Troy closes on a $340,000 renovation project in the Bel Air South neighborhood of Bel Air, MD, using a private money loan from XYZ Investment Company. The terms of the loan include a 50% loan-to-value (LTV), so he must bring 50% of the price as cash to closing, which makes the principle note amount $170,000. The parameters of the deal dictate a 10% note for 18 months. They also require a 2 point origination fee, that will also have to be paid at closing.
Troy will have to bring $170,000 at the closing (50% on the 50% LTV), plus he will pay the $3,400 origination fee. After the loan is closed and Troy takes the property, he will begin making payments each month of $1,417 to the lender ($170,000 principle x 10% / 12 months). If Troy sells the property for $476,000 after 18 months, he would realize a total profit of $107,100 after deducting the principle amount of $170,000, the money paid at the close of $170,000, the origination points of $3,400, and the aggregate interest payments of $25,500. This gross profit does not account for renovation costs.