Bernadine is a real estate investor in Jenison, MI. She locates an older property and decides to rehab it and resell it for a profit. The house costs $390,000 but she doesn't have the full amount so she takes out a hard money loan with Oceanside Finance Group. The borrower will be required to contribute 30% of the purchase price in cash to the closing based on a 70% loan-to-value set by the lending company. This makes the loan principle from Oceanside Finance Group $273,000. The parameters of the loan dictate a 10% note for 12 months. They also require a 5 point origination fee, that will also have to be paid when the property closes.
Bernadine will need to bring $117,000 to closing (30% on the 70% loan to value), plus she will pay the $13,650 origination fee. The lender will collect $2,275 in monthly interest payments from the borrower. This is calculated by taking the full loan value of $273,000, multiplying that by the 10% interest rate, and then dividing that amount by 12. If Bernadine sells the project for $468,000 after 12 months, she would then make a gross profit of $37,050 after deducting the principle of $273,000, the money paid at the close of $117,000, the origination points of $13,650, and the total interest payments of $27,300. This gross profit doesn't include remodeling costs.