Julia closes on a $160,000 renovation project in Cave Creek, AZ, using a hard money loan from River View Finance. 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 note amount $112,000. The parameters of the loan dictate a 12% note for 18 months. They also require a 4 point origination fee, which will also have to be paid at closing.
According to the parameters of the deal, Julia will have to pay a $4,480 origination fee plus 30% of the sales price, or $48,000, based on the 70% LTV. Once the loan closes, she will have to pay River View Finance $1,120 in monthly interest payments, or 12% times $112,000 divided by 12 months in the year. If Julia sells the project for $200,000 after 18 months, she would make a gross profit of $15,360 after deducting the principle amount of $112,000, the money contributed at closing of $48,000, the origination points of $4,480, and the total interest payments of $20,160. This amount doesn't account for rehab costs.