Odessa closes on a $170,000 rehab project in Palm Desert, CA, using a private money loan from South End Funding Corporation. The lender agrees to issue a loan with a 75% loan-to-value (LTV) so they are willing to extend $127,500 on the property. The parameters of the loan dictate a 14% note for 6 months. They also stipulate a 4 point origination fee, which will also have to be paid upon closing.
By the terms of the deal, Odessa will need to pay a $5,100 origination fee plus 25% of the sales price, or $42,500, based on the 75% LTV. Once the deal is closed and Odessa takes on the project, she will need to begin making payments each month of $1,488 to the lender ($127,500 principle x 14% / 12 months). If she sells the remodeled house for $255,000 at the end of the 6 month term, her total profit (not accounting for rehab expenses) would be $70,975. This is computed by taking the purchase price ($255,000) and subtracting the original principle ($127,500), the origination cost ($5,100), the money she contributed to closing ($42,500), and the total interest expenses ($8,925).