Downtown Finance Company issues a loan to Bryan for a rehab project in Woodridge, IL, on a house that costs $320,000. The terms of the deal include a 80% loan-to-value (LTV), so he must bring 20% of the price as cash at closing, which makes the principle loan amount $256,000. The terms of the deal dictate a 10% note for 12 months. They also stipulate a 2 point origination fee, which will also be paid at closing.
In addition to paying the $5,120 origination fee, Bryan will also fund $64,000 of the purchase with his own cash, or 20% of the sales price. The monthly interest only payments will then total $2,133 to Downtown Finance Company. If Bryan sells the remodeled project for $400,000 at the end of the 12 month term, his total profit (not accounting for rehab expenses) would be $49,280. This is calculated by taking the sales price ($400,000) and subtracting the principle ($256,000), the origination cost ($5,120), the cash he contributed to closing ($64,000), and the total interest expenses ($25,600).