Leroy takes a hard money loan from Rehabbers Funding Company in order to renovate a property to resale in Hampton, GA. The price of the property is $300,000. Since the lender agrees to a 60% loan to value, Leroy will need to put 40% down and the principle amount of the note will be $180,000. The loan also consists of the following features: 1) a 18 month term, 2) a 8% interest-only note, and 3) a one point origination fee.
The borrower must contribute a total of $32,400 upon closing to pay the $120,000 down payment in addition to the $1,800 origination fee. After the loan is executed and Leroy takes over the project, he will need to begin making payments each month of $1,200 to Rehabbers Funding Company ($180,000 principle x 8% / 12 months). If Leroy sells the rehabed house for $375,000 at the end of the 18 month term, his total profit (not accounting for remodeling costs) would be $51,600. This is computed by taking the purchase price ($375,000) and subtracting the principle ($180,000), the origination fee ($1,800), the funds he contributed to closing ($120,000), and the total interest expenses ($21,600).