South Star Lending makes a private money loan to Francis for a renovation project in Apopka, FL, on a property that costs $190,000. The lender agrees to make a loan with a 50% loan to value (LTV) so they will loan $95,000 on the project. The parameters of the loan dictate a 14% note for 18 months. They also stipulate a 3 point origination fee, which will also be paid upon closing.
Accordingly, the borrower will be required to make a $95,000 down payment in addition to paying a $2,850 origination fee. South Star Lending will collect $1,108 in monthly interest payments from the borrower. This is calculated by taking the total loan amount of $95,000, multiplying by the 14% rate of interest, and then dividing that number by 12. If Francis sells the house for $275,500 after 18 months, she would earn a total profit of $62,700 after deducting the principle of $95,000, the funds contributed at the close of $95,000, the origination points of $2,850, and the aggregate interest payments of $19,950. This gross profit doesn't account for building costs.