Linda is an investor in Hoffman Estates, IL. She finds an older property for sale and decides to rehab it and sell it for a profit. The house costs $290,000 but she doesn't have the full amount so she takes out a hard money loan with West Shore Investment Group. Because the lender agrees to a 70% loan to value, Linda will need to put 30% down and the amount of the loan will be $203,000. The rate on the loan is 11% for a length of 12 months and the company requires a two point origination fee at the close. The interest is to be paid monthly and the principle amount will be repaid after the sale of the property.
By the parameters of the deal, Linda will need to pay a $4,060 origination fee plus 30% of the sales price, or $87,000, based on the 70% LTV. The lender will collect $1,861 in monthly interest payments from the Linda. This is computed by taking the total loan value of $203,000, multiplying that by the 11% rate of interest, and then dividing that number by 12. If Linda sells the rehabed project for $391,500 at the end of the 12 month term, her gross profit (not including rehab costs) would be $75,110. This is computed by taking the purchase price ($391,500) and subtracting the original principle ($203,000), the origination fee ($4,060), the cash she contributed to closing ($87,000), and the total interest payments ($22,330).