Real Estate Chapter 24

A 100-foot-by-125-foot lot sold for $125,000. What was the price per front foot?

The answer is $1,250. $125,000 sales price ÷ 100 front feet = $1,250 per front foot.

You attempt to appraise a 28-unit apartment house, employing the income approach. Each unit rents for $775 per month, an amount that seems consistent with similar rental units in the vicinity. For the past five years, the annual expenses of operation have averaged $82,460. The complex has maintained a consistent vacancy rate of 5%. A potential investor is only interested if the return is 9.5%. What value would you arrive at using these variables?

The answer is $1,736,000. $775 monthly rent × 28 units × 12 months = $260,400 annual scheduled gross income; $260,400 annual scheduled gross income - 5% vacancy rate = $247,380 annual effective gross income; $247,380 annual effective gross income - $82,460 annual expenses = $164,920 annual net operating income; $164,920 annual net income ÷ 9.5% (0.095) = $1,736,000 value.

What would you pay for a building producing $11,250 annual net income and showing a minimum rate of return of 9%?

The answer is $125,000. $11,250 annual net income ÷ 9% (0.09) = $125,000 price.

A woman earns an annual income of $60,000, and her husband earns $2,400 per month. How much can the couple pay monthly for their total housing payment if the lender uses a 28% qualifying ratio?

The answer is $2,072. $60,000 annual salary ÷ 12 months = $5,000 wife's monthly salary + 2,400 husband's monthly salary = $7,400 total monthly salary; $7,400 total monthly salary × 28% (0.28) = $2,072 monthly payment.

A buyer is granted a 90% loan of $340,500. How much will her monthly principal and interest payment be, using a loan payment factor of $7.16 per $1,000 of loan?

The answer is $2,437.98. $340,500 loan ÷ $1,000 × $7.16 = $2,437.98 monthly principal and interest payment.

Calculate eight months' interest on a $5,000 interest-only loan at 9.5%.

The answer is $316.67. $5,000 loan × 9.5% (0.095) = $475 annual interest; $475 annual interest ÷ 12 months × 8 months = $316.67 interest.

A man earns $20,000 per year and can qualify for a monthly PITI payment equal to 25% of his monthly salary. If the annual tax and insurance is $678.24, what loan amount will he will qualify for if the monthly PI payment factor is $10.29 per $1,000 of loan amount?

The answer is $35,000. $20,000 annual salary ÷ 12 months = $1,666.67 monthly salary; $1,666.67 monthly salary × 25% = $416.67 monthly PITI payment; $678.24 annual taxes and insurance ÷ 12 months = $56.52 monthly taxes and insurance; $416.67 monthly PITI payment - $56.52 monthly TI = $360.15 monthly PI payment; $360.15 monthly PI payment ÷ $10.29 × $1,000 = $35,000 loan.

If the savings and loan gives you a 90% loan on a house valued at $88,500, how much additional cash must you produce as a down payment if you have already paid $4,500 in earnest money?

The answer is $4,350. 100% value - 90% LTV = 10% down payment; $88,500 × 10% (0.10) = $8,850 down payment; $8,850 down payment - $4,500 earnest money = $4,350 due at closing.

The buyer has agreed to pay $175,000 in sales price, 2.5 loan discount points, and a 1% origination fee. If the buyer receives a 90% loan-to-value ratio, how much will the buyer owe at closing for points and the origination fee?

The answer is $5,512.50. 2.5 points loan discount + 1 point origination fee = 3.5 points; $175,000 loan × 90% or (0.90) = $157,500 sales price; $157,500 loan × 3.5% (0.035) = $5,512.50 for points and origination fee.

An office building produces $68,580 annual net operating income. What price would you pay for this property to show a minimum return of 12% on your investment?

The answer is $571,500. $68,580 annual net operating income ÷ 12% (0.12) = $571,500 price.

Two sponsoring brokers evenly split the 6% commission on a $73,000 home. The selling broker was paid 70% of his sponsoring broker's share. The listing broker was paid 30% of her sponsoring broker's share. How much did the listing broker receive?

The answer is $657. $73,000 sales price × 6% (0.06) = $4,380 full commission; $4,380 full commission ÷ 2 sponsoring brokers = $2,190 sponsoring broker's share of the commission; $2,190 sponsoring broker's share of the commission × 30% (0.30) = $657 listing broker's commission.

Find the number of square feet in a lot with a frontage of 75 feet 6 inches and a depth of 140 feet 9 inches.

The answer is 10,626.63. 6" ÷ 12 = 0.5' + 75' = 75.5' frontage; 9" ÷ 12 = 0.75' + 140' = 140.75' depth 140.75' × 75.5' = 10,626.63 square feet.

A buyer pays $2,500 each for four parcels of land. He subdivides them into six parcels and sells each of the six parcels for $1,950. What was the buyer's percentage of profit?

The answer is 17%. $2,500 cost × 4 parcels = $10,000 total cost; $1,950 sales price × 6 parcels = $11,700 sales price; $11,700 sales price - $10,000 cost = $1,700 profit; $1,700 profit ÷ $10,000 cost = 0.17 or 17% profit.

What percentage of profit would you make if you paid $10,500 for a lot, built a home on the lot that cost $93,000, and then sold the lot and house together for $134,550?

The answer is 30%. $10,500 cost of lot + $93,000 cost of home = $103,500 total cost; $134,550 sales price - $103,500 total cost = $31,050 profit; $31,050 profit ÷ $103,500 total cost = 0.3 or 30%.

Your monthly rent is $525. What is your rent as a percentage of an annual income of $21,000?

The answer is 30%. $525 monthly rent × 12 months = $6,300 annual rent; $6,300 annual rent ÷ $21,000 annual income = 0.30 or 30%.