Alfred finds a townhome in Natick, MA to flip and resell. Since he does not have enough cash on-hand to acquire the $280,000 project outright, he decides to take out a private money loan from Brook View Funding Group. The lender agrees to make a loan with a 75% loan-to-value (LTV) so they will loan $210,000 on the project. The loan also consists of these features: 1) a 18 month length, 2) a 14% interest-only note, and 3) a five point origination fee.
Therefore, Alfred will need to make a $70,000 down payment in addition to paying a $10,500 origination fee. The lender will collect $2,450 in monthly interest from the Alfred. This is calculated by taking the full note amount of $210,000, multiplying by the 14% interest rate, and then dividing that number by 12. If Alfred sells the house for $406,000 after 18 months, he would realize a total profit of $71,400 after subtracting the original principle of $210,000, the cash paid at closing of $70,000, the origination points of $10,500, and the total interest payments of $44,100. This profit does not account for remodeling costs.