Chris closes on a $330,000 rehab project in Pomona, CA, using a private money loan from Pretty Perfect Lending Group. Since the lender sets a 60% loan to value, Chris will have to put 40% down and the amount of the note will be $198,000. The note is interest only, with monthly payments, and is for 6 months at 11% interest with 2 origination points to be paid at closing.
In accordance with the parameters of the loan, Chris will have to contribute a $3,960 origination fee plus 40% of the purchase price, or $132,000, based on the 60% LTV. The lender will collect $1,815 in monthly interest payments from the Chris. This is computed by taking the total note value of $198,000, multiplying that by the 11% interest rate, and then dividing that number by 12. At the expiration of the note, she sells the rehabed house for $478,500. After subtracting the $10,890 in interest expenses ($1,815 multiplied by 6 months), the $3,960 origination fee, the $198,000 principle amount on the note, and the $132,000 she contributed to the closing, she will earn a total profit of $133,650 ($478,500 price minus $344,850 in total costs). This amount would then be reduced by any rehab costs paid by the borrow.