Kurt closes on a $210,000 rehab project in the South Gate neighborhood of Glen Burnie, MD, using a hard money loan from West Star Investment Corporation. The loan to value (LTV) on the note is 65%. This means that Kurt will need to bring 35% of the sales price to closing and the principle will be $136,500 on the note. The note is interest only, with monthly payments, and is for 12 months at 14% interest with 1 points to be paid when the deal closes.
By the terms of the note, Kurt will have to contribute a $1,365 origination fee in addition to 35% of the sales price, or $73,500, since there is a 65% LTV. Once the loan is closed and Kurt takes the project, he will need to begin making monthly payments of $1,593 to the lender ($136,500 principle x 14% / 12 months). If Kurt sells the rehabed house for $294,000 at the end of the 12 month term, his gross profit (not accounting for renovation expenses) would be $63,525. This is calculated by taking the purchase price ($294,000) and subtracting the original principle ($136,500), the origination cost ($1,365), the cash he brought to closing ($73,500), and the total interest payments ($19,110).