Lester closes on a $280,000 rehab project in Clayton, NC, using a hard money loan from West Shore Finance Corporation. As the lender sets a 80% loan-to-value, Lester will have to put 20% down and the amount of the loan will be $224,000. The loan is interest only, paid monthly, and is for 6 months at 8% interest with 2 points to be paid when the deal closes.
Lester will have to fund a total of $32,400 up front to pay the $56,000 down payment in addition to the $4,480 origination fee. The monthly interest only payments will then be $1,493 to West Shore Finance Corporation. If he sells the remodeled house for $350,000 at the end of the 6 month term, his total profit (not accounting for rehab expenses) would be $56,560. This is computed by taking the purchase price ($350,000) and subtracting the original principle ($224,000), the origination fee ($4,480), the money he brought to closing ($56,000), and the total interest payments ($8,960).