Trudy finds a townhouse in the El Rio area of Oxnard, CA to flip and sell. Since she doesn't have enough cash available to purchase the $240,000 property outright, she decides to take out a private money loan from BCC Investments. The terms of the deal include a 80% loan to value (LTV), so she must contribute 20% of the price as cash to closing, making the principle note amount $192,000. The note is interest-only, paid monthly, and is for 6 months at 9% interest with 2 points paid when the deal closes.
Trudy will have to fund a total of $32,400 upon closing to cover the $48,000 down payment in addition to the $3,840 origination fee. she will then pay $1,440 monthly to the lender. Assuming she sells the rehabed house for $348,000 at the end of the 6 month term, her gross profit (not accounting for remodeling expenses) would be $95,520. This is computed by taking the sales price ($348,000) and subtracting the principle ($192,000), the origination cost ($3,840), the funds she contributed to closing ($48,000), and the total interest payments ($8,640).