Danielle finds a townhouse in the East Newnan neighborhood of Newnan, GA to remodel and sell. Since she does not have enough cash to purchase the $370,000 property outright, she takes out a private money loan from Allstar Finance. The terms of the loan include a 65% loan-to-value (LTV), so she must bring 35% of the price as cash to closing, making the principle note amount $240,500. The parameters of the note also stipulate a five percent origination fee that will be paid at closing and a 6 month, interest-only note with a 12% interest rate.
According to the terms of the loan, Danielle will need to contribute a $12,025 origination fee plus 35% of the sales price, or $129,500, since there is a 65% LTV. The monthly interest only payments will then be $2,405 to the lender. If Danielle sells the project for $555,000 after 6 months, she would then earn a gross profit of $158,545 after deducting the principle of $240,500, the cash contributed at the close of $129,500, the origination points of $12,025, and the total interest payments of $14,430. This amount does not include building costs.