Jim closes on a $200,000 renovation project in Ransom, IL, using a private money loan from K & M Finance Corporation. The terms of the deal include a 70% loan to value (LTV), so he must bring 30% of the price as cash to closing, making the principle note amount $140,000. The note is interest only, paid monthly, and is for 18 months at 11% interest with 5 origination points to be paid at the closing.
Jim must bring a total of $32,400 upon closing to pay the $60,000 down payment plus the $7,000 origination fee. Once the deal is closed and Jim takes over the project, he will have to begin making payments each month of $1,283 to the lender ($140,000 principle x 11% / 12 months). If Jim accomplishes his goal of a $290,000 total sales price when the loan term expires, he would earn a total profit of $59,900 after re-paying the principle and deducting the money he contributed at closing, the origination points, and the total interest payments.