Adele closes on a $340,000 rehab project in Atwater, CA, using a private money loan from North Star Finance. The lender agrees to issue a note with a 55% loan-to-value (LTV) so they will extend $187,000 on the project. The note is interest only, paid monthly, and is for 12 months at 11% interest with 1 origination points to be paid at the closing.
Accordingly, Adele will need to contribute a $153,000 down payment plus pay a $1,870 origination fee. North Star Finance will collect $1,714 in monthly interest from the borrower. This is calculated by taking the total note value of $187,000, multiplying by the 11% interest rate, and then dividing that amount by 12. If she sells the rehabed project for $459,000 at the end of the 12 month term, her total profit (not accounting for rehab costs) would be $96,560. This is calculated by taking the purchase price ($459,000) and subtracting the original note amount ($187,000), the origination cost ($1,870), the funds she contributed to closing ($153,000), and the total interest payments ($20,570).