Adele closes on a $280,000 rehab project in Derry, NH, using a private money loan from Progressive Funding Company. The lender agrees to issue a loan with a 60% loan to value (LTV) so they will loan $168,000 on the house. The note is interest-only, with monthly payments, and is for 18 months at 12% interest with 1 origination points paid at the closing.
On top of the $1,680 origination fee, Adele will also need to fund $112,000 of the purchase with her own funds, or 40% of the purchase price. Once the loan closes, she will have to pay the lender $1,680 in monthly interest payments, or 12% multiplied by $168,000 divided by 12 months in a year. At the end of the loan, she sells the renovated property for $378,000. After subtracting the $30,240 in total interest payments ($1,680 multiplied by 18 months), the $1,680 origination fee, the $168,000 principle on the loan, and the $112,000 she brought to the closing, she will make a total profit of $66,080 ($378,000 price minus $311,920 in total costs). This profit would then be reduced by any building costs paid by Adele.