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Sunday, March 21, 2021

Capitalization Rate, Intimidating?

The final for the real estate course is Tuesday, March 30, 2021. I will be studying for most of the week, however feel ready to take the exam.

Was this an easy course? In my opinion, if you do not have time to study, you will probably find it is not as easy as you may think. That said, I have learned a lot and happy I had the opportunity to do this.

Financial terms I may have looked up in the past, simply because they were mentioned in a news story, now have new meaning as applied to real estate finance. Some of these terms include:

  • Capitalization Rate (also known as Cap Rate). Example: a property in Maryland has a ground rent of $2160 annually. If a buyer is looking to obtain both land improvements and the land, the ground rent in this example would be capitalized by dividing $2160 ÷ 6% = $36,000 (the price the buyer would pay for the land). Six percent is the rate the State of Maryland sets for most redemption cases of this type.
  • Consumer Price Index (CPI), the State of Maryland uses this factor to determine the filing, delivery, etc. fees for some of the services it provides.
  • Loan To Value ratio (LTV). Principle Loan Amount ÷ Sales Price (or Appraised Value). A conforming mortgage loan normally requires an 80% LTV. A mortgage lender considers a lower LTV more attractive, i.e., 80% is better than 90% to a loan officer.

I purchased real estate years ago. At the time, some of these terms may have been mentioned in the loan and settlement processes, however probably forgotten. I appreciated this refresher course, in that the definitions now have broader meaning across a wide spectrum of uses.

New features, recently added to WiredPages, provide a myriad of statistics for everyday use. Below, illustration of new resources added to the WiredPages Real Estate page.


I consider myself well versed in consumer news, however if I never looked up uses for the CPI, I was not overly concerned. I thought, if needed, I could easily look up anything. I say this to say, some of the new features may seem a little intimidating, however in real life (& business), these numbers may be useful and easy to lookup.




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