Anita
takes a fix and flip loan from GJ Investment Group
in order to rehab a townhome to resale in the Highlands Douglas area of Louisville, KY. The sales price of the property is $310,000.
Because the lender sets a 60% loan to value, Anita
will have to put 40% down so the amount of the loan will be $186,000. The terms of the deal also stipulate a four percent origination fee which is to be paid at closing and a 6 month, interest-only note with a 13% rate of interest.
Anita
will have to contribute a total of $32,400 up front to cover the $124,000 down payment in addition to the $7,440 origination fee. Once the deal closes, she will have to pay the lender $2,015 in monthly interest fees, or 13% multiplied times $186,000 divided by 12 months in the year.
At the end of the loan, she sells the renovated property for $372,000. After subtracting the $12,090 in total interest payments ($2,015 multiplied times 6 months), the $7,440 origination fee, the $186,000 principle on the loan, and the $124,000 she brought to closing, she will earn a gross profit of $42,470 ($372,000 sales price minus $329,530 in costs). This amount would then be reduced by any renovation costs paid out of pocket.