Ella takes a loan from Green Square Funding Group in order to rehab a condo to flip in La Puente, CA. The price of the property is $150,000. The lender agrees to write a note with a 50% loan to value (LTV) so they will loan $75,000 on the project. The note is interest-only, with monthly payments, and is for 18 months at 11% interest with 2 origination points paid when the deal closes.
According to the terms of the note, Ella will have to contribute a $1,500 origination fee plus 50% of the purchase price, or $75,000, based on the 50% LTV. Once the deal closes, she will pay Green Square Funding Group $688 in monthly interest payments, or 11% times $75,000 divided by 12 months in the year. At the expiration of the note, she sells the renovated property for $225,000. After deducting the $12,375 in interest expenses ($688 times 18 months), the $1,500 origination fee, the $75,000 principle on the note, and the $75,000 she contributed to closing, she will earn a total profit of $61,125 ($225,000 price minus $163,875 in costs). This profit would then be reduced by any renovation costs paid by the borrow.