Don takes a loan from Prosper Lending Company in order to rehab a townhouse to flip in Carlisle, MA. The list price of the house is $200,000. The borrower will need to contribute 40% of the sales price in cash to closing based on a 60% loan-to-value set by the lender. This makes the loan principle from Prosper Lending Company $120,000. The deal also includes these features: 1) a 18 month term, 2) a 11% interest-only note, and 3) a one point origination fee.
Don will have to contribute a total of $32,400 up front to pay the $80,000 down payment plus the $1,200 origination fee. Once the deal closes, he will pay Prosper Lending Company $1,100 in monthly interest fees, or 11% multiplied times $120,000 divided by 12 months in a year. Assuming he sells the remodeled project for $250,000 at the end of the 18 month term, his total profit (not including rehab expenses) would be $29,000. This is computed by taking the sales price ($250,000) and subtracting the principle ($120,000), the origination fee ($1,200), the cash he contributed to closing ($80,000), and the total interest expenses ($19,800).