Chad closes on a $240,000 renovation project in Edwardsville, IL, using a hard money loan from Suburban Investment Group. The terms of the deal include a 70% loan-to-value (LTV), so he must bring 30% of the price as cash at closing, making the principle note amount $168,000. The loan also has the following features: 1) a 6 month term, 2) a 14% interest-only note, and 3) a five point origination fee.
Accordingly, Chad will be required to make a $72,000 down payment in addition to paying a $8,400 origination fee. After the loan closes, he will have to pay the lender $1,960 in monthly interest fees, or 14% multiplied times $168,000 divided by 12 months in the year. If he sells the remodeled house for $312,000 at the end of the 6 month term, his gross profit (not including renovation expenses) would be $51,840. This is computed by taking the sales price ($312,000) and subtracting the original note amount ($168,000), the origination cost ($8,400), the money he brought to closing ($72,000), and the total interest expenses ($11,760).