Bethany takes a hard money loan from Perfect Funding Corporation in order to rehab a townhome to resale in the Canyon Country subdivision of Canyon Country, CA. The list price of the house is $330,000. The terms of the deal include a 70% loan-to-value (LTV), so she must bring 30% of the price as cash to closing, which makes the principle loan amount $231,000. The loan also has these features: 1) a 12 month term, 2) a 10% interest only note, and 3) a five point origination fee.
Bethany will have to bring $99,000 at the closing (30% on the 70% loan-to-value), plus she will pay the $11,550 origination fee. Once the loan is executed and Bethany takes over the project, she will need to begin making payments each month of $1,925 to the lender ($231,000 principle x 10% / 12 months). If she sells the remodeled project for $478,500 at the end of the 12 month term, her gross profit (not accounting for remodeling costs) would be $113,850. This is calculated by taking the purchase price ($478,500) and subtracting the principle ($231,000), the origination cost ($11,550), the funds she brought to closing ($99,000), and the total interest expenses ($23,100).