Famous Funding makes a loan to Glen for a rehab project in Ruskin, FL, on a house that is listed for $150,000. The loan-to-value (LTV) on the note is 85%. This means that Glen will have to bring 15% of the purchase price to closing and the principle will be $127,500 on the deal. The parameters of the loan dictate a 13% note for 18 months. They also require a 3 point origination fee, which will also need to be paid at closing.
In accordance with the terms of the deal, Glen will be required to pay a $3,825 origination fee plus 15% of the purchase price, or $22,500, since there is a 85% LTV. After the deal is executed and Glen takes on the property, he will need to begin making monthly payments of $1,381 to Famous Funding ($127,500 principle x 13% / 12 months). Assuming Glen sells the remodeled house for $202,500 at the end of the 18 month term, his gross profit (not accounting for rehab costs) would be $23,813. This is computed by taking the purchase price ($202,500) and subtracting the principle ($127,500), the origination cost ($3,825), the money he contributed to closing ($22,500), and the total interest expenses ($24,863).