Real Estate Math


Real estate math is a critical component of any real estate transaction and all successful real estate professionals must possess knowledge of basic mathematics and equations. Real estate math encompasses a variety of different calculations that affect both the buyer and the seller.

Calculations for Buyers

When buying a property, buyers must understand basic real estate math to establish the following:

  • Loan-to-Value Ratio – A comparison of the loan amount to the property’s appraised value
  • Principal and Interest Payments – The two components that make up a mortgage payment; principal pays down the loan balance, while interest is a fee paid to the lender for the loan
  • Monthly Payment Amount – How much a buyer will pay each month for the property
  • Amortization Schedule – A document indicating the breakdown of payments made over the term of the loan, including the principal and interest portion of each payment

Calculations for Sellers

When selling a property, sellers must also understand basic real estate math to establish the following:

  • Gross Rent Multiplier – An estimation of a property’s value based off the total annual rental income
  • Capitalization Rate– A rate used to calculate the value of a property based on its income and associated expenses
  • Net Operating Income– A calculation used to derive the value of a property based off its potential income
  • Profit Calculation– A single formula to calculate the profit earned from the sale of a property


Real estate math is essential for any real estate professionals. Knowing real estate math allows buyers and sellers to accurately assess the value of properties and to make informed decisions on whether to purchase or sell. With a good understanding of real estate math calculations, buyers and sellers can optimize their investments and secure a successful outcome.