Tina finds a duplex in Tewksbury, MA to remodel and resell. Since she doesn't have enough cash on-hand to buy the $380,000 property outright, she takes out a private money loan from Fair View Finance. The loan-to-value (LTV) on the loan is 80%. This means Tina will bring 20% of the purchase price to closing and the principle amount will be $304,000 on the deal. The deal also consists of the following features: 1) a 12 month term, 2) a 14% interest only note, and 3) a three percent origination charge.
Tina will have to contribute $76,000 to closing (20% on the 80% LTV), plus she will pay the $9,120 origination fee. The monthly interest only payments will then be $3,547 to Fair View Finance. If Tina sells the house for $570,000 after 12 months, she would earn a gross profit of $138,320 after deducting the principle of $304,000, the funds contributed at closing of $76,000, the origination points of $9,120, and the total interest payments of $42,560. This amount doesn't include remodeling costs.