GJ Funding Group issues a private money loan to Lucia for a rehab project in Downey, CA, on a property that is listed for $250,000. As the lender sets a 75% loan to value, Lucia will need to put 25% down so the amount of the note will be $187,500. The parameters of the loan dictate a 9% note for 18 months. They also require a 5 point origination fee, that will also be paid when the property closes.
According to the parameters of the note, Lucia will be required to pay a $9,375 origination fee plus 25% of the purchase price, or $62,500, based on the 75% LTV. Once the deal closes, she will pay the lender $1,406 in monthly interest payments, or 9% multiplied times $187,500 divided by 12 months in a year. If she sells the rehabed house for $300,000 at the end of the 18 month term, her total profit (not including renovation expenses) would be $15,313. This is calculated by taking the sales price ($300,000) and subtracting the original principle ($187,500), the origination cost ($9,375), the cash she brought to closing ($62,500), and the total interest payments ($25,313).