Latasha closes on a $250,000 rehab project in the Murphy subdivision of Fenton, MO, using a hard money loan from Coastal Funding. Because the lender agrees to a 50% loan to value, Latasha will be required to put 50% down and the amount of the loan will be $125,000. The parameters of the deal also include a two percent origination fee which will be paid at the closing and a 6 month, interest-only note with a 10% interest rate.
Latasha will have to bring $125,000 to the closing (50% on the 50% LTV), plus she will pay the $2,500 origination fee. she will then pay $1,042 per month to the lender. At the expiration of the loan, she sells the renovated property for $375,000. After subtracting the $6,250 in interest expenses ($1,042 multiplied times 6 months), the $2,500 origination fee, the $125,000 principle amount on the loan, and the $125,000 she brought to the closing, she will make a gross profit of $116,250 ($375,000 price minus $258,750 in total costs). This amount would then be reduced by any renovation costs paid out of pocket.