Hector takes a loan from Flourish Investment Corporation in order to remodel a townhouse to flip in the Bostonia area of El Cajon, CA. The sales price of the property is $170,000. The loan to value (LTV) on the note is 75%. This means Hector will need to bring 25% of the purchase price to closing and the principle will be $127,500 on the loan. The note is interest-only, paid monthly, and is for 6 months at 8% interest with 1 points to be paid when the deal closes.
The borrower will have to contribute a total of $32,400 up front to pay the $42,500 down payment plus the $1,275 origination fee. The lender will collect $850 in monthly interest from the borrower. This is calculated by taking the total note amount of $127,500, multiplying that by the 8% interest rate, and then dividing that number by 12. If Hector sells the property for $255,000 after 6 months, he would then realize a total profit of $78,625 after subtracting the principle amount of $127,500, the cash paid at the close of $42,500, the origination fee of $1,275, and the aggregate interest payments of $5,100. This profit doesn't include remodeling costs.