Calculating Daily Rate
Definition
Daily rate calculation involves determining the cost or income per day by dividing the total amount by the number of days in the period (usually a year or a month). This is a fundamental step in proration.
Example
If annual homeowner's insurance is $1,200, the daily rate is $1,200 / 365 ≈ $3.29 (using a 365-day year). This means each day of coverage costs approximately $3.29.
Exam Tip
Pay close attention to whether the problem specifies a 360-day year (banker's year) or a 365-day year. Using the wrong number of days will lead to an incorrect answer.
Related Math Terms
Percentage to Decimal Conversion
Converting a percentage to a decimal involves dividing the percentage value by 100.
IRV Formula
IRV stands for Income, Rate, and Value. It represents the relationship between Net Operating Income (I), Capitalization Rate (R), and Property Value (V).
Net Operating Income (NOI)
Net Operating Income (NOI) is the revenue a property generates after deducting all operating expenses.
Gross Rent Multiplier (GRM)
The gross rent multiplier (GRM) is a quick method for estimating the value of income-producing property by multiplying the property's gross rent by a factor derived from comparable sales. GRM = Sale Price / Gross Rent.
Capitalization Rate
The capitalization rate (cap rate) is the ratio of a property's net operating income to its sale price, expressed as a percentage. It is used to estimate value and compare profitability of investment properties. Cap Rate = NOI / Value.
Net Operating Income (NOI)
Net operating income (NOI) is the annual income generated by an income-producing property after deducting operating expenses, but before deducting mortgage payments, income taxes, and depreciation.
Frequently Asked Questions
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