Jami finds a townhome in East Taunton, MA to flip and re-sell. Since she does not have enough cash to acquire the $270,000 property outright, she takes out a hard money loan from Blue Door Funding. Since the lender sets a 55% loan-to-value, Jami will be required to put 45% down and the amount of the loan will be $148,500. The loan is interest only, with monthly payments, and is for 18 months at 14% interest with 5 points to be paid at closing.
Accordingly, the borrower will be required to contribute a $121,500 down payment plus pay a $7,425 origination fee. The monthly interest only payments will then total $1,733 to Blue Door Funding. If she sells the rehabed house for $324,000 at the end of the 18 month term, her gross profit (not including rehab expenses) would be $15,390. This is calculated by taking the sales price ($324,000) and subtracting the original note amount ($148,500), the origination fee ($7,425), the cash she contributed to closing ($121,500), and the total interest payments ($31,185).