P & J Investment Company makes a private money bridge loan to Ryan for a renovation project in Ouzinkie, AK, on a house that is listed for $320,000. The borrower will have to fund 40% of the purchase price in cash to the closing based on a 60% loan-to-value set by the lending company. This makes the principle note from P & J Investment Company $192,000. The deal also consists of the following features: 1) a 18 month length, 2) a 10% interest-only note, and 3) a two percent origination fee.
Ryan will have to contribute $128,000 to closing (40% on the 60% loan to value), plus he will pay the $3,840 origination fee. he must then pay $1,600 monthly to P & J Investment Company. If Ryan sells the house for $480,000 after 18 months, he would then make a total profit of $127,360 after deducting the original principle of $192,000, the cash contributed at closing of $128,000, the origination fee of $3,840, and the total interest payments of $28,800. This amount does not include building costs.