Real Estate Math Study Guide

Unit 8 - Real Estate Math Review
Unit Outline
 Using a Simple Calculator

 Math Refresher
 Fractions, Decimals, and Percentages
 Percentage Problems
 Commission Problems
 Loan Problems
 Straight-Line Appreciation/Depreciation and Compounded Interest
 Capitalization Rate
 Percentage Leases
 Measurement
 Linear Measurement
 Measurement Conversions
 Measurement Problems
 Prorating Problems
 Mill Rate Problems
Reading Assignments (please note which version of the text you are using)
VanEd Presents: Modern Real Estate Practice, 18th edition
 Math FAQs, pg 460 (453 in the 18th Edition text)
Modern Real Estate Practice, 18th edition
At the end of this unit, the student will be able to:
 Use a simple calculator

 Compute fraction, decimal and percentage problems
 Explain capitalization rate
 Discuss percentage leases
 Work out measurement problems
 Compute prorations and mill rate problems
Section 8: Real Estate Math Review
Introduction
Using a Simple Calculator
Math Refresher
Fractions, Decimals, and Percentages
Percentage Problems
Commission Problems
Loan Problems
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Copyright© Van Education, LLC DBA Van Education Center, www.vaned.com
Straight-Line Appreciation/Depreciation and Compounded Interest
Capitalization Rate
Percentage Leases
Measurement
Linear Measurement
Measurement Conversions
Measurement Problems
Prorating Problems
Mill Rate Problems
Introduction
For some people, when they hear the word math, there is a feeling of anxiety. This section introduces the
math skills needed to be successful in real estate and removes that anxious feeling for those who have it.
Using a Calculator
When you are in the business you will either be using a financial calculator or a computer spreadsheet to
calculate most math scenarios. However, when you take the state exam, all you will need is the simple
calculator that comes with your computer. The following math calculations will be based on using the simple
calculator that comes with your computer.
Before we begin, play with the calculator on your computer.
For those using Microsoft Windows 98, 2000, ME or XP:

To open Calculator, click Start, point to All Programs, point to Accessories, and
then click Calculator.
You might not be familiar with the use of * and /. * means to multiply and the / means to divide. For the
purpose of this section these notations will be used.
Example: 4 * 4 = 16 (four times four) and 4 / 4 = 1 (four divided by four).
You can also store a number in the calculator memory.
 Click MS to store the displayed number,

 Click MR to recall a stored number,
 Click MC to clear the memory,
 Click M+ to add the displayed number to the number already in memory,
 Click MR to see the new number.
Math Refresher
Fractions, Decimals and Percentages
Fractions
A fraction is written as follows: 4/5 (four fifths) with the 4 being called the Numerator and the 5 being called
the Denominator. A proper fraction is less than the whole (less than 100%) or less than 1.
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Decimals
When you look at the above fraction you could say 4 divided by 5. A decimal is the product of the division.
If you divide 4 by 5 you get .8 which is the decimal number. If someone says, convert 4/5 (four-fifths) to a
decimal number, divide the numerator by the denominator. Remember, all decimals are less than one and
have a decimal point (.) in front of them, which is important when you enter a decimal into your calculator.
First enter the decimal point and then the number.
Example: Using Fractions or Decimals
How much do you get if you receive 4/5 of $800?
The answer of 640 can be found two ways: You can multiply $800 * 4/5 or you can multiply $800
by .8.
To multiple fractions, multiply the Numerators and the Denominators. Remember if you have a
whole number, like 800, it is the same as the fraction 800/1. So you get (800 * 4 ) / (5 * 1) = 3200 /
5 = 640.
Using your calculator either way is easy. Try them both.
SPECIAL NOTE: When you see the word “of” in a math problem it means times. Thus
the statement 4/5 of $800 means 4/5 * 800.
Dividing Decimals using the calculator removes all those wonderful long division problems where you had
to track the decimal point. On your calculator divide .895 by .65. You should get 1.38. Now reverse it and
divide .65 by .895 and you get .73. The calculator has placed the decimal in the correct place.
Percentages
Percent (%) could be said to be just another way of showing a decimal. It means per hundred or per
hundred parts. The decimal .65 could also be stated as 65%. So lets look more closely at the decimal
point. The placement after the decimal point has meaning.
.1 is 1/10
.01 is 1/100
.001 is 1/1000 and so on.
So .65 is 65/100 or 65 hundredths. Since percent is always based on the hundredth position, .1 as a percent
is 10% or 10/100. The decimal .678 (678/1000) as a percent would be 67.8%
Two simple rules:
1. To convert a decimal to a percent, move the decimal two places to the right and add the %
sign.
2. To convert a percent to a decimal, move the decimal point two places to the left and drop the
% sign.
To multiply a %, first convert it to a decimal and then multiply.
Example: What is 43% of 95. Change to .43 * 95 = 40.85.
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So let’s look at a little word problem. You have 6 acres of land and plan to sell 2 acres. What percent
will you have left? First, you need to know what you have left, which is 4 acres. (6 acres – 2 acres = 4
acres). So now the question really is, what % of 6 acres is 4 acres? The formula would be Y * 6 = 4.
To get Y by itself, you divide both sides by 6 which looks like: Y* 6/6 = 4/6 Y * 1 = 4/6 Y = 4/6
If you divide 4 by 6 you get Y = .666 and .666 is 66.6%. Notice we divided 6 on both sides of the =
sign.
This brings us to the point, how to solve percentage problems. There are three formulas that are
important for solving all percentage problems.
1. TOTAL * RATE = PART
2. PART / RATE = TOTAL
3. PART / TOTAL = RATE
Example:
:TOTAL * (RATE / RATE) = PART / RATE is the same as TOTAL = PART /
RATE
(TOTAL / TOTAL) * RATE = PART / TOTAL is the same as RATE = PART /
TOTAL
Note: Formulas 2 and 3 are created by equally dividing both sides of the equation so you really only
need to memorize TOTAL * RATE = PART.
Another way to remember these formulas is to think:
 If PART is unknown Multiply.

 If PART is known Divide.
 When you divide, always enter PART into the calculator first.
The T-BAR Method
Many people do not feel comfortable with the 3 formula methods to solve percentage problems. So another
way is to visualize a T as follows:
Using the T-Bar method insert the known figures in the correct places. Multiply if the line between the
figures is vertical to get the unknown, and divide if the line between the figures is horizontal to get the
unknown. If dividing, always input PART first into the calculator.
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Example: Mary bought a home for $150,000, which was 20% less than the asking price.
What was the asking price?
You are searching for an answer that is larger than $150,000 so you are solving to find the
total. The line is horizontal between $150,000 and .80 so divide 150,000 by .8. Total
asking price is $ 187,500.
Why did we use .80 instead of .20?
Since Mary got it for 20% less than the asking price, she paid 80% of the asking price.
100% - 20% = 80%.
Five Steps to Solving Word Problems
Word Problems can be confusing so here are 5 steps you should take to help solve the problems:
1. Read the whole problem before you do anything.

2. Analyze what the problem is asking and what facts are being given. From the facts given,
determine what facts are needed to answer the problem, as there is usually more information
and/or numbers given than you need. Then determine the order that the facts will be needed (first,
second, etc.) to match the number of steps required in the problem.
3. Choose the correct formula and write down the steps it will take to solve the problem.
4. Insert the facts and calculate the answer.
5. Check your answer to make sure you keyed the numbers into the calculator correctly and make
sure you did all the steps.
We use math in our every day life and just don’t think about it. When driving you probably think to yourself,
“I need to be there at 7 pm and since it is 6:18 I have 42 minutes. I have 30 miles to go and since I am
going 55 miles an hour I have plenty of time, even if I hit a few stop lights on the way as I need just 30+
minutes.”
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How much time do you really need? 33 minutes if no stoplights?
Use your calculator to get the answer.

First you need to figure out how far you can go in one minute. Next you will divide
how far you need to go by the distance traveled in one minute.
55 miles per hour / 60 minutes per hour gives you miles per minute. 55 / 60 =
.0917. You are going 0.917 miles per minute. Now divide 30 miles / 0.917 miles
per minute = 32.72 rounded up to 33 minutes.
What math will you encounter when you are a real estate agent besides getting there on time?
Percentage Problems & Commission Problems
You like to get paid, so you will want to figure out what your commission is going to be.
Example:
1. You sell a house for $150,000 and your commission is 6%. How much do you earn? Nice,
except your company probably gets the 60% and you only get 40% of what the company gets.
Using your calculator lets figure this out.
Total * Rate = Part: $150,000 * .06 = $9,000. Company gets $9,000.
Total * Rate = Part: $9,000 * .40 = $3,600. You get $3,600 from the company.
Using the T-Bar Method
Part _ _ Part ? (9000)___ _ Part?_(3600)_____

Total | Rate 150,000 | .06 9,000 | .4
Simple enough. Now what is your percent of the total sale?
Part / Total = Rate: $3,600 / $150,000 = .024 or 2.4%
Part _ _ 3,600 ___

Total | Rate 150,000 | Rate ? (2.4%)
Commission as a Ratio: You may be asked, “What is your commission on a 4:10 split?” The colon
(:) means ratio and that you are getting 4 of every 10 which can also be written as 4/10. When you see
it as a fraction it is easier to understand. 4/10 is 40%. So if the commission is $9,000 and you have a
ratio 4:10 you would get 40% or $3,600.
If you have a 2:3 split on a commission amount of $9,000, what is the company’s share? Since you receive
2/3, the company receives the remaining portion or 1/3 (1:3 is their ratio). $9,000 * 1/3 = 9,000/3 = $3,000.
2. Sellers want to know how much they will get if they sell their house. After discussing what you
think the sales price could be, subtract estimated closing costs, mortgage balance payoff, and
the commission to estimate the seller’s net proceeds. No problem!
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What if the seller wants to net $150,000 after the commission of 6% is deducted? To get the
correct answer you must first ask the question, what % of the sales price is $150,000? This
figure represents the Part and is less than the Total. The sales price (Total) is 100% of the
money. Your commission is 6% of the money. That leaves 94% of the money for the seller. So
$150,000 represents 94% of the sales price. Now we are ready.
Part / Rate = Total: $150,000 / .94 = $159,574.47
Part _ _ 150,000 __
Total | Rate Total? (159,574) | .94
3. Now let’s see what happens to commissions when there is a listing broker and brokerage
company and a different selling broker and brokerage company. Listing company A lists the
home for $200,000. Company A is charging 5.5% and has stated they will pay selling
brokerage company B a commission of 2.8% of the sales price. The listing broker gets 40% of
company A’s share of the total commission, and the selling broker gets 70% of company B’s
share of the total selling commission. The broker from Company B will make what percentage
more than the broker from Company A?
Total Commission = 200,000 * 5.5% = 11,000.
Company A’s gross commission = (5.5% - 2.8%) * 200,000 = .027 * 200,00 = $5,400
Company B’s gross commission = 2.8% * 200,000 = .028 * 200,000 = $5,600
Company A’s broker’s commission = .4 * 5,400 = $2,160 (company $3,240)
Company B’s broker’s commission = .7 * 5,600 = $3,920 (company $1,680)
In order to answer the percentage problem of B’s greater share you must first determine the
total commissions earned by both brokers by adding the individual commissions: $2,160 +
3,920 = 6,080. Calculate each broker’s share of the $6,080.
Part / Total = Rate 2,160 / 6,080 = .3553 and 3,920 / 6,080 = .6447
Part _ _ 2160 __
Total | Rate 6,080| Rate (.3553 or 35.53%)
Part _ _ 3920 __
Total | Rate 6,080| Rate (.6447 or 64.47% )
Then subtract B’s percent from A’s percent to find the greater percentage that was earned.
64.47% - 35.53% = 28.94%
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Loan Problems
Loan to Value Ratio
What happens when the buyer needs to get financing for a home purchase? First you have to determine the
Loan-to-Value Ratio (LTV). Loan / Value = Ratio
If the buyer wants to put down 10% he is hoping the lender will allow a LTV of 90% of the value of the home.
LTV is based on the lesser of the sale price or the appraised amount. If the purchase price is $250,000 and
the appraisal is $245,000 what is the loan amount?
Value * Rate = Loan $245,000 * .90 = $220,500
Loan _ _ Loan? (220,500)__
Value | Rate 245,000| .90
Computing Annual Interest
If the interest rate is 6% on the above $220,500 loan, what is the annual interest paid the first year?
Total * Rate = Part $220,500 * .06 = $13,250
Part _ _ Part? (13,230)__
Total | Rate 225,000| .06
(NOTE: A common mistake when using the calculator is entering .6 instead of .06 for 6 percent;
Don’t forget that .6 = 60%)
Monthly Principal and Interest Payments
If you do not have a calculator that amortizes monthly PI (principal + interest) payments, you can create a
personal table that shows payments based on $1,000 amortized for 30 years as seen in Table 1. There are
published tables or you can just call your favorite lender to get the current interest rate payment for $1000.
Interest Rate PI Payment

Loan Amount $1,000.00 5.50% 5.68
5.75% 5.84
6.00% 6.00
6.25% 6.16
Table 1
What would be the PI payment on a $220,000 loan at an interest rate of 5.75%?
Divide the loan amount by 1000 to determine how many “thousands” are being borrowed. (Or, move the
decimal point three places to the left). The buyer wants to borrow 220 “thousands” of dollars. Since we
know how much the payment is for $1,000, multiply the number of thousands being borrowed by the
payment for $1,000 to get the total payment for a $220,000 loan.
220,000 / 1000 = 220, 220 * 5.84 = $1,284.80 monthly payment.
Part _ Part?_(1,284.80)______
Total | Rate (220,000 / 1000) = 220 | 5.84
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Looking Smart.
If you know the current payment for $1,000 for today’s interest rate, you can really look intelligent to your
client by figuring their approximate payment in your head. Example: You are showing homes in the
$350,000 range and today’s current 30-year mortgage rate is 5.75%. You memorized the payment of $5.84
per thousand before you start showing homes. You could say, “If you want to by this home and get a
$300,000 loan, your monthly PI payment would be around $1,750" ($584 for every 100,000). In your head
think 500 * 3 = 1500 and $84 +84 +84 = 252 = 1500 +252 = 1752). Or just say, “your payment will be less
than $1800.” (600 * 3).
Figuring Discount Points
A discount point is 1% of the loan amount. If your buyer needs to pay 5 points to get the interest rate he
needs to qualify, your buyer will be paying 5% of the loan amount.
Example: Buyer wants to get a $220,000 loan. The current interest rate at 0 discount points is 6%.
Buyer needs to get an interest rate of 5.5% in order to qualify for the loan. The lender tells the
buyer that he can give him the 5.5% interest rate for 4 points. How much must the buyer pay the
lending company for the 5.5% loan?
Point’s Cost _ Point’s Cost?($8,800)
Loan | Points 220,000| 4.0%
If the buyer can qualify for the 6% loan (and not pay the points), how many years would it take for
the buyer to get back the cost of the 4 points? In other words, would it be smart to take the 6%
loan or pay the points. Helping your buyers understand the comparative cost of points can be very
important in their decision process.
Example Comparison of 6% loan versus 5.5% loan and 4 points: Using Table 1 above, figure
the payments for both the 6% loan and the 5.5% loan. Then subtract the payment of the 5.5% loan
from the payment of the 6% loan to get the monthly payment difference. Divide the payment
difference into the amount paid for points. This will give you the total months needed for the buyer
to make payments to break even.
Cost of Points = $8,800
Payment for 6% loan = $6 * (220,000 / 1000) = $1,320
Payment for 5.5% loan = $5.68 * (220,000 / 1000) = $1,249.60
Difference in payment = $1,320 – $1,249.60 = $70.40
Number of months to break even = $8,800 / 70.40 = 125 months or 10.42 years.
Remember: Every month he keeps the loan after the break-even point the buyer has
saved money by paying discount points. If the buyer pays off the loan before the
break-even point, the buyer loses money.
Loan The question always is, “How long do you
Qualification
plan to stay in the home AND NOT REFINANCE?”
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Lenders look at two different qualifying ratios (guidelines) to determine if they want to loan money.
The first ratio (Front-End-Ratio) is based on gross monthly income to determine maximum monthly PITI
(Principal, Interest, Taxes and Insurance.
Maximum monthly PITI_ _
Gross Monthly Income | Rate
The second ratio (Back-End-Ratio) is based on PITI plus additional total monthly expenses that include
monthly payments for auto loans and credit card debt, etc.
Maximum Total Monthly Debt __
Gross Monthly Income | Rate
Example 1: Buyer applies for a $150,000 loan at 6% with a PITI payment of $1,107 a month.
Borrower earns $75,000 a year with a monthly debt of $600. The lender’s guideline is Front-End-
Ratio of 29% and Back-End-Ratio of 36%. Will the buyer get his loan?
Front-End-Ratio Maximum monthly PITI ? ($1,812.50)_
(75,000 /12) | .29
Back-End-Ratio Maximum Total Monthly Debt ? ($2,250)
(6,250) | .36
The answer is YES. Front-End-Ratio of $1,812.50 is greater than his PITI of $1,107, and his
maximum total monthly debt of $2,250 is greater than $1,707 (PITI of $1,107 + debt of $600).
Depending on the loan-to-value ratios, qualifying ratio guidelines can be flexible. The higher the LTV the
more the lender is risking so the ratios tend to be conservative. A qualifying ratio that is higher than the
guideline can sometimes be acceptable if there are compensating factors, like a very high credit score.
Example 2: A buyer who earns $85,000 a year was given a loan in the amount of $250,000 with a
PITI payment of $2,000 a month. When the buyer applied for the loan, the buyer’s additional
monthly debt was $800 dollars a month. What was the minimum rate for the Front-End-Ratio and
what was minimum rate for the Back-End-Ratio?
Front-End-Ratio $2,000
(85,000 /12) | Rate? 28.24%
Back-End-Ratio 2,800
$7,083.33 | Rate 39.53%
Figuring Profit and Loss
Profit and loss is pretty straightforward. Sales Price – Cost = Profit: If Cost is greater than Sales Price you
have a loss.
How is percentage of profit determined? Understanding the percentage of profit is essential in comparing
different investments.
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Profit _
Cost | Percentage of profit
Example: In 1998 an item was purchased for $200,000 and in 2001 the item was sold for
$280,000. What was the percentage of profit?
(280,000-200,000) _
200,000 | Percentage of profit? 80,000 / 200,000 = .4 (40%)
If there were any costs associated with the sale, the $80,000 would be decreased by the selling
costs and the percent of profit would be less.
In real estate you do not just buy, hold, and then sell. Instead, you buy, collect rent, and pay
expenses during the holding period, and then sell. The profit or loss during the holding period
would be added or subtracted from the gross profit received at the time of sale, creating a net
profit. Other decisions which can affect the net profit of buying and selling real estate are the
IRS depreciation rules, tax write-off benefits, and whether or not the cash flow from the
property is being re-invested during the holding period.
Figuring Straight-Line Appreciation/Depreciation
Straight-line appreciation or straight-line depreciation is the constant percentage increase or decrease in

value over a period of time.
Example of straight-line appreciation: If you paid $100,000 for a property and the property
increases yearly at 7.143%, what is the annual increase of value after one year and what is the
property worth after 7 years?
Annual Appreciation _ _ Annual Appreciation? _(_$7,143)
Cost | Yearly Rate 100,000 | 7.143%
Annual appreciation rate * number of years = Number of years appreciation rate
7.143% * 7 = 50%
100% cost + annual appreciation rate = number of years value as a percent
100% + 50% = 150%
Total Appreciated Value for 7 years _ Value - 7 years?($150,000)
Cost | Value as Percent 100,000 | 150%
Now look at the problem in reverse.
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If you paid 100,000 for a property, and after 7 years the property was worth $150,000, what was the yearly
percentage increase?
First, determine the percentage increase in value.
Total Appreciated Value _ _ 150,000 __
Cost | Number of years value as a Rate 100,000 | Rate? (1.50 or 150%)
Now you need the annual appreciation rate. Annual appreciation rate = number of years value as a
rate – 100%
Since the 150% includes the original cost (original cost =100%), subtract the 100% to get the
percentage increase of 50%. Determine the yearly increase by dividing 50% by 7 years.
Percent Increase _ _ 50% __
Years | Yearly Rate 7 | Yearly Rate? (7.1%)
This is quite different from investing $100,000 and saying it shall increase by 7.1% with the interest
being compounded (earned interest add to investment).
Year Value Appreciation % Appreciation Amount End of Year Amount

1 100,000 0.071 7100 107,100
2 107,100 0.071 7604.1 114,704
3 114,704 0.071 8143.9911 122,848
4 122,848 0.071 8722.214468 131,570
5 131,570 0.071 9341.491695 140,912
6 140,912 0.071 10004.73761 150,917
7 150,917 0.071 10715.07398 161,632
Notice that instead of $150,000, after 7 years the investment is $161,632. If the investment of
$100,000 were invested at 6% compounded yearly it would grow to slightly over $150,000 (see
chart below). When comparing real estate investment to other types of investments you will usually
be comparing investments based on compounded interest rates.
Notice that you can create your own interest-compounded chart with the simple calculator by
calculating each line one at a time. End-of-year investment (investment + interest) is carried
forward as next year’s investment.
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Year Value Appreciation % Appreciation Amount End of Year Amount
1 100,000 0.06 6000 106,000
2 106,000 0.06 6360 112,360
3 112,360 0.06 6741.6 119,102
4 119,102 0.06 7146.096 126,248
5 126,248 0.06 7574.86176 133,823
6 133,823 0.06 8029.353466 141,852
7 141,852 0.06 8511.114674 150,363
Example of Straight Line Depreciation
If you paid $100,000 for a property, and the property decreases yearly at 7.143%, what is the annual
decrease of value after one year and what is the property worth after 7 years?
Annual Depreciation _ _ Annual Depreciation? _($7,143)
Cost | Yearly Rate 100,000 | 7.143%
Annual Depreciation Rate * number of years = Number of Years Depreciation Rate
7.143% * 7 = 50%
100% Cost - Annual Depreciation Rate = Number of Years Value as a percent
100% - 50% = 50%
Total depreciated Value for 7 years _ Value after 7 years?($50,000)
Cost | Value as Percent 100,000 | 50%
Using Capitalization Rate to determine Value for income-producing properties.
Real estate markets have a current market rate of return known as the capitalization rate, (CAP rate). The
CAP rate is created by dividing the average annual net operating income (NOI) of a specific market by the
average market value.
To find NOI you adjust the Annual Gross Income for vacancies and bad debt to get
the effective gross income. Then you subtract the annual operating expenses from
the effective gross income to get NOI.
NOI = (Annual Gross Income –Vacancies and bad debt) – annual operating expenses.
However, debt expense (mortgage payments) and depreciation are not included as
operating expenses.
To determine the value of a single property you divide the annual NOI by the CAP Rate: Annual NOI / CAP
Rate = Value
NOI _
Value | CAP Rate
Example: An apartment building has 12 units with each unit being rented at $1,200 a month. The annual
vacancies and bad debit are 5% of the annual income. The annual operating expenses are $50,000. The
capitalization rate for similar apartment buildings in the area is 9%. What is the value of the apartment
building?
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Total Rents = (1200 *12) * 12 = $172,800
Vacancy and Bad Debts = 172,800 * .05 = $8,640
NOI = (172,800 – 8,640) – 50,000 = $114,160
114,160 _
Value? | .09 114,160 / .09 = $1,268,444
Determining Monthly Rent using a percentage lease.
A percentage lease can be structured in many ways.
1. The rent could be a % of gross monthly income.

2. The rent could be a % of gross monthly income plus a monthly base rent.
3. The rent could be a % of gross monthly income or a base monthly rent, which ever is greater.
Example 1: A hardware store’s lease states that the rent shall be $1.50 a square foot plus 5% of
the gross income. The store uses 3,000 square feet and December’s monthly income was $45,000.
What was December’s rent?
Square Foot Rent = $3,000 * 1.5 = $4,500
Percentage Rent = 45,000 * .05 = $2,250
Total Rent = $6,750.
Example 2: A hardware store’s December rent was $8,000. The store pays a minimum base rent of
$5,000 plus 3% of gross income. What is the gross income for December?
Percentage Rent = $8,000 – $5,000 = $3,000.
Percentage Rent _
Gross Income | Lease Percentage $3,000 / .03 = $100,000
Measurement
Linear Measurement: Measurement of a line. All of the following are real estate terms for measuring total
length.
1. Per foot,
2. per linear foot,
3. per running foot,
4. per board foot (Length of a piece of wood),
5. per front foot (Frontage Foot or Length of Street Side of Lot).
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9 square feet = 1 square yard
Square Feet / 9 = Square Yard
Square Yards * 9 = Square Feet
Volume Measurements
1,728 cubic inches = 1 cubic foot

Cubic Inches / 1728 = Cubic Feet
Cubic Feet * 1,728 = Cubic Inches
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46,656 cubic inches = 1 cubic yard
Cubic Inches / 46,656 = Cubic Yards
Cubic Yards * 46,656 = Cubic Inches
27 cubic feet = 1 cubic yard

Cubic Feet / 27 = Cubic Yards
Cubic Yards * 27 = Cubic Feet
Measurement Problems
Area of a square, rectangle or trapezoid: Length * Height = Area
If a piece of land measured 650’ X 300’ what is the area of the land? If you wanted to fence the land, how
many linear running feet are there?
AREA = 195,000 square feet or

AREA = 21,667 square yards or
AREA = 4.48 acre
Linear Running Feet = 1900’
When you measure the exterior of a home it may have a variety of sides, as seen below in the picture on the
left. To determine the total square feet of the home you will need to break it into small rectangles, as seen
below in the picture on the right. Compute the areas of each small rectangle, and then add up all the areas.
Total
Square
Feet:
(13 * 34 = 442) + (44 * 18 = 792) + (8 * 10 = 80) +
(13 x 22 = 286)
= 1600 Total Square Feet
If it cost $30 a square yard to carpet the above home, what would be the total cost?
(Total square feet / 9) * Cost per square yard = (1600 / 9 ) * 30 = $5,333
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Area of a Triangle: (Base * Height) / 2
For the two triangles above, we have left to right :
(300 * 500) / 2 = 75,000 square feet
(350 * 700) / 2 = 122,500 square feet
Cubic Volume of a Box (Length * Width * Height = Cubic Volume)
Example: How much concrete will be needed for a parking area that is 25 feet wide, 40 feet long,
and 3 ½ inches high?
First convert 3 ½ inches to feet. 3.5 / 12 = .291667
Then 25 * 40 * .291667 = 291.67 cubic feet or 291.67 / 27 =10.80 cubic yards.
Prorating Problems
Prorate means “to divide proportionately.” In real estate we prorate the buyer’s and seller’s income and
expenses, which include items like interest on loans, property taxes, homeowner fees, and rents collected.
Prorations are either between the Buyer and Seller or Buyer and Broker or Seller and Broker. Prorations are
posted as Debits (taking money from a person) and Credits (giving money to a person).
When prorating calculate the number of days owed for the expense, interest, or rents. The days are based
on either a banker’s year (also called a statutory year) which consists of 30 days in every month (360 days
on the National part of the exam) or a calendar year (365 days on the State part of the exam). Calendar
Leap Year would be 366 days. When you are given a proration problem, you will be told which calendar to
use.
NOTE: Day of closing, closing date, and settlement date are just different ways to say the same
thing.
In prorations problems you will be told whether to prorate through the day of closing or to the day of
closing. When prorating through the day of closing, the seller is responsible for the day of closing. When
prorating to the day of closing, the buyer is responsible for the day of closing.
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How to Calculate the Prorated Amount
1. First determine whether the number of days is based on the month, quarter, or year. (Remember to
check the problem to see if it is using the banker’s year or calendar year).
2. Calculate the number of days owed.
3. Calculate the amount of the expense or income per day. If it is an annual amount, it is divided by
the total days in the year. If it is a monthly amount, it is divided by the total days in the month.
4. Multiply the amount per day by the number of days owed.
Four simple rules for calculating number of days owed:
1. Own TO day of Closing: Closing Date (-) 1 day.

2. Own FROM day of Closing: Closing Date (-) 1 subtracted from Total days in
month.
Example: Seller owns “TO” and Buyer owns “From” with closing on June 17 (30
day month)
Seller owns 16 days (17 –1) and Buyer owns 14 days (30 – (17 - 1) ).
3. Own Through day of Closing: Closing Date.

4. Own After day of Closing: Closing Date subtracted from total days in month.
Example: Seller owns “Through” and Buyer owns “After” with closing on June 17
(30-day month).
Seller owns 17 days and Buyer owns 13 days (30 – 17).
Prorating Interest on Loans

Interest is almost always paid in arrears (paid at the end of the period). In other words, when you make your
mortgage payment on the first of the month, you are paying the interest portion for the previous month.
To prorate interest on a loan the daily interest owed must first be calculated.
For a new loan:
Annual Interest = Principal * Interest Rate.
Daily Interest = Annual Interest / Days in Year
NOTE: Some people prefer to first determine the daily interest
rate (annual rate / 365) and then multiply the daily interest rate
times the Principle amount.
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For a Loan Assumption:
Annual Interest = Principal * Interest Rate.
Monthly Interest = Annual Interest / 12
Daily Interest = Monthly Interest / Actual Days in Month
New Loan Closing: Prorating interest owed by buyer for closing month.
Since the interest is paid in arrears, the first payment on the loan will not occur until a full month has passed.
Most lenders will want the loan payments to be due on the 1st of each month. If closing occurs during the
month, the lender will collect the daily interest for remaining days in the closing month. Then the loan
payment calendar starts with the following month.
Example: Closing date is June 17. Buyer owes the lender interest for 14 days in June. Loan
calendar starts July 1 with first payment due August 1. July interest is included and paid with the
August 1 payment. (Principal * Interest Rate) / 365 = Daily Interest Rate
Example: Closing Date is June 17, loan amount $150,000, and interest rate 5%.
Remaining Days = 14
Annual Interest = (150,000 * 5%) = 7,500
Daily Interest = 7,500 / 365 = 20.547945
June Interest = 14 * 20.547945 = $287.67
DEBIT Buyer $287.67
Loan Assumption: Buyer owns closing day.
Seller’s original loan of $250,000 at 6% is being assumed. The loan closing date is August 12. The last
payment made by the seller was August 1st. The principal balance after the August payment is $232,635.
Days owned by seller = (12-1) = 11
Annual interest = (232,635 * 6%) = 13,958.10
Monthly interest = 13,958.10 / 12 = 1,163.175
Daily interest = 1,163.175 / 31 = 37.521774
Reminder: Daily interest = (annual interest / 12 / number of days in closing month)
Prorated interest = daily interest * number of days seller owned during the closing month
Prorated July interest = 11 * 37.521774 = $412.74
Debit Seller and Credit Buyer $412.74
Reminder: When buyer makes the September payment they will be paying all of the
August interest. The seller owes buyer for the days the seller owned the property in
August.
139
Prorating Homeowner Fees
When working with homeowner’s fees, there are three things to look for.
1. When are they due?

2. Have they been paid?
3. Are the fees monthly, quarterly or annually?
1. If Seller pays fees due in advance, buyer owes seller buyer’s portion of the
month.
2. If Seller does not pay fees that are due in advance, seller owes buyer seller’s
portion of the month.
3. If fees are paid in arrears, Seller owes Buyer seller’s portion of the month.
Prorations for homeowner’s fees are usually based on the calendar month.
Example: $100 a month is due in advance. The Seller paid $100 on July 1 for the month of July
and closing is on July 10.
Days in Month = 31
Buyer’s portion of month = 31 – (10 – 1) = 22 days
Daily Fee = 100 / 31 = 3.225806
DEBIT Buyer = 22 * 3.225806 = $70.97
Example: $100 a month is due in advance with closing on July 15. Seller did not pay and closing
agent has been instructed to collect the fee and pay the homeowner’s association.
Days in Month = 31
Seller’s portion of month = 15 – 1 = 14 days
Buyer’s Portion of the month = 31 - (15-1) = 31 – 14 = 17
Daily Fee = 100 / 31 = 3.225806
DEBIT Seller = 14 * 3.225806 = $45.16
DEBIT Buyer = 17 * 3.225806 = $54.84
Example: On January 1, Seller has paid in advance the yearly homeowner’s dues of $350.
Closing is on May 12. Using a banker’s calendar, what is owed by the buyer?
Monthly Fee = 350 / 12 = 29.166667
May daily fee = 29.166667 / 30 = 0.972222
Number of Months pre-paid by Seller = 7 and part of May.
Number of Days in May owed by buyer = 31 - (12 –1) = 20.
140
DEBIT Buyer = (7 * 29.166667) + (20 * 0.972222) = $223.61
Proration of Rents
When working with rents, like homeowner dues, there are three things to look for.
1. When are they due?

2. Have they been paid by tenant and received by seller?
3. Are the rents monthly, quarterly or annually?
Example: Settlement Date is March 12. Rents are due on the 1st of the month and the seller has
collected the rent of $950 on March 1st.
Monthly Rent = $950
Daily Rent = 950 / 31 = 30.645161
Buyer’s portion of month = 31 – (12 –1) = 20
Daily Rent owed Buyer = 20 * 30.645161 = $612.90
DEBIT Seller and Credit Buyer $612.90
Proration of Property Taxes
When prorating property taxes (taxes) there are 4 main points.
1. The yearly taxes are paid in arrears.

2. Proration is based on a 365-day year unless stated otherwise. On the general portion of the
state exam, however, they will state that you should prorate taxes using a 360-day year (every
month has 30 days) and seller will be responsible for the day of closing.
3. Proration of taxes for the current year are based on the preceding year’s taxes unless stated
otherwise.
4. Seller owes buyer for seller’s portion of the current year (and past year’s taxes if not paid).
Example of New Loan using a 365-day year: The previous year’s taxes of $3,550 have not been
paid. Closing date is February 9. What are the total taxes owed by Seller?
Previous year’s taxes = $3,550.
Daily tax = $3,550 / 365 = 9.726027
Number of days owned by seller = 31 + 8 = 39 days
Seller’s portion of current year’s taxes = 39 * 9.726027 = $379.32
DEBIT Seller = 3,550 + 379.32 = $3,929.32
Note: If sellers had a loan on the property, the sellers will get a check from their lender after closing for
the tax escrow held by their lender.
141
Example of New Loan using a 360-day year: The previous year’s taxes of $3,550 have not been
paid. Closing date is February 9. What are the total taxes owed by Seller?
Monthly tax = $3,550 / 12 = $295.833333
Daily tax = $295.833333 / 30 = 9.861111
Seller owes for 1 month + 9 days = $295.833333 + (9.861111 * 9 = 88.7500) = $384.58
DEBIT Seller = $3,550 + $384.58 = $3,934.58
Loan Assumption: The calculations are the same for a loan assumption as with a new loan with one very
big addition. When a loan is assumed the tax escrow held by the lender must first be credited to the
Seller and debited to the Buyer. This will change the final figure the seller must pay.
Example of Loan Assumption: The previous year’s taxes of $3,550 have not been paid. Closing
date is February 9. The lender’s tax escrow is $4,133.56. What are the total taxes owed by
Seller?
Daily tax = $3,550 / 365 = 9.726027
Number of days owned by seller = 31 + 8 = 39 days
Seller’s Portion of current years taxes = 39 * 9.726027 = $379.32
DEBIT Seller = 3,550 + 379.32 = $3,929.32
CREDIT Seller = $4,133.56
Credit exceeds debit = 4,133.56 – 3,929.32 = $204.24
Proration of hazard insurance: It is very rare for a buyer to assume a seller’s hazard insurance policy.
Hazard insurance premiums cover a year, but unlike property taxes, the insurance begins and ends at a
specific period of time. So if the insurance begins on October 16 it ends on October 15 the following year.
The assumption would be based on a 365-day year with the year being October 16 to October 15.
Example: Closing date is January 3 and the hazard insurance of $490 paid by seller covers the
property for one year starting on October 16. What does the buyer owe the seller at time of
closing?
Daily Rate = 490 / 365 = 1.342466
Days owned by seller = Oct-16, Nov-30, Dec-31, Jan-2 = 79
Days owned by buyer = 365 – 79 = 286
Buyer Owes 286 * 1.342466 = 383.95
DEBIT Buyer and CREDIT Seller $383.95
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MILL RATE
Real property tax liens are created using the mill levy. The mill levy (mill rate) is multiplied times your
assessed valuation. Assessed valuation is your proportional share of the total area property values.
Mill Rate = Budget needs of the community divided by total property assessed values.
The formula is Community Budget Needs
Total property assessed values | Mill Rate
Example: The total assessed value of property in a county is $800,000,000. The budget needs of
the county are $5,000,000. What is the mill rate?
5,000,000 / 800,000,000 = .00625 or 6.25 mills
Assessed Valuation
Total Assessed Properties
Single Property value |Assessed Valuation
Example: Your property is worth $300,000. The assessed valuation for your county is
800,000,000. What is your assessed valuation?
800,000,000 / 300,000 = $2,666.66
Mill Levy
The mill rate is expressed in tenths of a cent per dollar or 1 mill = $.001 for every dollar.
Example: 60 mills = .06
The formula is Property Taxes
Assessed Valuation | Mill Rate
Example: If your mill rate was 38 mills and your assessed valuation was $38,000 what would be
your property taxes? 38,000 * .038 = $1,444
Example: If your property taxes are $2,500 and the mill rate is 30 mills what is your assessed
valuation? 2,500 / .030 = $83,333
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In this Guide,We Reviewed How to:
 Use a simple calculator

 Compute fraction, decimal and percentage problems
 Explain capitalization rate
 Discuss percentage leases
 Work out measurement problems
 Compute prorations and mill rate problems
Learn more at https://www.vaned.com/blog/real-estate-math/
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Unit 8 - Real Estate Math Review

 Using a Simple Calculator

VanEd Presents: Modern Real Estate Practice, 18th edition

 Math FAQs, pg 460 (453 in the 18th Edition text)

Modern Real Estate Practice, 18th edition

At the end of this unit, the student will be able to:

 Use a simple calculator

Section 8: Real Estate Math Review

Before we begin, play with the calculator on your computer.

For those using Microsoft Windows 98, 2000, ME or XP:

Example: 4 * 4 = 16 (four times four) and 4 / 4 = 1 (four divided by four).

You can also store a number in the calculator memory.

 Click MS to store the displayed number,

Fractions, Decimals and Percentages

Example: Using Fractions or Decimals

How much do you get if you receive 4/5 of $800?

Using your calculator either way is easy. Try them both.

.001 is 1/1000 and so on.

Two simple rules:

To multiply a %, first convert it to a decimal and then multiply.

Example: What is 43% of 95. Change to .43 * 95 = 40.85.

1. TOTAL * RATE = PART

2. PART / RATE = TOTAL

3. PART / TOTAL = RATE

Another way to remember these formulas is to think:

 If PART is unknown Multiply.

The T-BAR Method

Why did we use .80 instead of .20?

Five Steps to Solving Word Problems

1. Read the whole problem before you do anything.

Use your calculator to get the answer.

Percentage Problems & Commission Problems

Total * Rate = Part: $150,000 * .06 = $9,000. Company gets $9,000.

Using the T-Bar Method

Part _ _ Part ? (9000)___ _ Part?_(3600)_____

Simple enough. Now what is your percent of the total sale?

Part / Total = Rate: $3,600 / $150,000 = .024 or 2.4%

Using the T-Bar Method

Part _ _ 3,600 ___

Part / Rate = Total: $150,000 / .94 = $159,574.47

Using the T-Bar Method

Total | Rate Total? (159,574) | .94

Total Commission = 200,000 * 5.5% = 11,000.

Company B’s gross commission = 2.8% * 200,000 = .028 * 200,000 = $5,600

Company A’s broker’s commission = .4 * 5,400 = $2,160 (company $3,240)

Company B’s broker’s commission = .7 * 5,600 = $3,920 (company $1,680)

Total | Rate 6,080| Rate (.3553 or 35.53%)

Total | Rate 6,080| Rate (.6447 or 64.47% )

Loan to Value Ratio

Value * Rate = Loan $245,000 * .90 = $220,500

Loan _ _ Loan? (220,500)__

Value | Rate 245,000| .90

Computing Annual Interest

Total * Rate = Part $220,500 * .06 = $13,250

Part _ _ Part? (13,230)__

Total | Rate 225,000| .06

Monthly Principal and Interest Payments

Interest Rate PI Payment

220,000 / 1000 = 220, 220 * 5.84 = $1,284.80 monthly payment.

Total | Rate (220,000 / 1000) = 220 | 5.84