Tim closes on a $170,000 rehab project in Pelham, AL, using a private money loan from Blue Mountain Investment Corporation. Since the lender sets a 65% loan-to-value, Tim will be required to put 35% down so the amount of the note will be $110,500. The parameters of the deal also stipulate a one point origination fee which will be paid at the closing and a 6 month, interest-only note with a 8% rate of interest.
Tim will have to bring $59,500 to the closing (35% on the 65% LTV), plus he will pay the $1,105 origination fee. he will then pay $737 per month to Blue Mountain Investment Corporation. At the expiration of the note, he sells the renovated house for $221,000. After deducting the $4,420 in interest payments ($737 multiplied times 6 months), the $1,105 origination fee, the $110,500 principle amount on the note, and the $59,500 he brought to the closing, he will earn a gross profit of $45,475 ($221,000 sales price minus $175,525 in total costs). This amount would then be reduced by any building costs paid by the borrow.