Tara closes on a $160,000 rehab project in Albemarle, NC, using a private money loan from East Star Investment Corporation. The lender agrees to issue a note with a 75% loan to value (LTV) so they will loan $120,000 on the house. The rate on the note is 11% for a term of 6 months and the lender requires a one point origination fee at the close. The interest is to be paid monthly and the principle amount will be paid back after the property sells.
In accordance with the parameters of the note, Tara will need to pay a $1,200 origination fee in addition to 25% of the sales price, or $40,000, since there is a 75% LTV. After the loan closes, she will need to pay East Star Investment Corporation $1,100 in monthly interest fees, or 11% multiplied by $120,000 divided by 12 months in the year. If Tara sells the house for $224,000 after 6 months, she would then realize a total profit of $56,200 after subtracting the original principle of $120,000, the funds contributed at closing of $40,000, the origination points of $1,200, and the total interest payments of $6,600. This amount doesn't account for remodeling costs.