Lorrie is an investor in Soldier, KY. She locates an older property and decides to remodel it and sell it for a profit. The property costs $220,000 but she doesn't have the full amount so she takes out a private money loan with Flourish Finance Group. The terms of the deal include a 75% loan-to-value (LTV), so she must contribute 25% of the price as cash at closing, which makes the principle loan amount $165,000. The note is interest only, with monthly payments, and is for 6 months at 10% interest with 4 origination points to be paid when the deal closes.
Accordingly, Lorrie will need to contribute a $55,000 down payment in addition to paying a $6,600 origination fee. Flourish Finance Group will collect $1,375 in monthly interest payments from the borrower. This is computed by taking the total note value of $165,000, multiplying that by the 10% interest rate, and then dividing that number by 12. If Lorrie sells the house for $308,000 after 6 months, she would earn a gross profit of $73,150 after deducting the original principle of $165,000, the funds paid at closing of $55,000, the origination points of $6,600, and the aggregate interest payments of $8,250. This gross profit doesn't account for building costs.