Barry closes on a $370,000 rehab project in Aurora, IL, using a hard money loan from West Side Investment Company. As the lender agrees to a 80% loan to value, Barry will need to put 20% down and the principle amount of the loan will be $296,000. The deal also has the following features: 1) a 18 month length, 2) a 13% interest only note, and 3) a three point origination charge.
Accordingly, the borrower will have to contribute a $74,000 down payment plus pay a $8,880 origination fee. The lender will collect $3,207 in monthly interest payments from the Barry. This is calculated by taking the total loan value of $296,000, multiplying that by the 13% interest rate, and then dividing that amount by 12. If Barry sells the renovated house for $555,000 at the end of the 18 month term, his total profit (not including rehab expenses) would be $118,400. This is calculated by taking the sales price ($555,000) and subtracting the original principle ($296,000), the origination fee ($8,880), the funds he brought to closing ($74,000), and the total interest payments ($57,720).