Clarice closes on a $390,000 renovation project in El Sobrante, CA, using a private money loan from Smith Finance. The terms of the loan include a 85% loan-to-value (LTV), so she must contribute 15% of the price as cash at closing, making the principle loan amount $331,500. The rate on the loan is 14% for a length of 12 months and the company requires a four point origination fee at the closing. The interest is to be paid on a monthly basis and the principle amount will be repaid after the property sells.
Clarice will need to contribute $58,500 at the closing (15% on the 85% loan-to-value), plus she will need to pay the $13,260 origination fee. she must then pay $3,868 per month to the lender. If Clarice sells the house for $546,000 after 12 months, she would make a gross profit of $96,330 after deducting the original principle of $331,500, the funds contributed at closing of $58,500, the origination fee of $13,260, and the total interest payments of $46,410. This profit doesn't include rehab costs.