Investors Finance Group issues a private money loan to Flossie for a remodeling project in Mooresville, IN, on a house that costs $230,000. The terms of the note include a 55% loan-to-value (LTV), so she must bring 45% of the price as cash to closing, which makes the principle loan amount $126,500. The rate on the loan is 9% for a term of 6 months and the lender requires a one point origination fee at the closing. The interest payments are to be paid monthly and the principle will be repaid after the sale of the property.
Accordingly, the borrower will need to make a $103,500 down payment in addition to paying a $1,265 origination fee. Once the deal is executed and Flossie takes on the project, she will begin making monthly payments of $949 to Investors Finance Group ($126,500 principle x 9% / 12 months). Assuming Flossie sells the rehabed house for $287,500 at the end of the 6 month term, her total profit (not including rehab expenses) would be $50,543. This is computed by taking the sales price ($287,500) and subtracting the principle ($126,500), the origination cost ($1,265), the funds she brought to closing ($103,500), and the total interest expenses ($5,693).