West Shore Finance Corporation makes a private money loan to Marcus for a rehab project in Dickinson, ND, on a property that is listed for $170,000. The borrower will need to bring 15% of the purchase price in cash to closing based on a 85% loan to value stipulated by the lending company. This makes the loan principle from West Shore Finance Corporation $144,500. The rate on the note is 12% for a term of 6 months and the lender requires a four point origination fee at closing. The interest is to be paid monthly and the principle amount will be paid back after the property sells.
In accordance with the parameters of the loan, Marcus will be required to pay a $5,780 origination fee plus 15% of the purchase price, or $25,500, based on the 85% LTV. he must then pay $1,445 monthly to West Shore Finance Corporation. At the end of the note, he sells the rehabed property for $255,000. After deducting the $8,670 in interest payments ($1,445 multiplied by 6 months), the $5,780 origination fee, the $144,500 principle on the note, and the $25,500 he contributed to closing, he will earn a gross profit of $70,550 ($255,000 price minus $184,450 in total costs). This profit would then be reduced by any building costs paid out of pocket.