Elizabeth finds a condo in Clio, MI to remodel and sell. Since she does not have enough cash available to buy the $210,000 property outright, she decides to take out a hard money loan from Dimension Finance Corporation. The terms of the deal include a 85% loan to value (LTV), so she must bring 15% of the price as cash at closing, making the principle loan amount $178,500. The rate on the loan is 14% for a term of 6 months and the company requires a one point origination fee at the close. The interest payments are to be paid monthly and the principle will be returned after the property sells.
By the terms of the deal, Elizabeth will be required to contribute a $1,785 origination fee plus 15% of the purchase price, or $31,500, based on the 85% LTV. The monthly interest-only payments will then be $2,083 to Dimension Finance Corporation. At the end of the loan, she sells the rehabed property for $252,000. After deducting the $12,495 in interest expenses ($2,083 times 6 months), the $1,785 origination fee, the $178,500 principle amount on the loan, and the $31,500 she brought to the closing, she will earn a gross profit of $27,720 ($252,000 price minus $224,280 in total costs). This amount would then be reduced by any renovation costs paid out of pocket.