Candice takes a hard money loan from Acme Funding in order to rehab a condo to flip in Hernando, MS. The list price of the house is $350,000. The terms of the note include a 85% loan-to-value (LTV), so she must contribute 15% of the price as cash to closing, making the principle note amount $297,500. The loan also consists of these features: 1) a 6 month length, 2) a 8% interest only note, and 3) a three percent origination fee.
On top of the $8,925 origination fee, Candice will also have to fund $52,500 of the purchase with her own money, or 15% of the purchase price. After the loan closes, she will have to pay the lender $1,983 in monthly interest payments, or 8% multiplied by $297,500 divided by 12 months in the year. At the end of the note, she sells the rehabed house for $472,500. After subtracting the $11,900 in total interest payments ($1,983 multiplied by 6 months), the $8,925 origination fee, the $297,500 principle amount on the note, and the $52,500 she brought to the closing, she will make a gross profit of $101,675 ($472,500 sales price minus $370,825 in costs). This profit would then be reduced by any building costs paid by the borrow.