Letha closes on a $160,000 rehab project in Cedar Rapids, IA, using a private money loan from North End Finance. The lender agrees to make a note with a 65% loan-to-value (LTV) so they will loan $104,000 on the property. The terms of the loan dictate a 14% note for 12 months. They also stipulate a 1 point origination fee, that will also be paid at closing.
Letha will have to bring $56,000 at the closing (35% on the 65% loan to value), plus she will have to pay the $1,040 origination fee. After the loan is closed and Letha takes over the project, she will need to begin making monthly payments of $1,213 to the lender ($104,000 principle x 14% / 12 months). If she sells the remodeled house for $208,000 at the end of the 12 month term, her total profit (not accounting for renovation costs) would be $32,400. This is calculated by taking the sales price ($208,000) and subtracting the original note amount ($104,000), the origination cost ($1,040), the money she brought to closing ($56,000), and the total interest payments ($14,560).