Joy is an investor in Broomfield, CO. She discovers a run-down property for sale and decides to remodel it and resell it for a profit. The property costs $200,000 but she doesn't have the full amount so she obtains a hard money loan with Suburban Lending. As the lender sets a 85% loan-to-value, Joy will be required to put 15% down and the amount of the loan will be $170,000. The loan is interest only, paid monthly, and is for 12 months at 11% interest with 5 origination points to be paid when the deal closes.
Therefore, Joy will need to contribute a $30,000 down payment plus pay a $8,500 origination fee. she must then pay $1,558 per month to Suburban Lending. At the expiration of the loan, she sells the rehabed property for $290,000. After deducting the $18,700 in interest expenses ($1,558 times 12 months), the $8,500 origination fee, the $170,000 principle amount on the loan, and the $30,000 she contributed to closing, she will earn a total profit of $62,800 ($290,000 sales price minus $227,200 in total costs). This amount would then be reduced by any renovation costs paid by the borrow.