Miriam is an investor in Greenville, NC. She discovers an older property and decides to remodel it and re-sell it for a profit. The house has a cost of $380,000 but she does not have the full amount so she takes out a hard money loan with Dimension Funding Company. Because the lender agrees to a 70% loan to value, Miriam will have to put 30% down so the amount of the note will be $266,000. The parameters of the loan dictate a 9% note for 18 months. They also stipulate a 1 point origination fee, which will also need to be paid when the property closes.
Miriam will need to fund a total of $32,400 upon closing to cover the $114,000 down payment in addition to the $2,660 origination fee. Dimension Funding Company will collect $1,995 in monthly interest from the borrower. This is calculated by taking the total note amount of $266,000, multiplying by the 9% rate of interest, and then dividing that amount by 12. At the expiration of the loan, she sells the renovated house for $551,000. After deducting the $35,910 in interest expenses ($1,995 multiplied times 18 months), the $2,660 origination fee, the $266,000 principle on the loan, and the $114,000 she contributed to closing, she will earn a total profit of $132,430 ($551,000 sales price minus $418,570 in costs). This profit would be reduced by any rehab costs paid by Miriam.