Salvador closes on a $250,000 rehab project in Sebastian, FL, using a private money loan from Smith Investments. The borrower will be required to contribute 25% of the purchase price in cash to closing based on a 75% loan to value stipulated by the lending company. This makes the principle note from Smith Investments $187,500. The loan also has the following features: 1) a 18 month length, 2) a 14% interest only note, and 3) a one percent origination fee.
According to the parameters of the note, Salvador will have to pay a $1,875 origination fee in addition to 25% of the purchase price, or $62,500, since there is a 75% LTV. Once the loan closes, he will need to pay the lender $2,188 in monthly interest payments, or 14% multiplied times $187,500 divided by 12 months in a year. If he sells the remodeled project for $362,500 at the end of the 18 month term, his total profit (not including renovation expenses) would be $71,250. This is computed by taking the purchase price ($362,500) and subtracting the original principle ($187,500), the origination fee ($1,875), the funds he contributed to closing ($62,500), and the total interest expenses ($39,375).