (Height)

55’One side

(Base)

Parallelogram 20’One side (Height)

40’ One Side (Base) ©2011 Cengage Learning

TRIANGLES

•Area = ½ One side x the other One side•Area = One side x ½ the other One side

55’ One side (Height)

55’ One side (Base)

= ½ 55 x 55

Or =55 x ½ 55

=1/2 55 x 90

Or = ½ 90 x 55

55’One side (Height)

90’One side (Base)©2011 Cengage Learning

•Divide the shape into triangles, squares, and rectangles, and calculate their areas

ODD SHAPES

70 f

t125

ft

40 f

t60 ft

175 ft

70

6065

110

110

50

50ft


Add their areas together to get the area of the odd shaped whole.

ODD SHAPES (cont.)

Smallest box = 50 x 70 =Larger box = 60 x 110 =Triangle area = 110 / 2 X 65 =

350066003575

13,675 square feet


Prorations: Equitable division of costs

•Every month = 30 Days•Every Year = 360 Days# of Days x Rate Per Day = Share of Expense

Common items prorated: association dues, interest, taxes, insurance & prepaid rent

•Credit is an Entry Made in Favor of the Party•Debit is an Entry to be Paid by the Party

•(Note: Deeds record at 8 a.m.)


PRORATION of Rent (Closing Statement Example)

$900 per month rent paid in advance

Paid on first of the month

Escrow closes on tenth of month

Calculate:

(1) The amount per day and

(2) Debit or Credit for Buyer and

(3) Debit or Credit for Seller


ProrationWhen was the item (rent) last paid? lst of the monthPaid to whom? Collected by the Seller for 30 day

periodPeriod the item paid for? From lst day of this month to

the first day of next month.Paid in advance to seller. Some portion is due to buyer

for the balance of this month, until the next rent is due.

$900 {÷} 30 {=} $30 per day1, 2, 3, 4, 5, 6, 7, 8, 9 = seller owns the property for 9 days10, 11, 12, 13, . . . 30 = buyer owns the property for 21$30 {x} 21 days {=} $630Answer: $630 credit to buyer $630 debit to seller


TAXES

I = R x V

How much will be owed on a home valued at $174,000 if the annual property tax rate is 1.05%?

I = .0105 x $174,000

I = $1,827


I = R x VV (Paid) x R (%) = I (Made)

I (Made) ÷ V (Paid) = R (%)

I (Made) ÷ R (%) = V (Paid)

V (Paid) I (Made) R (%)

Sales Price Commission Comm Rate

Principal amt Return on Invest Rate of Return of Loan

Future Market InterestInterest Rate Value of Property Dividend

Rate of Profit

Cost Net Income Cap Rate

Profit©2011 Cengage Learning

Review Quiz Chapter 6

1.A lot is sold for $180,000, making a 20% profit over cost. What was the cost?

a. $136,000

b. $144,000

c. $148,000

d. $150,000


Review Quiz Chapter 62.To settle the estate of the deceased, a probate sale is

held on a mobile home. The first court bid is $30,000; the next minimum bid must be for at least: a. $31,000 b. $32,000 c. $33,000 d. $31,750


Review Quiz Chapter 63.An investor wants to acquire income property that will

generate a 10% cap rate. A 6-unit apartment complex rents for $950 per unit per month. Vacancies are 5% of gross rents and operating expenses total $20,500 per year. What is the maximum the investor should offer for this property? (round to nearest $1,000) a. $684,000 b. $573,000 c. $445,000d. $403,000


Answers to Chapter 6 Review Quiz

1. (d)$180,000 1.20 = $150,000 cost

2. (b)$10,000 10% = $1,000; $20,000 5% = 1,000;

$30,000 + 1,000 + 1,000 = $32,000

3. (c)$950 6 12 = $68,400 − 5% = $64,980 −

20,500 = 44,480 .10 = $444,800 (rounded $445,000)


Documents

©2011 Cengage Learning. Chapter 6 Practical Real Estate Mathematics California Real Estate Principles ©2011 Cengage Learning