RE Knowledge Base Flashcards
(14 cards)
What is Housing Inventory Ratio
Number of Listings / Houses Sold per Month
Normal – 5.5 ie 5 – 6 month supply.
Less inventory creates greater price appreciation
What is the ECR (Economic Condition Ratio)
Avg Sales Price / Avg Household Income
Normal = 2.5
What is Homeowner ROE (Return on Equity)
Equity / Original Purch Price
Market Price less Balance Owed = Equity
ROE (Return on Equity) is much higher than appreciation because typically property is purchased using down pmt.
What is Appreciation Ratio and How is it calculated
Appreciation Ratio is the rate a property has appreciated over time
Total Appreciation Amount / Orig Purch Amt
Total Appreciation is: Current Market Price - Orig Purch Price
Historical Appreciation = 4.5%
What is Debt to Income Ratio of the Front Ratio of the 29/41 Rule
Front ratio 29% —
Recurring Monthly Debt for housing costs payment
(rent or principle, interest, insurance, taxes, mortgage insurance, and
homeowner assoc fees)
cannot exceed 29% of gross monthly income
What is Debt to Income Ratio of the Back ratio of the 29/41 Rule
Monthly Rent or PITI plus HOA fees and PMI
plus
recurring monthly consumer credit card
plus installment debt,
plus auto payments, school loans, alimony, child support.
cannot exceed 41% of gross monthly income.
The FHA and VA are usually ok with 41% but conventional loans are 36%
What are current Lender income/housing cost Ratios for:
Fanny Mae Freddie Mac FHA VA
Fannie Mac 28/36
Freddie Mac 31/38
FHA 33/43
VA 41/41
What are lender down payment requirements:
FHA Conventional
FHA 3.5% down pmt
only 1 FHA loan per borrower
Conventional varies 5% — 20% dwn Pmt
How is the FHA — Premium Mortgage Insurance (PMI) calculated
The PMI is comprised of two components-
the prepaid portion which is determined at settlement and added into the loan
and the monthly premium which is added to the loan payment.
The prepaid portion = 1.75% of the total loan amount.
The monthly premium = 1.25% of the total loan amount divided by 12
What is the Pay Back metric
The length of time to recover investor initial cash outlay (investment) from cash flow
What does Cash on Cash return measure
Cash Flow Before Taxes / Total Investor Cash Outlay (investment)
Customarily this is a measure of the first year performance
Yield on Stocks
Annual Dividend / Price of Stock
Higher the price of stock the lower the yield. If annual dividend is $1.00/share and the stock price is $20.00 the yield = 5%
Payout Ratio
Annual Stock Dividend / Earnings per share
This is a reflection of what portion of the earnings are being distributed to the stock holders as dividends
Target Rental Ratios
NOI 58% Operating Expenses 42%
