Henry is a real estate investor in New Castle, DE. He discovers an run-down property for sale in the Wilmington Manor subdivision and decides to rehab it and sell it for a profit. The house has a cost of $340,000 but he does not have the full amount so he obtains a private money loan with Fair View Finance Group. As the lender agrees to a 85% loan-to-value, Henry will have to put 15% down so the principle amount of the loan will be $289,000. The terms of the note also stipulate a four percent origination fee that will be paid at closing and a 12 month, interest-only note with a 13% interest rate.
Henry will need to bring $51,000 to the closing (15% on the 85% LTV), plus he will need to pay the $11,560 origination fee. After the loan is closed and Henry takes over the project, he will need to begin making monthly payments of $3,131 to the lender ($289,000 principle x 13% / 12 months). If Henry sells the project for $425,000 after 12 months, he would then realize a total profit of $35,870 after deducting the principle amount of $289,000, the money contributed at the close of $51,000, the origination fee of $11,560, and the total interest payments of $37,570. This profit does not include building costs.