Jacob closes on a $350,000 rehab project in the Verdugo Viejo neighborhood of Glendale, CA, using a private money loan from Friendly Lending Group. The terms of the note include a 70% loan to value (LTV), so he must bring 30% of the price as cash to closing, making the principle note amount $245,000. The parameters of the deal also include a four point origination fee that will be paid at the closing and a 12 month, interest-only note with a 12% rate of interest.
In addition to paying the $9,800 origination fee, Jacob will also have to fund $105,000 of the purchase with his own cash, or 30% of the sales price. The lender will collect $2,450 in monthly interest from the Jacob. This is computed by taking the total note amount of $245,000, multiplying by the 12% rate of interest, and then dividing that amount by 12. Assuming he sells the remodeled project for $490,000 at the end of the 12 month term, his total profit (not accounting for renovation costs) would be $100,800. This is computed by taking the purchase price ($490,000) and subtracting the original principle ($245,000), the origination fee ($9,800), the money he brought to closing ($105,000), and the total interest expenses ($29,400).