Sandra is a real estate investor in Hartselle, AL. She finds an older property and decides to rehab it and resell it for a profit. The property has a cost of $360,000 but she doesn't have the full amount so she takes a private money loan with North Shore Finance Company. The borrower will have to bring 15% of the purchase price in cash to the closing based on a 85% loan to value set by the lending company. This makes the loan principle from North Shore Finance Company $306,000. The terms of the deal also stipulate a four percent origination fee that is to be paid at the closing and a 6 month, interest only note with a 11% interest rate.
Sandra will have to contribute $54,000 at closing (15% on the 85% LTV), plus she will have to pay the $12,240 origination fee. The lender will collect $2,805 in monthly interest payments from the borrower. This is calculated by taking the full note value of $306,000, multiplying by the 11% interest rate, and then dividing that number by 12. If Sandra sells the project for $504,000 after 6 months, she would make a total profit of $114,930 after subtracting the principle of $306,000, the money paid at closing of $54,000, the origination points of $12,240, and the aggregate interest payments of $16,830. This profit doesn't include rehab costs.