Donald closes on a $250,000 rehab project in Evergreen, CO, using a hard money loan from Oceanside Investment Group. The loan to value (LTV) on the loan is 60%. This means that Donald will need to bring 40% of the purchase price to the closing and the principle amount will be $150,000 on the deal. The loan also consists of the following features: 1) a 12 month term, 2) a 11% interest only note, and 3) a one percent origination fee.
On top of the $1,500 origination fee, Donald will also have to fund $100,000 of the purchase with his own money, or 40% of the purchase price. Once the loan is executed and Donald takes over the project, he will begin making monthly payments of $1,375 to Oceanside Investment Group ($150,000 principle x 11% / 12 months). At the expiration of the loan, he sells the rehabed property for $312,500. After subtracting the $16,500 in interest payments ($1,375 times 12 months), the $1,500 origination fee, the $150,000 principle amount on the loan, and the $100,000 he contributed to the closing, he will earn a gross profit of $44,500 ($312,500 sales price minus $268,000 in total costs). This amount would then be reduced by any building costs paid by Donald.