Christina finds a duplex in the Meadowlawn area of Pinellas Park, FL to remodel and sell. Since she does not have enough cash on-hand to buy the $290,000 project outright, she takes out a private money loan from Boom Investment Corporation. The lender agrees to write a note with a 55% loan-to-value (LTV) so they are willing to loan $159,500 on the property. The parameters of the deal dictate a 11% note for 6 months. They also require a 3 point origination fee, which will also be paid at closing.
Accordingly, Christina will be required to make a $130,500 down payment in addition to paying a $4,785 origination fee. Boom Investment Corporation will collect $1,462 in monthly interest payments from the borrower. This is calculated by taking the full note value of $159,500, multiplying by the 11% rate of interest, and then dividing that amount by 12. Assuming Christina sells the renovated project for $348,000 at the end of the 6 month term, her total profit (not including rehab costs) would be $44,443. This is calculated by taking the sales price ($348,000) and subtracting the principle ($159,500), the origination fee ($4,785), the money she brought to closing ($130,500), and the total interest payments ($8,773).