Tom is a real estate investor in Surprise, AZ. He finds a run-down property for sale and decides to renovate it and resell it for a profit. The property has a cost of $260,000 but he does not have the full amount so he takes a private money loan with Investors Investment Corporation. The terms of the loan include a 60% loan-to-value (LTV), so he must contribute 40% of the price as cash to closing, making the principle loan amount $156,000. The parameters of the deal dictate a 13% note for 18 months. They also require a 4 point origination fee, which will also need to be paid when the property closes.
In accordance with the parameters of the loan, Tom will be required to pay a $6,240 origination fee plus 40% of the sales price, or $104,000, since there is a 60% LTV. he will then pay $1,690 monthly to Investors Investment Corporation. Tom's plan is to finish the rehab within the 18 months and resell it for $364,000. If he succeeds he will collect a total profit of $67,340 ($364,000 price - $156,000 principle amount - $104,000 funds brough to closing - $6,240 origination fee - $30,420 in total interest paid.