Bernard takes a loan from Blue Square Funding Corporation in order to remodel a property to flip in Roscoe, IL. The price of the house is $210,000. The lender agrees to issue a loan with a 60% loan-to-value (LTV) so they will extend $126,000 on the house. The loan is interest only, paid monthly, and is for 12 months at 12% interest with 3 origination points to be paid when the deal closes.
In addition to paying the $3,780 origination fee, Bernard will also have to fund $84,000 of the purchase with his own funds, or 40% of the purchase price. The monthly interest only payments will then total $1,260 to the lender. If Bernard sells the property for $304,500 after 12 months, he would earn a gross profit of $75,600 after deducting the principle of $126,000, the funds contributed at closing of $84,000, the origination points of $3,780, and the total interest payments of $15,120. This amount does not account for rehab costs.