Rachelle takes a private money loan from Green Fern Lending in order to renovate a property to resale in North Platte, NE. The sales price of the house is $160,000. The borrower will need to bring 35% of the sales price in cash to closing based on a 65% loan-to-value stipulated by the lender. This makes the loan principle from Green Fern Lending $104,000. The parameters of the loan dictate a 14% note for 18 months. They also require a 1 point origination fee, that will also need to be paid when the property closes.
In addition to paying the $1,040 origination fee, Rachelle will also fund $56,000 of the purchase with her own money, or 35% of the sales price. Once the loan is closed and Rachelle takes the property, she will begin making payments each month of $1,213 to the lender ($104,000 principle x 14% / 12 months). If she sells the renovated project for $200,000 at the end of the 18 month term, her gross profit (not including rehab costs) would be $17,120. This is calculated by taking the purchase price ($200,000) and subtracting the original note amount ($104,000), the origination cost ($1,040), the funds she contributed to closing ($56,000), and the total interest expenses ($21,840).