Vicky takes a private money loan from Top Dog Investments in order to remodel a townhouse to resale in Fort Dodge, IA. The list price of the property is $180,000. The loan to value (LTV) on the deal is 85%. This means that Vicky will need to bring 15% of the purchase price to closing and the principle amount will be $153,000 on the loan. The interest rate on the loan is 11% for a length of 6 months and the company requires a one point origination fee at closing. The interest is to be paid monthly and the principle amount will be paid back after the property sells.
Vicky will have to contribute a total of $32,400 upon closing to pay the $27,000 down payment in addition to the $1,530 origination fee. Top Dog Investments will collect $1,403 in monthly interest from the borrower. This is calculated by taking the full loan value of $153,000, multiplying by the 11% rate of interest, and then dividing that number by 12. If Vicky sells the project for $270,000 after 6 months, she would then realize a gross profit of $80,055 after subtracting the principle amount of $153,000, the money contributed at closing of $27,000, the origination points of $1,530, and the aggregate interest payments of $8,415. This profit does not account for renovation costs.