Nelda takes a private money loan from Dynamic Funding Company in order to rehab a house to flip in Stockton, CA. The list price of the house is $210,000. The borrower will be required to contribute 25% of the sales price in cash to the closing based on a 75% loan to value stipulated by the lender. This makes the principle amount from Dynamic Funding Company $157,500. The terms of the deal dictate a 14% note for 6 months. They also require a 4 point origination fee, which will also have to be paid when the property closes.
Therefore, the borrower will need to contribute a $52,500 down payment in addition to paying a $6,300 origination fee. she must then pay $1,838 monthly to the lender. At the end of the note, she sells the renovated house for $252,000. After subtracting the $11,025 in interest expenses ($1,838 multiplied by 6 months), the $6,300 origination fee, the $157,500 principle on the note, and the $52,500 she brought to the closing, she will make a total profit of $24,675 ($252,000 price minus $227,325 in costs). This profit would be reduced by any renovation costs paid out of pocket.