Big Money Lending Corporation makes a hard money loan to Milton for a rehab project in Brooksville, FL, on a property that is listed for $210,000. As the lender sets a 85% loan to value, Milton will have to put 15% down so the principle amount of the loan will be $178,500. The interest rate on the loan is 9% for a term of 18 months and the company requires a five point origination fee at the close. The interest payments are to be paid monthly and the principle amount will be paid back after the sale of the property.
On top of the $8,925 origination fee, Milton will also need to fund $31,500 of the purchase with his own funds, or 15% of the purchase price. Once the loan closes, he will have to pay the lender $1,339 in monthly interest payments, or 9% multiplied by $178,500 divided by 12 months in a year. At the expiration of the loan, he sells the rehabed property for $294,000. After deducting the $24,098 in interest expenses ($1,339 multiplied by 18 months), the $8,925 origination fee, the $178,500 principle amount on the loan, and the $31,500 he contributed to closing, he will earn a total profit of $50,978 ($294,000 price minus $243,023 in total costs). This amount would be reduced by any renovation costs paid by the borrow.