Angeline closes on a $220,000 renovation project in Blue Springs, MO, using a private money loan from Mountain Rock Funding Company. The borrower will have to fund 15% of the sales price in cash to closing based on a 85% loan-to-value set by the lender. This makes the principle note from Mountain Rock Funding Company $187,000. The parameters of the loan dictate a 8% note for 6 months. They also require a 5 point origination fee, that will also be paid upon closing.
Accordingly, Angeline will be required to make a $33,000 down payment plus pay a $9,350 origination fee. Once the loan is closed and Angeline takes the property, she will begin making payments each month of $1,247 to the lender ($187,000 principle x 8% / 12 months). If Angeline sells the project for $275,000 after 6 months, she would realize a gross profit of $38,170 after subtracting the original principle of $187,000, the money contributed at closing of $33,000, the origination fee of $9,350, and the total interest payments of $7,480. This profit does not include remodeling costs.