Real estate math isn’t as difficult as it seems. In fact, many of the concepts and formulas you need to know as a real estate agent are the same ones you’ve probably used your entire life.
For example, the gross rent multiplier (GRM) formula is simply a property’s selling price divided by its gross annual rental income.
Price Per Square Foot
A price per square foot is a real estate calculation that is an important factor for both buyers and sellers. It is a simple way to determine the value of a property by taking its sales price and dividing it by its square footage. It’s a common valuation method used by many home appraisal websites.
It might seem like a straightforward formula, but there’s a lot more nuance to it. There are a number of factors that can affect this, including the home’s condition, size, and amenities. It can also vary by market, as the price per square foot may change based on things like landscaping, trees, upgraded wood floors, etc.
Having a good grasp on these real estate math formulas will help you make smarter decisions as an investor. Using them can save you a lot of time and effort, and will allow you to find better investment properties. With a little practice, you’ll be able to master these numbers in no time!
Mortgage Calculator
Whether you’re flipping houses, wholesaling properties, or getting your real estate license, math is an important skill to have. Especially because problems requiring the use of math come up all the time in real estate, so it’s good to have some basic skills under your belt.
The mortgage calculator is a useful real estate math formula to know when working with clients. It allows you to calculate the monthly mortgage payment based on the loan amount and the purchase price of the property.
A mortgage rule of thumb states that a home should cost no more than 28% of pre-tax income, so the mortgage calculator is an important tool to have in your arsenal when preparing CMAs for buyers.
This real estate formula can also be used to determine the after-repair value of a property. This way you can compare the property’s current value to the initial investment. The result will tell you if the return on investment is positive or negative.
Percentage Calculator
Real estate math involves many types of calculations, including ratios and percentages. These math formulas are important for anyone interested in a career in real estate, whether as a Realtor or a homebuyer.
Percentages can be difficult to master, but there are some simple steps that can help you get better at them. For example, it’s helpful to always convert fractions to decimals before calculating with them. This makes it easier to use a calculator and can save you time in the long run.
Another important real estate math formula to know is the 70% rule. This is a common rule of thumb for determining if a property is worth investing in, as it estimates the after-repair value (ARV) minus renovation costs.
The cash on cash return is another popular real estate investment formula that helps investors determine the profitability of a potential purchase. It compares a property’s net operating income with its market value, making it easy to compare different properties and determine which one is the best investment.
T-Method
If you’re looking to become a real estate agent, it’s important to know how to do real estate math. While it may sound intimidating, it isn’t that difficult and understanding the basic principles of real estate math can help you pass your exam and excel as a new real estate professional.
The Gross Rent Multiplier (GRM) formula is a quick and easy way to determine the value of an investment property. It combines the property price and annual rental income to provide an estimate of how long it would take to recoup your initial investment. Generally, investors want to purchase properties with lower GRMs.
The Cash on Cash Return formula is another common real estate calculator used by investors. This formula allows you to calculate the amount of money coming in from a rental property versus the amount of money going out for expenses and capital improvements. A good cash on cash return will indicate a positive cash flow and a potential for future growth.
