Addie takes a loan from Oceanside Investment Company in order to renovate a townhome to flip in Vernon Hills, IL. The sales price of the property is $390,000. The terms of the note include a 50% loan-to-value (LTV), so she must bring 50% of the price as cash at closing, which makes the principle loan amount $195,000. The loan is interest-only, with monthly payments, and is for 6 months at 13% interest with 2 origination points to be paid at the closing.
The borrower must bring a total of $32,400 up front to pay the $195,000 down payment in addition to the $3,900 origination fee. she will then pay $2,113 per month to the lender. At the end of the loan, she sells the renovated property for $565,500. After deducting the $12,675 in interest expenses ($2,113 multiplied by 6 months), the $3,900 origination fee, the $195,000 principle on the loan, and the $195,000 she contributed to closing, she will make a total profit of $158,925 ($565,500 sales price minus $406,575 in total costs). This profit would then be reduced by any building costs paid out of pocket.