Etta takes a hard money loan from Evergreen Finance Group in order to rehab a townhouse to flip in Colton, CA. The sales price of the house is $400,000. Because the lender sets a 60% loan to value, Etta will need to put 40% down and the amount of the loan will be $240,000. The loan is interest only, with monthly payments, and is for 18 months at 8% interest with 4 points to be paid when the deal closes.
Etta will need to bring $160,000 to closing (40% on the 60% loan-to-value), plus she will need to pay the $9,600 origination fee. The monthly interest only payments will then be $1,600 to the lender. If Etta sells the house for $520,000 after 18 months, she would then earn a gross profit of $81,600 after deducting the principle amount of $240,000, the cash contributed at closing of $160,000, the origination points of $9,600, and the aggregate interest payments of $28,800. This profit doesn't account for rehab costs.