Adele finds a duplex in Monroe, MI to rehab and sell. Since she does not have enough cash to buy the $150,000 house outright, she decides to take out a private money loan from Forest Grove Finance. The borrower will have to bring 30% of the sales price in cash to closing based on a 70% loan to value set by the lender. This makes the principle note from Forest Grove Finance $105,000. The parameters of the loan also stipulate a five percent origination fee which is to be paid at closing and a 6 month, interest-only note with a 12% interest rate.
The borrower will need to fund a total of $32,400 upon closing to pay the $45,000 down payment plus the $5,250 origination fee. The monthly interest only payments will then total $1,050 to the lender. If Adele sells the project for $217,500 after 6 months, she would realize a gross profit of $55,950 after deducting the original principle of $105,000, the money paid at closing of $45,000, the origination fee of $5,250, and the aggregate interest payments of $6,300. This gross profit does not account for building costs.