Rehabbers Finance Corporation issues a private money loan to Don for a rehab project in Warsaw, IN, on a house that costs $330,000. The terms of the deal include a 55% loan to value (LTV), so he must contribute 45% of the price as cash at closing, which makes the principle note amount $181,500. The terms of the loan dictate a 14% note for 18 months. They also stipulate a 1 point origination fee, which will also need to be paid at closing.
Don will have to contribute $148,500 to closing (45% on the 55% loan-to-value), plus he will pay the $1,815 origination fee. After the deal is closed and Don takes on the project, he will begin making monthly payments of $2,118 to the lender ($181,500 principle x 14% / 12 months). If Don sells the property for $396,000 after 18 months, he would realize a gross profit of $26,070 after deducting the principle of $181,500, the money contributed at the close of $148,500, the origination points of $1,815, and the aggregate interest payments of $38,115. This profit does not include rehab costs.