Tom closes on a $310,000 renovation project in the Driftwood neighborhood of Hollywood, FL, using a private money loan from Assurance Investments. The borrower will have to fund 35% of the sales price in cash to the closing based on a 65% loan-to-value set by the lending company. This makes the loan principle from Assurance Investments $201,500. The terms of the loan dictate a 13% note for 12 months. They also require a 1 point origination fee, that will also need to be paid at closing.
On top of the $2,015 origination fee, Tom will also need to fund $108,500 of the purchase with his own cash, or 35% of the sales price. After the deal is closed and Tom takes over the project, he will begin making payments each month of $2,183 to Assurance Investments ($201,500 principle x 13% / 12 months). If Tom sells the project for $372,000 after 12 months, he would then make a total profit of $33,790 after deducting the original principle of $201,500, the cash paid at the close of $108,500, the origination points of $2,015, and the aggregate interest payments of $26,195. This profit doesn't include remodeling costs.