South Dakota Fix and Flip Loans

Elsie is a house flipper in Sioux Falls, SD. She locates an older property and decides to rehab it and flip it for a profit. The property has a cost of $280,000 but she doesn't have the full amount so she takes a private money loan with River City Investment Company. The lender agrees to write a loan with a 75% loan to value (LTV) so they are willing to extend $210,000 on the project. The parameters of the loan dictate a 8% note for 6 months. They also stipulate a 1 point origination fee, that will also be paid upon closing.

On top of the $2,100 origination fee, Elsie will also have to fund $70,000 of the purchase with her own cash, or 25% of the sales price. River City Investment Company will collect $1,400 in monthly interest from the borrower. This is computed by taking the total note amount of $210,000, multiplying by the 8% rate of interest, and then dividing that number by 12. At the expiration of the loan, she sells the rehabed property for $406,000. After deducting the $8,400 in interest payments ($1,400 times 6 months), the $2,100 origination fee, the $210,000 principle amount on the loan, and the $70,000 she brought to closing, she will make a total profit of $115,500 ($406,000 price minus $290,500 in costs). This profit would then be reduced by any building costs paid by the borrow.

P & J Finance Group issues a fix and flip loan to Pedro for a renovation project in Rapid City, SD. The loan includes the following:

a) A $160,000 sales price, b) a 70% loan-to-value (LTV), c) a 6 month term, d) a 11% interest rate, and e) a 2% origination fee.

If Pedro accomplishes his goal of a $208,000 sales price, the final numbers of the deal will be as follows:

$208,000 sales price
- $112,000 loan principle (70% LTV)
- $48,000 cash paid at closing (30% on 70% LTV)
- $2,240 origination points (2% of the $112,000 principle)
- $6,160 interest payments (6 months x 11% interest)
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= $39,600 gross profit (doesn't include taxes or renovation costs)