Josie finds a townhome in the Linda neighborhood of Olivehurst, CA to renovate and re-sell. Since she doesn't have enough cash available to buy the $350,000 house outright, she decides to take out a private money loan from Assurance Funding Company. The borrower will have to bring 35% of the sales price in cash to the closing based on a 65% loan to value stipulated by the lending company. This makes the principle note from Assurance Funding Company $227,500. The parameters of the deal also include a four point origination fee that is to be paid at the closing and a 12 month, interest-only note with a 14% interest rate.
Josie will need to contribute $122,500 at closing (35% on the 65% loan to value), plus she will need to pay the $9,100 origination fee. Once the loan closes, she will need to pay Assurance Funding Company $2,654 in monthly interest fees, or 14% multiplied times $227,500 divided by 12 months in the year. If Josie sells the project for $437,500 after 12 months, she would then make a gross profit of $46,550 after deducting the principle amount of $227,500, the funds paid at the close of $122,500, the origination fee of $9,100, and the total interest payments of $31,850. This gross profit doesn't account for building costs.