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Real Estate Math Video #3 - Calculating Equity | Real Estate Exam Prep - YouTube
Channel: The Real Estate Classroom
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- Hey, everyone.
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My name is Paul Vojchehoske,
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and welcome to the Real Estate
Classroom YouTube Channel.
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In today's real estate exam prep video,
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we're going to discuss
how to calculate equity
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in someone's home.
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All of that in this video.
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(upbeat music)
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All right, so in today's video,
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we're gonna discuss how
to calculate equity.
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I'm gonna teach you what equity is,
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and why it's important
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for a real estate professional.
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Equity (ding) is simply the home's value,
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and this also applies to any, any asset,
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whether it be stock, or a car,
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or a coin collection or anything.
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But, when we're talking about
equity in relation to a home,
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it's basically the home's value,
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minus the debts and the
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liabilities against the home.
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And what I mean by liabilities,
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is let's say that there is
mortgages against the property
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or home loans.
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There are liens against the property.
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Maybe there's a mechanic's lien.
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Maybe there's weed liens
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that the city or municipality
put against the lien.
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That is a debt against the property.
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Special assessments or
delinquent property taxes.
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Those are are things that are liabilities
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that count against a home uh,
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the value or the asset of the home.
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There are a couple of
calculations that I wanna cover,
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because they're the most probable type of
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question I guess,
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or real estate math
question you're gonna have
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on your real estate licensing exam.
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So, let's take a look at the first one.
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So, the first one is Tom
owns 123 Main Street,
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and it's valued at $200,000.
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The loan balance or the
principal loan balance
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against the property is $100,000.
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How much equity does Tom have in his home?
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And quite frankly, the
calculation is pretty simple.
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We take the value of the
home, which is 200,000,
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we minus or subtract the debt,
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which is a 100,000,
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that gives us an equity
position of a $100,000.
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Now, remember equity can
actually be positive or negative.
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So, let's say that there was $300,000
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owed against the property,
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and the property is valued at 200,
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that means it would be a negative
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$100,000 equity position.
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So, it can be, it's like cashflow,
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it can be positive or negative.
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Practice Problem #2.
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Sometimes the Real Estate Licensing Exam
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will throw in a few extra added tidbits
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that you don't need for the calculation,
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or they will throw in an extra mortgage
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or an extra debt,
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and I've provided both of 'em here.
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So, the problem says,
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Sally purchased a property
for $300,000 and put 20% down.
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The property is currently
valued at 350,000
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with a mortgage balance of 200,000.
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Sally also has a second mortgage
on the property of 50,000.
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How much equity does
Sally have in her home?
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Now, a couple of extra things in here
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was put into the problem.
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Number one, the first sentence.
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Sally purchased a property
for 300,000 and put 20% down.
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Remember, all we're looking
for in calculating equity
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is the value of the home,
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minus the debts and liabilities
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charged against the home.
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So, the first sentence
really does have any impact
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one way or another on the calculation.
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Here's what is though,
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the home is valued at 350,000
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and there are two mortgages
against the property,
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which means there are two
debts against the property.
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That's what we need to know.
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So, let's take a look at what that
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mathematical calculation looks like.
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So, you can see on the
bottom of your screen,
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that means we have $350,000 value,
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and then we're gonna subtract
from that value $250,000.
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That's the total amount
between the first mortgage
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and the second mortgage.
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Therefore, when we take $350,000,
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minus $250,000 in total debt,
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that means we have an equity position,
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or Sally has an equity
position in that home
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of $100,000 in equity.
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And that's really the two
simplest ways to calculate,
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or at least the two most
common types of questions
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you're gonna see on your
Real Estate Licensing Exam,
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regarding how to calculate equity.
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All right,
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if you're gonna continue studying for your
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Real Estate Exam and you
wanna watch more math videos,
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check out this video to my right,
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and if you have not subscribed,
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click the little circle to my left,
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I would appreciate you subscribing.
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Comments and questions down below.
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Have an awesome day,
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I'll see you in my next video.
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(upbeat music)
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