Perry closes on a $240,000 rehab project in Dekalb, IL, using a hard money loan from Uptown Finance Corporation. The loan to value (LTV) on the note is 60%. This means that Perry will have to bring 40% of the sales price to the closing and the principle will be $144,000 on the deal. The parameters of the deal dictate a 9% note for 12 months. They also stipulate a 2 point origination fee, that will also have to be paid when the property closes.
According to the parameters of the note, Perry will need to contribute a $2,880 origination fee plus 40% of the sales price, or $96,000, based on the 60% LTV. After the loan is executed and Perry takes over the project, he will begin making monthly payments of $1,080 to the lender ($144,000 principle x 9% / 12 months). If Perry sells the house for $324,000 after 12 months, he would realize a gross profit of $68,160 after deducting the original principle of $144,000, the funds contributed at closing of $96,000, the origination fee of $2,880, and the aggregate interest payments of $12,960. This amount doesn't account for remodeling costs.