Katharine takes a private money loan from Friendly Finance Corporation in order to rehab a house to flip in Plainfield, IN. The price of the property is $400,000. The lender agrees to write a loan with a 70% loan to value (LTV) so they are willing to extend $280,000 on the house. The interest rate on the note is 12% for a term of 6 months and the lender requires a two point origination fee at closing. The interest is to be paid on a monthly basis and the principle amount will be returned after the sale of the property.
Katharine will have to bring $120,000 to the closing (30% on the 70% LTV), plus she will need to pay the $5,600 origination fee. After the deal is closed and Katharine takes the project, she will have to begin making monthly payments of $2,800 to Friendly Finance Corporation ($280,000 principle x 12% / 12 months). If Katharine sells the house for $600,000 after 6 months, she would then make a total profit of $177,600 after deducting the principle of $280,000, the cash paid at the close of $120,000, the origination points of $5,600, and the total interest payments of $16,800. This profit does not include renovation costs.