Cory takes a private money loan from Assurance Finance in order to remodel a townhouse to flip in Columbus, MS. The price of the property is $220,000. The terms of the deal include a 80% loan to value (LTV), so he must contribute 20% of the price as cash to closing, making the principle loan amount $176,000. The loan is interest-only, with monthly payments, and is for 12 months at 11% interest with 2 points paid when the deal closes.
On top of the $3,520 origination fee, Cory will also have to fund $44,000 of the purchase with his own funds, or 20% of the sales price. After the loan closes, he will need to pay Assurance Finance $1,613 in monthly interest payments, or 11% multiplied by $176,000 divided by 12 months in a year. Cory's intention is to complete the project within the 12 months and re-sell it for $308,000. If he succeeds he will collect a profit of $65,120 ($308,000 sales price - $176,000 principle - $44,000 cash at closing - $3,520 origination fee - $19,360 in interest.