Ofelia takes a loan from Success Investment Company in order to remodel a condo to resale in the North Raleigh area of Wake Forest, NC. The sales price of the house is $400,000. The loan-to-value (LTV) on the loan is 70%. This means Ofelia will have to bring 30% of the sales price to closing and the principle amount will be $280,000 on the deal. The terms of the deal also stipulate a one percent origination fee that is to be paid at closing and a 12 month, interest-only note with a 13% rate of interest.
The borrower must bring a total of $32,400 upon closing to pay the $120,000 down payment in addition to the $2,800 origination fee. she will then pay $3,033 per month to Success Investment Company. If she sells the renovated project for $500,000 at the end of the 12 month term, her gross profit (not accounting for remodeling costs) would be $60,800. This is calculated by taking the sales price ($500,000) and subtracting the original note amount ($280,000), the origination cost ($2,800), the money she brought to closing ($120,000), and the total interest expenses ($36,400).