Krystal takes a loan from Coastal Investment Corporation in order to remodel a condo to resale in the East Merrimack neighborhood of Merrimack, NH. The price of the property is $160,000. The loan to value (LTV) on the note is 70%. This means that Krystal will bring 30% of the sales price to the closing and the principle amount will be $112,000 on the loan. The parameters of the deal dictate a 13% note for 12 months. They also stipulate a 3 point origination fee, which will also be paid when the property closes.
In accordance with the parameters of the loan, Krystal will need to pay a $3,360 origination fee in addition to 30% of the sales price, or $48,000, based on the 70% LTV. The monthly interest only payments will then be $1,213 to Coastal Investment Corporation. At the expiration of the note, she sells the rehabed property for $200,000. After deducting the $14,560 in interest payments ($1,213 times 12 months), the $3,360 origination fee, the $112,000 principle amount on the note, and the $48,000 she contributed to the closing, she will earn a gross profit of $22,080 ($200,000 price minus $177,920 in costs). This profit would be reduced by any renovation costs paid out of pocket.