Johnnie is an investor in Indianapolis, IN. He locates an older property and wants to remodel it and resell it for a profit. The house costs $360,000 but he doesn't have the full amount so he takes a private money loan with Presitge Lending Group. Because the lender agrees to a 50% loan to value, Johnnie will need to put 50% down so the amount of the note will be $180,000. The deal also has these features: 1) a 18 month term, 2) a 13% interest-only note, and 3) a four percent origination charge.
Johnnie will need to bring $180,000 at closing (50% on the 50% loan to value), plus he will pay the $7,200 origination fee. After the deal closes, he will pay the lender $1,950 in monthly interest fees, or 13% times $180,000 divided by 12 months in the year. At the expiration of the loan, he sells the rehabed house for $432,000. After subtracting the $35,100 in interest payments ($1,950 times 18 months), the $7,200 origination fee, the $180,000 principle amount on the loan, and the $180,000 he contributed to closing, he will earn a gross profit of $29,700 ($432,000 price minus $402,300 in total costs). This profit would be reduced by any building costs paid by the borrow.