Henrietta finds a condo in the Preston Heights subdivision of Joliet, IL to renovate and sell. Since she does not have enough cash on-hand to buy the $230,000 project outright, she decides to take out a private money loan from Fortune Investment Corporation. The terms of the note include a 65% loan-to-value (LTV), so she must contribute 35% of the price as cash at closing, making the principle note amount $149,500. The rate on the note is 12% for a length of 18 months and the company requires a five point origination fee at the closing. The interest payments are to be paid monthly and the principle amount will be returned after the property sells.
In addition to paying the $7,475 origination fee, Henrietta will also have to fund $80,500 of the purchase with her own cash, or 35% of the sales price. Once the deal closes, she will need to pay the lender $1,495 in monthly interest payments, or 12% multiplied by $149,500 divided by 12 months in the year. Henrietta's intention is to finish the rehab by the end of the 18 months and sell it for $322,000. If she succeeds she will make a profit of $57,615 ($322,000 price - $149,500 principle - $80,500 funds brough to closing - $7,475 origination points - $26,910 in total interest payments.