Real Estate Calculations
The calculation toolkit
Expect commission splits, percentage-of-price problems, acreage and area conversions, prorations, loan-to-value, qualifying ratios, points, net operating income, capitalization, gross rent multiplier, seller's net proceeds, and equity. Memorize 43,560 square feet per acre and 640 acres per square mile, and always compute the smaller steps before combining them.
Prorations
Use either a 365-day or a 12-month method, and state which you are using. Taxes paid in arrears are a debit to the seller and a credit to the buyer for the portion of the year before closing; taxes paid in advance reverse that. Interest on an assumed loan is prorated to the day, and rent is prorated and usually credited to the buyer for the remainder of the month. In a debit and credit statement, every entry is a debit to one party and a credit to the other, and the columns must balance.
Commission and proceeds problems
A commission split is figured on the total commission, then divided between the brokerages, then split again between broker and salesperson. Seller's net proceeds subtract payoff, closing costs, and commission from the price, and add prorated credits.
Alabama taxes
Alabama assesses owner-occupied residential property at 10 percent of market value and rental or commercial property at 20 percent; mills are dollars per 1,000 dollars of assessed value. Worked example: a rental duplex worth 200,000 dollars is assessed at 20 percent, or 40,000 dollars; at 40 mills the tax is 40,000 times 0.040, or 1,600 dollars. Another: an 8 percent cap rate on 24,000 dollars of net income indicates 300,000 dollars of value.