Ofelia closes on a $260,000 rehab project in Bloomington, IL, using a private money loan from Smith Finance Group. The terms of the loan include a 60% loan to value (LTV), so she must bring 40% of the price as cash at closing, which makes the principle note amount $156,000. The terms of the loan dictate a 12% note for 12 months. They also require a 2 point origination fee, which will also need to be paid at closing.
Therefore, the borrower will be required to make a $104,000 down payment plus pay a $3,120 origination fee. The monthly interest-only payments will then total $1,560 to Smith Finance Group. At the expiration of the note, she sells the renovated property for $312,000. After deducting the $18,720 in interest expenses ($1,560 multiplied times 12 months), the $3,120 origination fee, the $156,000 principle on the note, and the $104,000 she brought to closing, she will earn a total profit of $30,160 ($312,000 price minus $281,840 in costs). This profit would be reduced by any rehab costs paid by Ofelia.