K & M Lending Group issues a private money loan to Earline for a renovation project in Brandon, MS, on a property that is listed for $310,000. Because the lender sets a 75% loan to value, Earline will need to put 25% down so the total amount of the note will be $232,500. The deal also includes these features: 1) a 6 month length, 2) a 14% interest only note, and 3) a five percent origination fee.
According to the terms of the deal, Earline will have to pay a $11,625 origination fee plus 25% of the sales price, or $77,500, based on the 75% LTV. K & M Lending Group will collect $2,713 in monthly interest payments from the Earline. This is computed by taking the total note value of $232,500, multiplying that by the 14% interest rate, and then dividing that number by 12. If Earline sells the property for $403,000 after 6 months, she would then realize a gross profit of $65,100 after subtracting the principle amount of $232,500, the funds contributed at closing of $77,500, the origination fee of $11,625, and the aggregate interest payments of $16,275. This amount does not account for rehab costs.