Lana is an investor in Country Club Hills, IL. She finds a run-down property for sale and wants to rehab it and re-sell it for a profit. The property has a cost of $250,000 but she does not have the full amount so she obtains a hard money loan with South Star Finance. Because the lender agrees to a 75% loan-to-value, Lana will need to put 25% down so the amount of the note will be $187,500. The terms of the loan dictate a 13% note for 12 months. They also stipulate a 3 point origination fee, that will also have to be paid when the property closes.
In accordance with the terms of the note, Lana will be required to contribute a $5,625 origination fee plus 25% of the sales price, or $62,500, since there is a 75% LTV. After the deal is closed and Lana takes on the project, she will begin making monthly payments of $2,031 to South Star Finance ($187,500 principle x 13% / 12 months). If she sells the renovated project for $312,500 at the end of the 12 month term, her total profit (not including remodeling expenses) would be $32,500. This is calculated by taking the sales price ($312,500) and subtracting the original note amount ($187,500), the origination fee ($5,625), the money she contributed to closing ($62,500), and the total interest payments ($24,375).