Katie
is a house flipper in Boca Raton, FL. She discovers an older property in the Hamptons at Boca Raton subdivision and decides to renovate it and re-sell it for a profit. The house has a cost of $210,000 but she does not have the full amount so she takes out a hard money loan with Oceanside Funding
. The terms of the deal include a 50% loan to value (LTV), so she must contribute 50% of the price as cash at closing, which makes the principle note amount $105,000.
The rate on the loan is 13% for a term of 18 months and the company requires a four point origination fee at closing. The interest is to be paid monthly and the principle will be paid back after the property sells.
Katie
will need to contribute $105,000 to the closing (50% on the 50% loan-to-value), plus she will need to pay the $4,200 origination fee.
she must then pay $1,138 per month to Oceanside Funding
.
If Katie
sells the project for $273,000 after 18 months, she would realize a total profit of $38,325 after subtracting the principle amount of $105,000, the cash paid at closing of $105,000, the origination points of $4,200, and the total interest payments of $20,475. This gross profit does not include remodeling costs.