Susie closes on a $160,000 renovation project in Kearney, NE, using a private money loan from North End Finance Group. The lender agrees to make a note with a 85% loan to value (LTV) so they will loan $136,000 on the property. The loan also includes these features: 1) a 12 month term, 2) a 11% interest only note, and 3) a four percent origination charge.
Susie will have to bring $24,000 at closing (15% on the 85% loan-to-value), plus she will have to pay the $5,440 origination fee. After the loan is closed and Susie takes the project, she will begin making monthly payments of $1,247 to the lender ($136,000 principle x 11% / 12 months). If Susie sells the rehabed house for $216,000 at the end of the 12 month term, her total profit (not including remodeling expenses) would be $35,600. This is computed by taking the purchase price ($216,000) and subtracting the principle ($136,000), the origination cost ($5,440), the funds she contributed to closing ($24,000), and the total interest payments ($14,960).