Section 17: RE Calculations
A buyer with a 20-year, $419,000 loan at a 4.25% interest rate has a monthly principal and interest payment totaling $2,594.59. If $1,483.95 is interest, how much is applied toward principal for that payment?
$1,.110.64 if $1,483.95 of the total payment is interest, that leaves $1,110.64 to be applied towards principal
A real estate transaction has a closing date of April 20. The seller, who's responsible for closing costs up to and including the day of settlement, has already paid property taxes of $1,447 for the calendar year. If proration is based on a statutory calendar, the buyer will be_______ on the closing statement.
$1,447/360= $4.02, then $4.02x 250 days=$1005 debited
When prorating annual HOA fees of $1,500 using the statutory calendar, what's the daily rate, rounded to the nearest cent?
$1,500/360=$4.17
A commercial income property being appraised has a potential gross income of $2 million. The effective gross income is $1,640,000, reflecting an 18% vacancy and loss rate. After constructing the operating statement, the appraiser arrives at a figure of $1,305,000 for total expenses. Which calculation represents the NOI for this property?
$1,640,000-$1,305,000= $335,000
Bob and Mary are financing $160,000 for a new home. Their lender will approve an interest rate of 6% if Bob and Mary pay two discount points at closing. How much is this?
$160,000/.02= $3,200
Carlos is thinking about paying his mortgage loan early. After he looked at his loan contract he discovered that the lender figures the penalty based off of the remaining principal due. The lender charges a 4% pre-payment penalty. Carlos's outstanding principal is $18,000. How much would he owe in penalty fees?
$18,000 x 0.04= $720
The Moores are purchasing a home for $300,000. They're financing $250,000. Their lender charges a loan origination fee of 1%. How much will they pay in loan origination fees at closing?
$250,000/.01= $2,500
You have an appointment to meet with Ramon and Willis, a young couple who are in the early stages of the home buying process. They earn a gross monthly income of $3,600 and a net income of $2,900. The lender the couple is working with is conservative and only funds loans at the low end of the housing debt-to-income ratio. How large of a house payment can Ramon and Willis afford (according to their lender)?
$3,600 x .25= $900
Cletis and Marcie are thinking about paying off their mortgage loan early, even though a pre-payment penalty will apply. After they looked at their loan contract, they discovered that their lender figures the pre-payment penalty based off of the remaining principal due. The lender charges a 2% pre-payment penalty. Cletis and Marcie's outstanding principal is $8,000. How much will they owe in penalty fees?
$8,000x0.02= $160
A buyer anticipates a house payment of $1,000 per month, with monthly homeowner association fees of $150. The buyer also has a car payment of $400 per month. If the buyer earns a monthly gross income of $5,000, what's the housing ratio?
(1,000+150) / 5,000= .23 x 100= 23%
The water and sewer for a property closing on January 10 is billed in arrears. Assuming the sellers own the property the day of closing, which formula(s) can be used to calculate their prorated debit using the calendar year method?
(monthly expense/ 31 days) x 10 days
Interest paid per month equation
(principal x interest rate) / 12
Typical prorated accrued items include:
-Unpaid real estate taxes -Rent the seller collected from the tenant for a period of time in which the buyer will own the property -Interest on the seller's mortgage that the buyer assumed (if applicable) -Utilities billed and not paid in advance
what about pre-payment penalties is true?
-paying off a loan early saves the borrower interest -lenders lose out on anticipated interest payments when borrowers pay off their loans early -a lender must disclose upfront if it reserves the right to charge a pre-payment penalty
Prepaids include:
-prepaid taxes -rent paid by the seller under a lease assigned to the buyer -utilities based
A point is:
1% of the loan amount
A property has 10 units and is 90% occupied. Rent is $500 per month. Total vacancy and collection loss equals 10%. What's the potential gross income?
10x500=5,000 5,000x12= 60,000
You're working on a new listing. The property has a beautiful patio, and you want to include the patio's size in the property's listing information. The patio is 15 feet wide by 25 feet long. What's the area?
15x25=375 sq ft
Tess has $385 in monthly non-housing debt obligations, and her anticipated mortgage payment is $1,103. Her gross income is $7,598, and her net income is $5,815. What's her total DTI (debt-to-income ratio)?
19.58% monthly debt payment/gross income
What is 800 divided by 30%?
2,666.66
typically the housing debt-to-income ratio is:
25%-28%. 33% to 36% for total debt-to-income ratio
Seller Ricky's property is assessed real estate taxes of $1,400 for the year. Closing is held on August 15. If Ricky owns the day of closing, what is the amount that Ricky owes for taxes accrued and not yet paid based on the statutory year?
first, calculate taxes per month ($1400/12=$116.67) second, calculate accrued taxes owed & not paid yet by the seller for the # of full months ( $116.67x7=$816.69) however, since you have a partial month, you also have to calculate taxes per day ($116.67/30=$3.89; $3.89x15= $58.35) Then add to the taxes per month amount ($816.69+$58.35= $875.04)
Seller Angela's property is assessed real estate taxes of $900 for the year. Closing is held on February 29th (that's right, it's a leap year). What amount does Angela owe for taxes accrued and not yet paid that will appear as a debit for the seller and a credit for the buyer at closing? Use the statutory year and assume that Angela owns the day of closing.
first, calculate the taxes per month ($900/12=$75) second, calculate accrued taxes owed & not paid yet by the seller (75x2 months= $150)
net income
gross income-taxes or expenses
Why might a real estate appraiser have to reconstruct the operating statement when determining NOI? (net operating income)
Because appraisers sometimes "stabilize" the expenses by including info from the market as well as actual expenses, & because expenses listed by the accountant aren't always what the appraiser will use
Net Operating Income Formula
Effective Gross Income (-) Operating Expenses (=) Net Operating Income
Effective Gross Income
Income after losses from vacancies and credit losses are deducted Ex: Assuming a fully leased property and deducting for vacancy and losses, income is $241,105.
If the daily rate is $1.23 and closing is August 31, what will the seller owe at closing? Assume a statutory year and that the seller hasn't made any payments. Round to the nearest cent.
January-August=8 months x 30 days = 240 days. then 240 days x 1.23 daily route= $295.20
A buyer has a 30-year, $750,000 loan with a 5.75% interest rate. How much of the first monthly payment is interest?
Multiply the principal balance by the interest rate: $750,000 x .0575 = $43,125;. Then find the monthly rate by dividing $43,125 by 12 to get $3,593.75. Since the principal balance is less the next month, the interest amount will change too.
How is net operating income used in an income-based approach to appraisal?
NOI is divided by a cap rate to find estimated property value
prorate
To divide or distribute a sum of money proportionately
Income Capitalization Formula
Value = income ÷ rate of capitalization (also known as "cap rate") or V = I / R
what's a pre-payment penalty?
a consequence for paying off a loan before its intended time
Rate
a formula that compares 2 quantities
Linear measurement
add all sides
Potential Gross Income
annual income that a property could bring in if leased at full capacity Ex: If Acme Properties is fully leased, it generates $252,000 in income
For which of these properties would gross income multiplier be calculated?
apartment building with 50 units
Gross Income Multiplier (GIM)
calculated by dividing sales price by gross annual income
Gross Rent Multiplier (GRM)
calculated by dividing the sales price by gross monthly rent
Gabi owns one parcel measuring one square mile and another parcel measuring one mile by a half mile. She combined the parcels and sold them for $2.5 million. What price per acre did she receive for the land?
convert each parcel to acres. First parcel is 640 acres (one square mile). Second parcel is half that size (1 mile x 1/2 mile), or 320 acres. Thus, the total acreage is 960. Divide the sales price by the total acreage (2,500,000 ÷ 960), which = $2,604.17
Seller Adelaide and buyer Colin close on a transaction for two rental condos on March 15. They live in a state where the seller is considered the owner of the property on the day of closing. The combined rental income per month is $4,000. How much rental income can Colin expect to earn in March?
divide monthly income by the days in march ( $4,000/31=$129.03) then multiply that by 16 days Colin will own the property for the total of $2064.48
accured expenses
expenses incurred but not yet paid in cash or recorded
To calculate a commission percentage rate:
total commission / sales price
Total
whole of an amount
Area
the size of a two-dimensional shape
Kay and Roger are thinking about paying off their mortgage loan early. They looked at the loan contract and found that their lender will charge them a pre-payment fee based on the balance owed and a percentage of interest paid within six months. The lender charges 60% of six months' interest. Kay and Roger's mortgage has $50,000 remaining and they pay 6% interest. How much would they owe in penalty fees?
First, divide the interest rate in half (6 ÷ 2 = 3). Then multiply this value by the outstanding balance to get interest paid in six months ($50,000 x 0.03). Next, multiply this result by 60% to find the pre-payment penalty ($1,500 x 0.60)= $900
the main difference between direct capitalization & yield capitalization is:
time. direct is based on a single year's income while yield takes into account several years of cash flow
Example of prorated prepaids
The seller prepaid $565 for a security system, which the buyer intends to take over. Expenses are prorated through August 2, the day of closing. The proration will be calculated on a 360-day basis (the buyer owes the seller for the period between August 2 and December 31). -$565 ÷ 360 = $1.5694444, or $1.569 per day -28 days in August plus 30 days each in September through December = 148 days -148 × $1.569 = $232.212, or $232.21 (debit to the buyer). -Settlement statement will show a credit to the seller and debit to the buyer of $232.21 to refund the seller for the portion of time that's been paid but during which the buyer will live in the property.
Prepaid items
items the seller has paid, but that the buyer needs to credit the seller for the amount pertaining to the time period that the buyer will own the property
The Closing Disclosure
lists all prepaid expenses that the seller has already paid, generally as credit to the seller & a debit to the buyer
Discount points
lower interest rate
Loan payment applied to principal equation
monthly principal & interest payment - interest paid per month
Shania and Everett are thinking of paying off their mortgage. What document will show the terms of any pre-payment penalties that might exist?
mortgage loan contract
Front footage
number of linear feet the property has facing the street
How are real estate-related prorations usually calculated?
on a 360 or 365 day basis
Percent
parts per 100
yield capitilization
process of converting future benefits into present values. uses a discount rate applied to estimates of future income
net to seller equation
sales price=(net amount + mortgage or other expenses)/(100%-commission rate)
Part
some, but not all, of an amount
Net operating income
subtract operating expenses from effective gross income
What calculation is used to determine the accrued taxes owed by a seller at closing? Assume the closing is held on the last day of the month, the seller owns the day of closing, and you're using a statutory year.
taxes owed/ 12 months= taxes owed per month x # of full months passed= accrued taxes owed by the seller at closing
what's an outstanding principal balance?
the amount that is still owed to the lender
Gross Income
the income received before any expenses are deducted
Which of the following bits of data is crucial in a proration?
the number of days in the proration period
A real estate transaction has a closing date of May 20. The seller, who's responsible for closing costs up to but not including the day of closing, has already paid annual property taxes of $1,949. How will the closing statement reflect the proration for the seller? Use a calendar year proration, and round to the nearest dollar.
the seller is required to cover the taxes from January 1-May 19, which is 139 days. so you would do $1,949/365=$5.34, and $5.34 × 226 days (the number of days the buyer will own the property and have to cover property taxes) = $1,206.84. That's $1,207 when rounded to the nearest whole dollar.
