Johnny closes on a $310,000 rehab project in the Downtown subdivision of Milpitas, CA, using a private money loan from River City Finance Corporation. The borrower will be required to contribute 15% of the purchase price in cash to the closing based on a 85% loan-to-value set by the lending company. This makes the principle amount from River City Finance Corporation $263,500. The terms of the deal dictate a 10% note for 12 months. They also stipulate a 4 point origination fee, that will also have to be paid at closing.
On top of the $10,540 origination fee, Johnny will also have to fund $46,500 of the purchase with his own money, or 15% of the purchase price. The lender will collect $2,196 in monthly interest payments from the borrower. This is computed by taking the total loan amount of $263,500, multiplying by the 10% rate of interest, and then dividing that amount by 12. If Johnny sells the property for $449,500 after 12 months, he would earn a gross profit of $102,610 after subtracting the principle amount of $263,500, the money contributed at closing of $46,500, the origination points of $10,540, and the aggregate interest payments of $26,350. This gross profit does not account for remodeling costs.