Bertha takes a loan from Trust Finance Corporation in order to rehab a condo to resale in Thousand Oaks, CA. The price of the house is $200,000. The borrower will need to contribute 45% of the purchase price in cash to closing based on a 55% loan-to-value stipulated by the lender. This makes the principle note from Trust Finance Corporation $110,000. The terms of the loan also stipulate a four point origination fee that is to be paid at closing and a 18 month, interest-only note with a 13% rate of interest.
Therefore, the borrower will be required to make a $90,000 down payment plus pay a $4,400 origination fee. Once the loan is closed and Bertha takes the project, she will need to begin making payments each month of $1,192 to Trust Finance Corporation ($110,000 principle x 13% / 12 months). At the end of the note, she sells the rehabed house for $250,000. After subtracting the $21,450 in interest payments ($1,192 times 18 months), the $4,400 origination fee, the $110,000 principle amount on the note, and the $90,000 she contributed to closing, she will earn a total profit of $24,150 ($250,000 price minus $225,850 in total costs). This amount would then be reduced by any renovation costs paid by the borrow.