Bertha is a house flipper in Frankfort, KY. She finds an older property for sale and decides to rehab it and sell it for a profit. The house has a cost of $160,000 but she does not have the full amount so she obtains a hard money loan with Ocean View Funding Group. The borrower will be required to contribute 45% of the sales price in cash to the closing based on a 55% loan-to-value set by the lending company. This makes the principle note from Ocean View Funding Group $88,000. The deal also has the following features: 1) a 12 month length, 2) a 11% interest-only note, and 3) a four point origination charge.
By the terms of the loan, Bertha will have to contribute a $3,520 origination fee plus 45% of the sales price, or $72,000, based on the 55% LTV. Once the deal closes, she will pay Ocean View Funding Group $807 in monthly interest payments, or 11% multiplied by $88,000 divided by 12 months in a year. If Bertha sells the property for $232,000 after 12 months, she would then earn a gross profit of $58,800 after deducting the principle amount of $88,000, the money contributed at the close of $72,000, the origination fee of $3,520, and the total interest payments of $9,680. This gross profit does not include rehab costs.