Albert takes a private money loan from Top Notch Finance Company in order to remodel a duplex to flip in Homosassa, FL. The sales price of the house is $350,000. The loan to value (LTV) on the note is 85%. This means that Albert will need to bring 15% of the purchase price to closing and the principle amount will be $297,500 on the note. The deal also includes these features: 1) a 18 month length, 2) a 10% interest-only note, and 3) a five point origination fee.
Albert will need to fund a total of $32,400 up front to pay the $52,500 down payment plus the $14,875 origination fee. The lender will collect $2,479 in monthly interest from the borrower. This is calculated by taking the total loan amount of $297,500, multiplying by the 10% interest rate, and then dividing that number by 12. At the expiration of the loan, he sells the rehabed house for $507,500. After deducting the $44,625 in total interest payments ($2,479 multiplied times 18 months), the $14,875 origination fee, the $297,500 principle amount on the loan, and the $52,500 he contributed to closing, he will earn a total profit of $98,000 ($507,500 sales price minus $409,500 in total costs). This amount would then be reduced by any renovation costs paid out of pocket.