Real Estate Math
A New Mexico property's replacement cost is $350,000. The effective age is 8 years, total economic life is 40 years. Using age-life depreciation, what is the depreciated value of the improvements?
A$280,000✓ Correct
B$294,000
C$315,000
D$302,000
Explanation
Depreciation rate = 8/40 = 20%. Depreciation amount = $350,000 x 20% = $70,000.
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Key Terms to Know
Depreciation
A reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Math Concepts
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