Maureen takes a loan from East Side Finance Group in order to rehab a townhouse to flip in Terre Haute, IN. The price of the property is $240,000. The loan to value (LTV) on the note is 55%. This means that Maureen will have to bring 45% of the purchase price to closing and the principle amount will be $132,000 on the loan. The note is interest only, paid monthly, and is for 6 months at 12% interest with 1 points to be paid when the deal closes.
In addition to paying the $1,320 origination fee, Maureen will also have to fund $108,000 of the purchase with her own funds, or 45% of the purchase price. After the loan is closed and Maureen takes over the project, she will need to begin making payments each month of $1,320 to East Side Finance Group ($132,000 principle x 12% / 12 months). At the end of the loan, she sells the renovated property for $312,000. After deducting the $7,920 in interest payments ($1,320 times 6 months), the $1,320 origination fee, the $132,000 principle amount on the loan, and the $108,000 she brought to closing, she will make a total profit of $62,760 ($312,000 price minus $249,240 in total costs). This profit would then be reduced by any building costs paid by the borrow.