Heidi finds a townhome in the South Ellicott neighborhood of Buffalo, NY to renovate and resell. Since she doesn't have enough cash on-hand to purchase the $280,000 property outright, she takes out a hard money loan from Blue Door Lending Company. The terms of the note include a 85% loan-to-value (LTV), so she must contribute 15% of the price as cash to closing, which makes the principle loan amount $238,000. The terms of the deal dictate a 10% note for 6 months. They also require a 5 point origination fee, that will also need to be paid upon closing.
According to the parameters of the note, Heidi will be required to pay a $11,900 origination fee plus 15% of the sales price, or $42,000, since there is a 85% LTV. The monthly interest only payments will then total $1,983 to the lender. If she sells the remodeled project for $364,000 at the end of the 6 month term, her gross profit (not accounting for renovation costs) would be $60,200. This is calculated by taking the sales price ($364,000) and subtracting the original note amount ($238,000), the origination fee ($11,900), the funds she brought to closing ($42,000), and the total interest payments ($11,900).