Ladonna takes a hard money loan from Acme Funding Corporation in order to renovate a townhouse to flip in Forrest City, AR. The price of the property is $210,000. The loan-to-value (LTV) on the note is 55%. This means Ladonna will need to bring 45% of the purchase price to closing and the principle will be $115,500 on the note. The terms of the loan dictate a 13% note for 18 months. They also stipulate a 2 point origination fee, that will also be paid at closing.
Ladonna will have to contribute $94,500 at closing (45% on the 55% LTV), plus she will need to pay the $2,310 origination fee. The lender will collect $1,251 in monthly interest payments from the borrower. This is calculated by taking the full loan value of $115,500, multiplying that by the 13% rate of interest, and then dividing that number by 12. If Ladonna sells the house for $315,000 after 18 months, she would then make a gross profit of $80,168 after subtracting the original principle of $115,500, the money contributed at the close of $94,500, the origination points of $2,310, and the total interest payments of $22,523. This profit doesn't include rehab costs.