Aileen is an investor in Foley, AL. She locates an older property and wants to renovate it and sell it for a profit. The house costs $230,000 but she does not have the full amount so she takes out a hard money loan with Axis Finance Company. The lender agrees to issue a note with a 80% loan to value (LTV) so they are willing to extend $184,000 on the house. The parameters of the loan dictate a 10% note for 12 months. They also require a 3 point origination fee, which will also be paid when the property closes.
The borrower must fund a total of $32,400 upon closing to cover the $46,000 down payment in addition to the $5,520 origination fee. The monthly interest-only payments will then be $1,533 to the lender. At the expiration of the note, she sells the renovated house for $310,500. After deducting the $18,400 in interest payments ($1,533 times 12 months), the $5,520 origination fee, the $184,000 principle on the note, and the $46,000 she contributed to the closing, she will make a gross profit of $56,580 ($310,500 price minus $253,920 in costs). This profit would be reduced by any rehab costs paid by the borrow.