Suburban Investment Group makes a private money loan to Josefina for a rehab project in Walled Lake, MI, on a property that is listed for $260,000. The terms of the deal include a 70% loan-to-value (LTV), so she must contribute 30% of the price as cash to closing, which makes the principle note amount $182,000. The loan also includes these features: 1) a 6 month term, 2) a 9% interest only note, and 3) a four percent origination charge.
The borrower will need to contribute a total of $32,400 upon closing to pay the $78,000 down payment in addition to the $7,280 origination fee. Once the loan closes, she will pay Suburban Investment Group $1,365 in monthly interest fees, or 9% multiplied times $182,000 divided by 12 months in the year. If Josefina sells the property for $377,000 after 6 months, she would make a total profit of $101,530 after subtracting the principle of $182,000, the cash contributed at closing of $78,000, the origination fee of $7,280, and the aggregate interest payments of $8,190. This gross profit does not include building costs.