TX 122 Real Estate Principles II-Lesson 1 Flashcards
Real Estate Math (163 cards)
1
Q
What does a mortgage calculator typically calculate?
A
- Principal and interest payment
- Estimated taxes
- Insurance
2
Q
What is a proper fraction?
A
A fraction less than one
3
Q
What is an improper fraction?
A
A fraction greater than or equal to one
4
Q
How can you reduce a fraction?
A
Divide both numerator and denominator by their greatest common divisor
5
Q
What is the lowest common denominator?
A
The smallest number that can be evenly divided by all denominators
6
Q
True or False: To multiply fractions, you multiply the numerators and then the denominators.
A
True
7
Q
How do you divide fractions?
A
Invert the divisor and multiply
8
Q
How do you add or subtract decimals?
A
Line up decimal points and add or subtract as with whole numbers
9
Q
How can you convert a fraction to a decimal?
A
Divide the numerator by the denominator
10
Q
What is the process for multiplying decimals?
A
Multiply as whole numbers and move the decimal point left based on total decimal places
11
Q
What is the dividend in a division problem?
A
The number being divided
12
Q
What do you do if both the dividend and divisor contain decimals?
A
Shift the decimal points to eliminate them before dividing
13
Q
How do you change a decimal to a fraction?
A
Write the decimal as a whole number and place it over a power of ten
14
Q
How do you eliminate decimals in division?
A
Shift the decimals in both the divisor and dividend to the right
This process helps in simplifying the division operation.
15
Q
What is the result of dividing 640 by 8?
A
80
16
Q
How do you change a decimal to a fraction?
A
Write the decimal as a whole number over ‘1’ followed by zeros corresponding to decimal places
For example, 0.25 becomes 25/100.
17
Q
Convert 0.25 to a fraction.
A
1/4
18
Q
Convert 0.123 to a fraction.
A
123/1000
19
Q
What is the definition of a percentage?
A
A portion of a whole expressed as parts out of 100
20
Q
What does percent mean?
A
Per hundred
21
Q
What is 40% expressed as a fraction?
A
40/100
22
Q
How do you convert a percentage to a decimal?
A
Divide the percentage by 100
23
Q
What is 2% expressed as a decimal?
A
0.02
24
Q
How do you convert a percentage to a fraction?
A
Place the percentage over 100 and reduce if possible
25
Convert 175% to a fraction.
7/4
26
How do you convert a fraction to a percent?
Divide the numerator by the denominator, convert to decimal, then multiply by 100
27
What is the formula to find the amount paid?
Divide made by the rate
28
What is the T-bar formula used for?
To solve percentage problems
29
What is a percentage lease?
A lease where additional payment is based on the tenant's sales
30
What is the first step in calculating percentage rent?
Determine the total sales subject to the agreement
31
What is the formula for profit?
Sales price - cost
32
What percentage profit results from a $150,000 profit on a $350,000 cost?
43%
33
What is the calculation for determining profit percentage?
Profit / original cost
34
What is the gross annual rent?
The total amount of rents paid by the tenant or tenants
35
What does a percentage greater than 100% indicate?
More than one whole unit
36
What is the percentage of profit if an item is sold for $280,000 after being purchased for $200,000?
40%
37
Fill in the blank: To convert a percentage to a decimal, you move the decimal point ______.
two places to the left
38
True or False: A percentage can be used to express probability.
True
39
What is the primary objective for a client's investment in property?
Rapid appreciation in value
40
What is Gross Annual Rent?
The total amount of rents paid by the tenant or tenants on the property for one year
41
How is the Vacancy Rate expressed?
As a percentage of Gross Annual Rent
42
What is Adjusted Gross Annual Rental Income?
Gross Annual Rent minus rental income lost through vacancy
43
What does T.I.M.M.U.R. stand for in Basic Rental Property Expenses?
* Taxes (Annual Property Taxes)
* Insurance (Property & Business/Liability Insurance)
* Maintenance Expenses
* Management Fees
* Utility Costs
44
What are Replacement Reserves?
Funds set aside from the adjusted gross rental income for repairs or structural component replacements
45
How is Net Rental Income calculated?
By subtracting Basic Rental Property Expenses from Adjusted Gross Annual Rental Income
46
What is Annual Cash Flow?
Net Rental Income minus debt service (Annual Principal & Interest on Any Loans)
47
What is a rule of thumb for estimating property taxes?
1.25% of the price of the property
48
What is the suggested figure for property insurance as a percentage of the property price?
0.75%
49
What is a common rule of thumb for maintenance expenses?
10% of the adjusted gross annual rental income
50
What percentage do management fees typically range from?
10% to 15% of adjusted gross rental income
51
What is the suggested percentage for utilities expenses?
2% of the adjusted gross annual rental income
52
How is the Annual Net Income calculated?
Gross Rental Annual Income minus total expenses
53
What is the formula for determining an acceptable offering price using the IRV formula?
Income = Rate of Return x Property Value
54
What is the effective annual pre-tax return if the property is purchased for $300,000 and generates an Annual Net Income of $17,628?
5.876%
55
True or False: Interest is the cost incurred for borrowing money.
True
56
What determines the amount of interest paid on a loan?
Annual interest rate, principal amount, and term of the loan
57
Fill in the blank: The formula for calculating simple interest is Principal x Annual interest rate x _______.
Time (in years)
58
What is the difference between simple interest and compound interest?
Compound interest adds each period's interest to the principal before the next interest payment is calculated
59
What does amortization mean in the context of real estate loans?
Gradually reducing a debt by making payments over time until fully paid off
60
What is level amortization?
Payments are all equal except possibly the last one
61
What is an amortization schedule?
A chart showing the beginning principal balance, payment dates, interest portion, principal reduction, and remaining balance
62
How can you determine the future balance of a loan?
By creating an amortization schedule
63
How do you calculate the monthly interest on a loan?
Multiply the principal balance by the monthly interest rate
64
What is the monthly principal and interest payment for a $350,000 loan at 4.75% over 25 years?
$1,995.41
65
What is a formula to determine monthly payments?
Use online calculators to determine payments quickly
## Footnote
Many calculators are available, but may have ads for lenders
66
What is the purpose of a Mortgage Amortization Schedule?
To list every monthly payment along with principal and interest, and the remaining balance due
## Footnote
It shows how the portion of each payment changes over time
67
How does the portion of monthly payments change over time in an amortization schedule?
The portion paying interest decreases while the portion for principal increases
## Footnote
This reflects the reduction of the loan balance over time
68
What is the Loan-to-Value Ratio (LTV)?
Loan amount divided by the value of the property
## Footnote
LTV determines how much can be borrowed relative to the property's value
69
If a buyer puts down 10%, what is the maximum LTV allowed?
90%
## Footnote
This is based on the home's value
70
How do you calculate the loan amount given a purchase price and appraisal?
Value * Rate = Loan
## Footnote
Use the lesser of the sale price or the appraised value
71
What is the formula to compute annual interest on a loan?
Total amount * Rate
## Footnote
For example, $220,500 * 0.06 = $13,230 annual interest
72
How can monthly PI payments be calculated without a calculator?
Create a personal table based on $1,000 amortized for 30 years
## Footnote
Published tables or lender quotes can also be used
73
What is a discount point?
1% of the loan amount paid to lower the interest rate
## Footnote
Commonly used in mortgage loans
74
How do you calculate the cost of discount points?
Loan amount * Number of points
## Footnote
For example, $220,000 * 0.04 = $8,800
75
What happens if a bond's coupon rate is lower than the market rate?
The bond sells at a discount
## Footnote
The discount reflects the difference between the coupon rate and market rate
76
How is the break-even point determined for discount points?
Divide the cost of points by the monthly payment difference
## Footnote
This shows how long until savings offset the cost
77
What is the yield spread premium (YSP)?
A premium paid for a mortgage with a higher interest rate than the market rate
## Footnote
This can be used by lenders to cover closing costs
78
What is the process of proration in real estate?
Fair division of costs and benefits in a transaction
## Footnote
Used for things like taxes and HOA fees
79
Fill in the blank: The Loan-to-Value Ratio (LTV) is calculated as ______.
Loan / Value
80
True or False: The buyer can always pay discount points for FHA loans.
False
## Footnote
Initially, sellers were expected to pay the points, but this changed in 1992
81
What does a higher yield to the lender imply when discount points are paid?
It increases the lender's rate of return
## Footnote
Each discount point increases the yield by approximately 1/4 of 1%
82
How is proration applied to a group of individuals buying cookies?
Each individual's contribution determines their share
## Footnote
Example: Tori pays 60%, Jordan and Gabby each pay 20%
83
What is proration?
Making a fair division of the costs and benefits of a financial transaction
## Footnote
In real estate, it involves dividing costs like taxes and fees.
84
What are the two types of items in proration?
* Accrued items
* Prepaid items
85
How do you calculate the amount of expense or income per day if it's an annual amount?
Annual amount divided by total days in the year
86
What is the difference between calendar year and banker's year?
* Calendar Year: 365 days (or 366 in leap year)
* Banker's Year: 360 days (each month has 30 days)
87
When prorating through the day of closing, who is responsible for the day of closing?
The seller
88
What is an accrued item?
An expense that has accumulated on a purchase and will be paid by the buyer
89
What is a prepaid item?
An expenditure that has already been paid by the seller and is part of the buyer's purchase
90
How is interest paid on loans typically structured?
Interest is almost always paid in arrears
91
In a new loan, how do you calculate daily interest?
Annual Interest divided by Days in Year
92
When a loan is assumed, how is the interest proration treated?
Debit to the seller and credit to the buyer
93
What should the buyer pay for if the seller has not paid homeowner's fees in advance?
The seller's portion of the month
94
When prorating property taxes, what year is typically used?
A 365-day year, unless stated otherwise
95
What is the first step in determining property tax?
Local government budget determination and appropriation
96
What is the process of assessment in property tax determination?
Valuation of taxable property and conversion into assessed value
97
What is a mill levy?
Another way of expressing the rate at which property taxes are assessed
98
What happens to property tax liens during a mortgage foreclosure?
They are not cleared and still must be paid
99
What is the formula to calculate the tax rate?
Total budget divided by assessed value of taxable property
100
What is the due date for county and state taxes in many states?
Payable on October 1 and become delinquent on February 1 of the following year
101
What are the two types of days owed in proration?
* Own TO day of Closing
* Own FROM day of Closing
102
What does the term 'accrued interest' refer to?
Interest that has accumulated up to the closing date and is owed by the buyer
103
What is the significance of the closing date in proration calculations?
It determines who owns the days before and after the closing
104
What is the due date for property taxes?
October 1
105
When do property taxes become delinquent?
February 1 of the following year
106
What is a mill levy?
A rate at which ad valorem property taxes are assessed
107
How is the mill levy calculated?
Budget needs of the community divided by total property assessed values
108
What does 85 mills represent?
$85 of tax for each $1,000 of assessed valuation
109
What is the formula for ad valorem taxes?
Assessed valuation x mill levy
110
If property taxes are $1000 and mill rate is 55 mills, how do you find the assessed valuation?
Divide $1000 by .055
111
What is the area formula for a right triangle?
1/2 x base x height
112
How do you find the area of an equilateral triangle?
Area = s² x √3 / 4
113
What does 's' represent in the area formula for an equilateral triangle?
The length of any side of the triangle
114
What is the formula for the area of a circle?
Area = πr²
115
What is the approximate value of Pi?
3.142
116
How is volume defined in real estate?
The total space that something occupies (3-dimensional)
117
What is a common formula for calculating the volume of a cylinder?
Area of the circle x height
118
What is the total cost for renting warehouse space for 6 months at 22.5 cents/cubic foot/month for 80,000 cubic feet?
$108,000
119
What is defined as a legal description in real estate?
Information that a qualified surveyor can use to find the property and mark each corner
120
List the four accepted methods of describing real estate.
* Metes and bounds
* Rectangular survey system
* Recorded plat of subdivision
* Monuments and markings
121
What does 'metes' mean in metes and bounds?
Measurement
122
What does 'bounds' refer to in metes and bounds?
Direction
123
What is the point of beginning (POB) in metes and bounds?
The starting point for measuring the property boundaries
124
When preparing a metes and bounds description, how should directions be stated?
Recite the north or south direction first, followed by the direction of declination
125
How many degrees are in a circle?
360 degrees
126
What is the formula for the area of an isosceles triangle?
1/2 x base x height
127
What is the value of 1 mill in terms of assessed valuation?
$1 per $1,000
128
What is the formula for determining the mill rate?
Budget needs divided by total property assessed values
129
What is the total rent credit to the buyer if the escrow closed on April 15 at $700/month?
$1773.33
130
How is square footage calculated?
Length x Width
131
What constitutes living area in a residence?
Gross square footage of all heated and cooled space
132
What does lineal footage refer to in real estate?
Total length of all perimeter walls of the structure
133
What is the volume of a space or object typically calculated with?
Height, width, and depth, or length, width, and depth
134
What is the formula for calculating the volume of a rectangular prism?
Area of the base x height
135
What is 3 squared?
9
136
What is the area of a circle with a radius of 10 feet?
314 square feet
137
How many cubic feet are in a standard bushel?
1.244 cubic feet
138
If a silo has a diameter of 30 feet and a height of 150 feet, what is the radius?
15 feet
139
What is the income produced if 3 silos are full for 3 months at 7.5 cents/bushel?
$57,502.58
140
What is the unit of measurement used in a compass?
Degrees
## Footnote
A circle is equally divided into 360 degrees.
141
What does the compass needle always point to?
Magnetic north
## Footnote
The compass must be oriented so that the needle points at '0' or north.
142
What are the components of a directional description starting from the Point of Beginning (POB)?
Direction, angle of declination, and distance
## Footnote
Example: 'POB NIOE 250 feet' defines the first segment of a property boundary.
143
How is the rectangular survey system also known?
Government survey method
## Footnote
This system uses numbered squares based on two sets of intersecting lines.
144
What lines run north and south in the rectangular survey system?
Principal meridians
## Footnote
Base lines run east and west.
145
How are townships defined in the rectangular survey system?
By two adjacent range lines and two adjacent tier lines
## Footnote
Each township is 6 miles square and contains 36 square miles.
146
What is the area of one township in square miles?
36 square miles
## Footnote
Each township is 6 miles on each side.
147
What is the legal description format for a township?
T[Township Number] [Range Number] of the principal meridian
## Footnote
Example: 'T3N R4W' refers to a specific township.
148
How many acres are in one section?
640 acres
## Footnote
Each section is a square, 1 mile on each side.
149
Fill in the blank: A _______ is 1/4 of a section.
40 acres
## Footnote
A quarter section is 160 acres, and further subdivisions can be made.
150
What is the formula to calculate acres in a rectangular survey system description?
Multiply all denominators and divide into 640 acres
## Footnote
This method simplifies acreage calculations.
151
What does a lot and block survey reference?
A prior metes and bounds or rectangular survey description
## Footnote
It is performed in two steps.
152
What is a datum in the context of land measurement?
A point, line, or surface from which distances or elevations are measured
## Footnote
It serves as a reference point for measurements.
153
What are bench marks?
Permanent reference datum points established throughout the U.S.
## Footnote
Usually, they are embossed brass markers set into solid bases.
154
How is the area of a rectangular parcel calculated?
Multiply width by depth
## Footnote
Example: Area = 31 feet x 123 feet.
155
What is the price per acre or price per square foot considered in real estate?
An important figure in real estate
## Footnote
It helps in determining property value.
156
True or False: The rectangular survey system is used in all states.
False
## Footnote
It is not used in Texas.
157
What is the typical orientation of latitude and longitude lines on maps?
Latitude lines are horizontal, and longitude lines are vertical
## Footnote
North is typically at the top of the map.
158
What was the asking price of the home Mary bought for $150,000?
$187,500
## Footnote
The asking price was calculated by dividing $150,000 by 0.8, since Mary paid 80% of the asking price.
159
Why do we use 0.80 instead of 0.20 in the asking price calculation?
Because Mary paid 80% of the asking price after a 20% discount
## Footnote
100% - 20% = 80%.
160
How do you calculate the time needed to travel a distance?
Divide the distance by the distance traveled in one minute
## Footnote
Example: If traveling at 55 miles per hour, calculate miles per minute by dividing 55 by 60.
161
How far can you go in one minute at 55 miles per hour?
0.917 miles
## Footnote
This is calculated by 55 miles per hour divided by 60 minutes per hour.
162
How long does it take to travel 30 miles at 0.917 miles per minute?
33 minutes
## Footnote
This is calculated by dividing 30 miles by 0.917 miles per minute, rounding up to 33.
163
Fill in the blank: Mary bought a home for $150,000, which was _______ less than the asking price.
20%
## Footnote
This indicates the discount applied to the original asking price.
