Margaret closes on a $380,000 rehab project in Sedgwick, KS, using a private money loan from West Shore Lending Company. The terms of the deal include a 70% loan-to-value (LTV), so she must contribute 30% of the price as cash to closing, making the principle loan amount $266,000. The note is interest only, paid monthly, and is for 18 months at 13% interest with 3 points paid when the deal closes.
According to the terms of the deal, Margaret will be required to pay a $7,980 origination fee in addition to 30% of the purchase price, or $114,000, since there is a 70% LTV. After the deal closes, she will pay the lender $2,882 in monthly interest payments, or 13% times $266,000 divided by 12 months in a year. If Margaret sells the property for $570,000 after 18 months, she would then earn a gross profit of $130,150 after deducting the original principle of $266,000, the money paid at the close of $114,000, the origination fee of $7,980, and the total interest payments of $51,870. This profit does not account for building costs.