Bernadette finds a townhouse in the Blackhawk-Camino Tassajara subdivision of Danville, CA to rehab and sell. Since she does not have enough cash on-hand to purchase the $310,000 property outright, she decides to take out a private money loan from Evergreen Funding Group. The loan-to-value (LTV) on the deal is 65%. This means Bernadette will bring 35% of the purchase price to the closing and the principle amount will be $201,500 on the deal. The rate on the note is 13% for a term of 18 months and the company requires a two point origination fee at the close. The interest payments are to be paid monthly and the principle will be repaid after the property sells.
Bernadette will have to bring $108,500 to closing (35% on the 65% loan to value), plus she will pay the $4,030 origination fee. Evergreen Funding Group will collect $2,183 in monthly interest payments from the Bernadette. This is computed by taking the full note amount of $201,500, multiplying by the 13% interest rate, and then dividing that number by 12. If Bernadette sells the renovated house for $372,000 at the end of the 18 month term, her total profit (not accounting for rehab expenses) would be $18,678. This is computed by taking the purchase price ($372,000) and subtracting the original note amount ($201,500), the origination fee ($4,030), the money she brought to closing ($108,500), and the total interest expenses ($39,293).