Clayton closes on a $230,000 rehab project in Reidsville, NC, using a private money loan from Big Money Lending. The terms of the loan include a 70% loan-to-value (LTV), so he must contribute 30% of the price as cash to closing, which makes the principle loan amount $161,000. The deal also has the following features: 1) a 12 month term, 2) a 14% interest only note, and 3) a one point origination fee.
Accordingly, the borrower will need to contribute a $69,000 down payment in addition to paying a $1,610 origination fee. he must then pay $1,878 monthly to the lender. At the end of the loan, he sells the renovated property for $299,000. After deducting the $22,540 in interest expenses ($1,878 multiplied by 12 months), the $1,610 origination fee, the $161,000 principle amount on the loan, and the $69,000 he brought to closing, he will make a total profit of $44,850 ($299,000 price minus $254,150 in costs). This profit would be reduced by any rehab costs paid out of pocket.