Roger closes on a $360,000 rehab project in the Village 2 subdivision of West Sacramento, CA, using a private money loan from Blue Square Funding. The terms of the loan include a 80% loan to value (LTV), so he must bring 20% of the price as cash to closing, making the principle note amount $288,000. The loan also includes these features: 1) a 18 month term, 2) a 11% interest-only note, and 3) a four point origination fee.
In addition to paying the $11,520 origination fee, Roger will also need to fund $72,000 of the purchase with his own cash, or 20% of the purchase price. After the loan closes, he will have to pay the lender $2,640 in monthly interest payments, or 11% multiplied by $288,000 divided by 12 months in the year. If Roger sells the project for $522,000 after 18 months, he would earn a gross profit of $102,960 after deducting the principle of $288,000, the money paid at closing of $72,000, the origination fee of $11,520, and the aggregate interest payments of $47,520. This profit does not account for building costs.