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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

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

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.

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.

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.

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

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!

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

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%