Leslie finds a townhome in Pico Rivera, CA to flip and re-sell. Since he does not have enough cash available to acquire the $220,000 property outright, he takes out a private money loan from South Shore Investments. The terms of the loan include a 70% loan to value (LTV), so he must contribute 30% of the price as cash at closing, making the principle loan amount $154,000. The loan is interest only, with monthly payments, and is for 18 months at 13% interest with 1 origination points paid at closing.
On top of the $1,540 origination fee, Leslie will also need to fund $66,000 of the purchase with his own cash, or 30% of the sales price. Once the deal is executed and Leslie takes on the project, he will have to begin making payments each month of $1,668 to the lender ($154,000 principle x 13% / 12 months). Leslie's plan is to complete the remodel within the 18 months and re-sell it for $275,000. If he succeeds he will make a gross profit of $23,430 ($275,000 sales price - $154,000 principle - $66,000 funds brough to closing - $1,540 origination fee - $30,030 in interest.