Tom closes on a $220,000 rehab project in Bradfordsville, KY, using a hard money loan from Rehabbers Funding Company. As the lender agrees to a 70% loan to value, Tom will be required to put 30% down and the total amount of the note will be $154,000. The rate on the note is 14% for a length of 18 months and the company requires a three point origination fee at the close. The interest payments are to be paid monthly and the principle amount will be returned after the sale of the property.
In addition to paying the $4,620 origination fee, Tom will also have to fund $66,000 of the purchase with his own funds, or 30% of the purchase price. After the deal is executed and Tom takes the property, he will begin making payments each month of $1,797 to Rehabbers Funding Company ($154,000 principle x 14% / 12 months). If Tom sells the property for $286,000 after 18 months, he would make a gross profit of $29,040 after deducting the principle of $154,000, the funds paid at the close of $66,000, the origination fee of $4,620, and the total interest payments of $32,340. This amount doesn't account for renovation costs.