Sunrise Lending Corporation makes a loan to Keith for a renovation project in the West Central area of Pasadena, CA, on a property that is listed for $330,000. The lender agrees to write a note with a 50% loan to value (LTV) so they are willing to extend $165,000 on the house. The parameters of the deal dictate a 11% note for 18 months. They also stipulate a 2 point origination fee, that will also be paid upon closing.
Therefore, the borrower will have to make a $165,000 down payment in addition to paying a $3,300 origination fee. he will then pay $1,513 monthly to Sunrise Lending Corporation. At the end of the note, he sells the rehabed property for $495,000. After subtracting the $27,225 in interest expenses ($1,513 multiplied times 18 months), the $3,300 origination fee, the $165,000 principle amount on the note, and the $165,000 he contributed to closing, he will make a gross profit of $134,475 ($495,000 price minus $360,525 in total costs). This profit would be reduced by any building costs paid by the borrow.