Cindy finds a condo in Biddeford, ME to renovate and sell. Since she does not have enough cash to buy the $390,000 property outright, she takes out a hard money loan from South Side Lending Corporation. The lender agrees to write a loan with a 80% loan-to-value (LTV) so they will extend $312,000 on the project. The terms of the loan dictate a 12% note for 18 months. They also stipulate a 2 point origination fee, which will also need to be paid when the property closes.
Accordingly, Cindy will need to make a $78,000 down payment plus pay a $6,240 origination fee. she must then pay $3,120 per month to South Side Lending Corporation. If Cindy sells the rehabed project for $526,500 at the end of the 18 month term, her total profit (not including renovation expenses) would be $74,100. This is computed by taking the sales price ($526,500) and subtracting the original note amount ($312,000), the origination fee ($6,240), the cash she brought to closing ($78,000), and the total interest expenses ($56,160).