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9.) An office building has a potential gross rent of $20,000 per month. It has a vacancy rate of 15%. Yearly expenses for the property total $115,000. If the owner is earing a 10% rate of return, what is the value of the building? a. $204,000 b. $240,000 c. $890,000 d. $1,250,000

(** A vacancy rate of 15% means the occupancy is 85%**) Potential gross rent = $20,000 x 12 (months) = $240,000 $240,000 x 85% (occupancy rate) =$204,000 (actual gross rent) $204,000 (rent per year) - $115,000 (yearly expenses) = $89,000 (NET annual income) Using the "T" with the net annual income as the part and 10% as the rate of return, the market value is $89,000 ÷ 10% = $890,000

An investor took a short-term loan for $30,000 for 18 months. The interest rate is 7%. The loan is to be repaid in one payment that will include principle and interest. What will be that payment amount? a. $32,100 b. $33,150 c. $34,200 d. $31,350

******The money was borrowed for (18 MONTHS); therefore, interest will be due for (18 MONTHS). 1.) 7% (interest rate) x $30,000 (principle) = $2,100 interest - ((((FOR ONE YEAR))))) 2.) $2,100 (interest) ÷ 12 (months in a year) = $175 (interest/month) 3.) $175 x 18 (months) = $3,150 (total interest), 4.) $30,000 (principle) + $3,150 (interest) = $33,150 (total loan payoff).

**Potential gross rent: $50,000/per month **** Vacancy rate: 12% *** Yearly expenses: $315,000 ****Rate of return: 15%

**Potential gross rent: $50,000/per month **** Vacancy rate: 12% *** Yearly expenses: $315,000 ****Rate of return: 15% 1.) $50,000 x 12(months)= $600,000 2.) $600,000 x 88% = $528,000 3.) $528,000 - $315,000 = $213,000 4.) $213,000 ÷ 15% = $1,420,000

FINDING VALUE - (x) PERCENT **Property: $35,000/ per month **Occupied: 25% **Annual expenses: $125,000 **Rate of return: 10%

**Property: $35,000/ per month **Occupied: 25% **Annual expenses: $125,000 **Rate of return: 10% 1.) $35,000 x 12 (months=1 year) = $420,000 2.) $420,000 x 75% = $315,000 -((( it is multiplied by 75% because 75% of the occupants are paying rent)))) 3.) $315,000 - $125,000 (expenses) = $190,000 4.) $190,000 ÷ 10%(rate of return) = THE VALUE OF THE PROPERTY IS $1,900,000

A couple is purchasing a home for $375,000. They have saved and have an 8% down-payment. The builder is offering 80% financing and they will obtain a second mortgage for the balance. What will be the amount of the second mortgage? a. $30,000 b. $45,000 c. $75,000 d. $18,750

If the buyers have an 8% down-payment and the builder is financing 80% of the price, then the amount of the second mortgage will be: 100% - 8% down - 80% builder financing = 12% of the price. $375,000 x 12 % = $45,000.

What monthly gross income will buyers need to qualify for a $325,000 loan at 5% for 15 years? The loan factor is $7.90. The monthly tax and insurance payment is $1100. Lenders are qualifying at 28%. a. $10,700 b. $10,580 c. $9,169 d. $13,098

In qualifying a buyer, once a loan factor is given, the interest rate and term become extra information. If lenders are qualifying at 28% then the formula is: PITI = 28% of Monthly Gross Income. PITI is the part, 28% is the rate and Monthly Gross Income is the total. A loan factor is the monthly payment needed for a $1,000 loan at a given rate and term. In this question that means for every $1000 borrowed the buyer will pay $7.90 a month in principle and interest. Monthly P&I: Loan amount divided by 1000 (to determine how many thousands are borrowed) x factor= P&I $325,000 ÷ 1000 = 325 x $7.90 (factor) = $2,567.50 P&I. To use the "T" we need PITI. The question gives monthly tax and insurance at $1100. $2,567.50 P&I + $1,100 T&I = $3,667.50 PITI Part divided by percent = total. $3,667.50 PITI ÷ 28% qualifying rate = $13,098.21 monthly gross income needed to qualify for the loan.

In a neighborhood that consistently appreciates 5% a year, what should a home purchased for $300,000 be worth after three years using the straight-line method of appreciation? a. $345,000 b. $347,288 c. $305,000 d. $315,000

In the straight-line method of appreciation, the dollar amount is equal every year and always a percent of the original cost. Therefore, if property is appreciating at 5% a year, after 3 years it is going to be worth 3 years x 5% = 15% more. This is 115% of original cost. $300,000 original cost x 115% = $345,000.

4.) Mark purchased a home for $150,000 He had an 80% LTV. He has paid off $42,000 of his purchase mortgage. He is selling the house for $179,000. How much equity does he have? a. $71,000 b. $59,000 c. $101,000 d. $78,000

LTV = $150,000 x 80% = $30,000 $150,000 - $30,000 = $120,000 $120,000 - $42,000(already paid) = $78,000 (still owed) $179,000 (sales price) - $78,00 (still owed) = $101,000 (in equity)

MONTHLY GROSS INCOME = PITI (Step one) Find PI: when you see LOAN FACTOR , DIVIDE BY 1,000 then multiply by that loan factor (Step two) Find TI: 1.) ADD PI + TI 2.) PITI ÷ 28% (ALWAYS 28% WITH PITI)

MONTHLY GROSS INCOME = PITI (How much to quailfy for loan) **Loan: $400,000 at 5% for 15 years **Loan factor: $7.90 **Monthly tax and insurance $1,100 (Step one) Find PI: (((((((((when you see LOAN FACTOR , DIVIDE BY 1,000))))))))) 1.) $400,000 ÷ 1,000 = 400 2.) 400 x $7.90 = $3,160 (Step two) ADD PI + TI 3.) $3,160 + $1,100 = $4,260 4.) $4,260 ÷ 5% = $85,200 ($85,200 monthly gross income needed to qualify for the loan)

A commercial property has potential gross rents of $25,000 per month. It is currently 85% occupied. Annual operating expenses for the property are $135,000. If the owner is making a 12% rate of return, what is the value of the property? a. $1,000,000 b. $1,375,000 c. $3,600,000 d. $1,440,000

Net Annual Income = Rate of Return x Market Value. Using the "T" format, the NAI is the part, Rate of Return is the % and Market Value is the total. To determine the Market Value, the Net Annual Income must be calculated. Potential gross rent: $25,000 per month x 12 months = $300,000. Occupancy is only 85%, therefore only 85% of the potential rent will be collected. Actual gross rent: 85% x $300,000 = $255,000. Net annual income: $255,000 (actual gross rent) - $135,000 ( operating expenses) = $120,000 NAI. Part divided by % = Total. $120,000 (Net Annual Income) ÷ 12% (Rate of Return) = $1,000,000 Market Value

6.) An office space is 24 feet long and 27 feet wide with 10-foot ceilings . The owner wants to carpet the office. How many square yards of carpet does he need? a. 72 b. 216 c. 648 d. 1944

SQ FT DIVIDED BY 9 = SQUARE YARDS 24 x 27 = 648 sq.ft. 648 ÷ 9 = 72

3.) An appraiser uses the cost approach to determine the value of a two-story building 128' x97' at $120/sq.ft , with $10,000 in depreciation and a $27,500 lot, what is his estimate of value of the property? a. $2,997,340 b. $3,007,340 c. $1,507,420 d. $2,979,840

Square footage is: 128' x 97' x 2 = 24,832 sq.ft. Priced at $120 per square foot: 24,832 x $120 = $2,979,840 $27,500 (land) + $2,979,840 (building) - $10,000 (depreciation) = $2,997,340

The average price of a home in a neighborhood of mostly leased properties is $259,000. The average monthly rent is $2,500. One home in the neighborhood is leased for $2,800. Using a GRM, what is the value of that home? a. $290,080 b. $280,000 c. $259,000 d. $295,000

The GRM (Gross Rent Multiplier) is a factor based on rent and location. (T- FORMULA) It is a price per monthly rent. Therefore: (GRM = price ÷ monthly rent.) $259,000 (average price) ÷ $2,500 (average rent) = $103.60 GRM. If GRM = price ÷ monthly rent, - then (GRM x monthly rent = price.) $103.60 (GRM) x $2,800 (monthly rent for the home in question) = $290,080 Home Value using the GRM.

An investment property has actual gross rent of $320,000 per year. The building currently has a 5% vacancy rate. The net annual income from the property is $212,000. The investor has an 11.5% capitalization rate on the property. What is the market value? (a) $2,643,478 (b) $1,751,304 (c) $1,843,478 (d) $939,130

The income approach states: (capitalization rate) x (market value) = (Net annual income) The question gives the (net annual income) as $212,000 and the (capitalization rate) of 11.5%. $212,000 ÷ 11.5% = $1,843,478

An office building has potential gross rent of $24000 a month. The property has a vacancy rate of 12%. Operating expenses for the property are $110,000. The property has sold for $956,000. What is the rate of return based on this information? (a) 15% (b) 12% (c) 17% (d) 11%

$24,000 x 12 = $288,000 $288 - 12% = $253,440 $253,440 - $110,00 = $143,440 $143,440 ÷ $956,000 = 15%

12.) An owner sold his house for $250,000 with a $50,000 take back. (A take back is seller financing. The seller receives a note for this amount at closing and will collect this amount over the agreed-upon term of the loan.) He paid off his loan of $138,500 and he paid a 5% commission. He had closing costs of $10,00. How much did the seller net at closing? a. $227,500 b. $177,500 c. $89,000 d. $39,000

$250,000 x 5% = $12,500 $250,000 -138,500 -12,500 -50,000 -10,000 = $39,000 (net)

7.) A property is listed for $399,500. It sells for $396,000. The negotiated commission is 6% and will be split evenly between the selling broker and the listing broker. The selling broker pays his sales associates 60% of the brokers commission. How much does the selling broker earn? a. $11,800 b. $4,752 c. $7,128 d. $5,940

$396,000 x 6%(commission) = $23,760 Split evenly = $11,880 $11,880 x 40%(brokers commission split) = $4,752

An investor took a short-term loan for $50,000 for 15 months. The interest rate is 9%. The loan is to be repaid in one payment that will include principle and interest. What will be that payment amount?

$50,000 x 9% = $4,500 $4,500/ 12 (months) = $375(monthly) $375 x 15 (months) = $5,625 $50,000 + $5,625 = $55,625

11.) A sale is closing on June 15th and the annual property tax bill has not been paid. The house is assessed at $350,000 and the tax rate is $2.50 per $100. Using a 360-day year, how much will the seller owe for taxes at closing (to the nearest dollar) and how will this be shown on the CD? a.) $4,375 debit the seller/ credit the buyer b.) $4,375 debit the buyer/ credit the seller c.) $4,010 debit the seller/ credit the buyer d.) $4,010 debit the buyer/ credit the seller

1.) $350,000 ÷ 100 = 3,500 2.) $3,500 x $2.50 = $8,750 (annual taxes) 3.) $8,750 ÷ 360 =$24.30 (per day) 4.) $24.30 x 165 (calendar days) =$4,010.42 debit to seller

13.) John is purchasing a lot 125 feet wide and 127 feet deep for $5.65 a square foot, plus $15 a front foot. (A front foot refers to frontage and is the width of the lot.) How much will he pay for the lot? a. $89,693.75 b. $91,568.75 c. $238,125 d. $287,500

1.) 125 x 127 = 15,875 sq.ft. 2.) 15,875 x $5.65 (per sq.ft) = $89,693.75 3.) 125 (ft wide) x $15 (front foot) = $1,875 (for frontage) 4.) $89,693.75 + $1,875 = $91,568.75 (for the lot)

An apartment complex has 20 units. For three months last year occupancy was 100%. Three units were each empty for 5 months and three different units were each empty for 1 month. Based on this information, what was the vacancy rate for the complex last year? (a) 7.50% (b) 92.50% (c) 6.25% (d) It cannot be calculated from this information alone.

18 vacant months 20 x 12 = 240 18 ÷ 240 = 7.5%

8.) A developer has 2,178,000 sq.ft of property. He sells 80% of it for $5,000 an acre. What is the total sale price? a. $200,000 b. $100,000 c. $250,000 d. $125,000

2,178,000 sq.ft ÷ 43,3560 sq.ft (per acre) = 50 acres 80% x 50 (acres) = 40 acres (sold). $5,000 (per acre) x 40 acres (sold) = $200,000

Square foot into acres ______________?

43,560

An investor owns a 10 unit duplex complex containing 20 apartments. Each apartment in the complex rents for $1,500 per month. Last year all the apartments were occupied for 6 months. One apartment was vacant for 5 months and two apartments were each vacant for one month. What was the occupancy rate for the property last year? (a) 92% (b) 94% (c) 97% (d) 99%

5 + 1 + 1 = 7 (empty months) 240 - 7 = 233 occupied months. 233 / 240 = 97%

Square foot into yards, divide by _________?

9

If it ends in "What is the lowest price the property can sell for to accomplish this?"

Add all numbers, divide by brokers opposite percentage ** if 6%, then divide by 94%

A buyer is purchasing a home for $289,000. With 20% down. The lender will charge 2 points on the loan and $85 for a credit check. The attorney fees will be $375. The buyer has given an earnest money deposit to the title company of $3,000. There is a transfer tax on real estate and the rate is $1.50 per hundred. The property taxes are unpaid and will be prorated using a 360-day year. Annual taxes are $6,000. Closing is set for October 5th and the seller will pay for closing day. How much will the buyer owe at closing? (Round all answers to the nearest dollar.) a. $55,301 b. $58,301 c. $59,656 d. $62,656

Buyer must bring $62,884 - $7,583 to closing: $55,301. REMINDER: The transfer tax is an expense of the seller and is not part of this problem. It is extra information.

14.) A buyer purchased a home three years ago for $250,000. The property is in a neighborhood where homes have been appreciating 5% per year for the last 3 years. Using compound appreciation, what is the present value of the property to the nearest dollar? a. $289,406 b. $262,500 c. $275,625 d. $287,500

COMPOUND APPRECIATION= $250,000 x 105% x 105% x 105% = $289,406

5.) Maria is planning to buy a house for $200,000. The lender has indicated that he will charge 3 points plus and origination point. Maria is considering the difference between an 80% LTV and a 75% LTV. How much will she save on points if she chooses the 75% LTV? a. 5% b. $1,600 c. 6,000 d. $400

For the 80% LTV loan: $200,000 x 80% = $160,000 $160,000 x 4% (points) = $6,400 For the 75% LTV loan: $200,000 x 75% = $150,00 $150,000 x 4% (points) = $6,000 She will save $400.

An agent has negotiated a 5.5% commission on a house listed for $600,000. The sellers have accepted an offer for $590,000. The listing broker will pay the selling broker 3% and retain 2.5%. The listing broker will pay his sales agent 70% of the listing commission. How much will the listing broker earn? a. $9,900 b. $4,500 c. $10,325 d. $4,425

Commission is a percent of the Sale Price. The question is asking for the Listing broker's earnings, therefore, it is only necessary to deal with the listing portion of the commission: 2.5%. Listing commission: 2.5% x $590,000 (Sale Price) = $14,750. The broker will pay the listing sales agent 70% of that, leaving 30% for the broker's share. Broker's share of the commission: 30% x $14,750 = $4,425.

An investor purchased a home 4 years ago for $300,000. The property values in the neighborhood have been appreciating 2% per year. Using compound appreciation, what is the value of the house after 4 years? a. $324,000 b. $324,730 c. $308,000 d. $332,000

Compound appreciation requires a calculation for each year. At the end of the first year the property is worth 100% (original investment) + 2% (appreciation) or 102% of its worth at the beginning of the year. This must be repeated for each year the property is held. A chain of multiplication is a simple way to do this: $300,000 (investment) x 102% (for year 1) x 102% (for year 2) x 102% (for year 3) x 102% (for year 4). $300,000 x 102% x 102% x 102% x 102% = $324,729.65

Mary purchased a home for $275,000. She had an 80% LTV. She has paid off $53,000 on the purchase loan. Her home has appreciated 10%. How much equity does she have? a. $167,000 b. $53,000 c. $82,000 d. $135,500

Equity = market value - debt. If the home has appreciated 10% then her value today = 110% of cost. Market value: 110% of $275,000 = $302,500. To calculate the debt, it is necessary to determine the original loan amount. Since the LTV of 80% is given, then the loan = 80% of the price. Loan: 80% x $275,000 = $220,000. She has reduced the debt by paying $53,000. $220,000 loan - $53,000 repaid = $167,000 debt. Equity: $302,500 (market value) - $167,000 (debt) = $135,500.

A seller tells an agent that he wants to net $150,000 on the sale of his home. His loan balance is $185,000, closing costs will be $11,000 and he has agreed to pay the agent a 5% commission. What is the minimum sale price necessary for him to achieve this goal? a. $363,300 b. $363,158 c. $368,085 d. $364,211

If the broker earns 5%, then everyone else must be covered by the 95% left after the broker is paid. The seller needs: $150,000 cash + $185,000 loan payoff + $11,000 closing costs = $346,000. $346,000 = 95% of the price. (Part = % x Total) $346,000 ÷ 95% = $364,211.

Your buyers can qualify for a loan of $285,000. If they intend to make a down-payment of 25%, what is the maximum they can pay for a property? a. $356,250 b. $380,000 c. $342,000 d. $385,000

If the down payment will be 25% of the price then the loan will be 75% of the price. Therefore: $285,000 loan = 75% of price. (Part = % x Total) $285,000 ÷ 75% = $380,000 maximum price.

10.) What is the minimum monthly income your buyers need to qualify for a $200,000 loan at 6% for 30 years if lenders are qualifying at 28%? (The loan factor is $6.00). Monthly taxes and insurance will be $900. a. $7,500 b. $6,786 c. $4,286 d. $7,686

PITI = 28% of monthly income. A factor is P&I per month for each $1,000 borrowed. Loan ÷ 1,000 x Factor = P&I/month Therefore: 1.) $200,000 ÷ 1,000 = 200 2.) $200 x 6 = $1,200 (P&I) 3.) $1,200 (P&I) + $900 (T&I) = $2,100 (PITI) 4.) $2,100 ÷ 28% = $7,500 (monthly income to qualify for the loan)

PROFIT/RATE OF RETURN- you ___(÷)_____ percent NET/VALUE - you ____(x)____ percent

PROFIT - (÷) PERCENT NET/VALUE - (x) PERCENT

1.) A seller has received $225,000 for the sale of his home. This represents a 20% profit. What did he pay for the house when he purchased it? a. $180,000 b. $187,500 c. $175,000 d. $205,000

PROFIT ALWAYS EQUALS = 100% of the cost, plus the profit percent. Therefore: $225,000 ÷ 120% = $187.500 (sales price)

For vacancy rate , add up all vacant apartments. Then take the total of available units and times it by 12 for 12 months in a year. 30 units, 20 total vacant for the year. 30 x 12 = 360 20 ÷ 360 = 0.0555555556 = 5.6 %

Remember vacancy rate is gonna be small amount divided by larger amount. ACCOUNT FOR 12 MONTHS!

How many square yards of carpet will it require for an office space 36' by 27' with 10-ft. ceilings? a. 324 b. 180 c. 36 d. 108

The room dimensions are provided in feet and the ceiling height is unnecessary information. area: 36' x 27' = 972 sq. ft. To convert square feet to square yards divide by 9. 972 sq. ft. ÷ 9 = 108 sq. yds. of carpeting.

2.) A seller wants to net $185,000 on the sale of his property. He must pay a loan balance of $180,530 and the closing costs of $10,000. The commission to the listing broker will be 6%. What is the lowest price the property can sell for to accomplish this? a. $375,530 b. $398,062 c. $395,295 d. $399,500

The seller needs: $185,000 (cash) + $180,530 (loan payoff) + $10,000 (closing costs) Total = $375,530 (lowest price he can sell for) If the broker receives 6% of the sale price, then the seller receives (100%-6%) = 94% (of the sale price) $375,530 ÷ 94% = $399,500

An apartment complex has 30 units. Last year for 6 months there was 100% occupancy. One unit was vacant for 6 months. Three units were each vacant for 2 months, and eight units were each vacant for 1 month. What was the vacancy rate for the complex last year? a. 2.5% b. 4.7% c. 5.6% d. 3.6%

This question can be easily solved using the T. Part = number of vacant units in the year. % = vacancy rate. Total = total rental units available in a year. We are solving for the rate or %. Part ÷ Total = %. Vacant units during the year: 6 + (3x2) + (8x1) = 6 + 6 + 8 = 20 vacant units. Total units: 30 apartments x 12 months = 360. 20 (empty units in the year) ÷ 360 (monthly units available in the year) = 5.6% vacancy rate

REMEMBER PROFIT = 100% So - a house sold for $300,000 , sellers earned a 10% profit - what's the original cost? 10% = 110% $300,000 ÷ 110% = $272,727 - - - was the original cost.

WHEN TALKING PROFIT YOU DIVIDE BY THE PERCENT.

A home has recently sold for $400,000 and the sellers earned a 15% profit on the sale. What did they pay for the home when they bought it? a. $347,826 b. $340,000 c. $385,000 d. $370,000

When sellers earn a profit it means they recovered 100% of the cost + the profit percent. In this case the question is telling us: Sale price = 115% of cost. Sale price: $400,000 = 115% (cost + profit%) x ? $400,000 ÷ 115% = $347,862 original cost.

An investor has purchased a property that is giving him a 10% rate of return. Potential gross rents total $10,000.00 a month. Expenses for the property total $47,570.00 per year. The property has a vacancy rate of 8%. What is the market value of the property? (a) $628,300.00 (b) $724,300.00 (c) $722,020.00 (d) $664,258.00

a.) $628,300

Difference between: Straight line appreciation and Compound How much is a $200,000 home that consistently appreciates 5% a year worth 3 years later? Straight line- $200,000 x 15% Compound - $200,000 x 105% x105% x 105%

compound is = add 100%