Keisha finds a townhome in New Albany, IN to flip and resell. Since she doesn't have enough cash available to purchase the $280,000 property outright, she takes out a private money loan from J & T Funding Company. The lender agrees to make a loan with a 60% loan-to-value (LTV) so they will loan $168,000 on the property. The loan is interest only, with monthly payments, and is for 18 months at 10% interest with 4 origination points to be paid when the deal closes.
On top of the $6,720 origination fee, Keisha will also have to fund $112,000 of the purchase with her own money, or 40% of the purchase price. After the deal is executed and Keisha takes on the property, she will begin making monthly payments of $1,400 to J & T Funding Company ($168,000 principle x 10% / 12 months). At the expiration of the loan, she sells the rehabed house for $336,000. After subtracting the $25,200 in total interest payments ($1,400 multiplied by 18 months), the $6,720 origination fee, the $168,000 principle amount on the loan, and the $112,000 she brought to closing, she will make a total profit of $24,080 ($336,000 price minus $311,920 in total costs). This amount would then be reduced by any building costs paid by the borrow.