Stanley takes a hard money loan from Prime Time Finance Group in order to rehab a townhouse to flip in Leavenworth, KS. The price of the property is $360,000. As the lender sets a 80% loan to value, Stanley will have to put 20% down and the amount of the loan will be $288,000. The parameters of the loan also include a three percent origination fee that will be paid at the closing and a 12 month, interest-only note with a 8% rate of interest.
Stanley will have to bring $72,000 to the closing (20% on the 80% loan-to-value), plus he will pay the $8,640 origination fee. Once the deal closes, he will pay the lender $1,920 in monthly interest fees, or 8% multiplied times $288,000 divided by 12 months in the year. If Stanley sells the rehabed project for $486,000 at the end of the 12 month term, his gross profit (not including rehab costs) would be $94,320. This is calculated by taking the purchase price ($486,000) and subtracting the principle ($288,000), the origination cost ($8,640), the money he contributed to closing ($72,000), and the total interest payments ($23,040).