Shauna closes on a $280,000 renovation project in Lyndon, IL, using a private money loan from Riverside Finance. The loan to value (LTV) on the deal is 75%. This means Shauna will bring 25% of the purchase price to closing and the principle will be $210,000 on the note. The deal also includes the following features: 1) a 18 month length, 2) a 13% interest-only note, and 3) a five point origination fee.
In accordance with the terms of the loan, Shauna will have to pay a $10,500 origination fee in addition to 25% of the purchase price, or $70,000, since there is a 75% LTV. Once the deal is executed and Shauna takes on the property, she will begin making payments each month of $2,275 to the lender ($210,000 principle x 13% / 12 months). At the end of the loan, she sells the rehabed property for $406,000. After deducting the $40,950 in interest expenses ($2,275 multiplied times 18 months), the $10,500 origination fee, the $210,000 principle on the loan, and the $70,000 she contributed to closing, she will make a gross profit of $74,550 ($406,000 sales price minus $331,450 in total costs). This profit would then be reduced by any building costs paid by Shauna.