Rafael closes on a $240,000 rehab project in Pittsfield, MA, using a private money loan from Uptown Investments. The lender agrees to make a loan with a 80% loan to value (LTV) so they will loan $192,000 on the project. The parameters of the deal also stipulate a four point origination fee which is to be paid at the closing and a 6 month, interest only note with a 12% interest rate.
In accordance with the parameters of the note, Rafael will have to pay a $7,680 origination fee in addition to 20% of the purchase price, or $48,000, based on the 80% LTV. he must then pay $1,920 per month to the lender. If Rafael sells the property for $300,000 after 6 months, he would then make a total profit of $40,800 after subtracting the principle amount of $192,000, the funds paid at the close of $48,000, the origination points of $7,680, and the aggregate interest payments of $11,520. This amount doesn't include rehab costs.