Hope finds a duplex in Lithia Springs, GA to renovate and resell. Since she doesn't have enough cash available to acquire the $370,000 project outright, she takes out a hard money loan from P & J Finance Corporation. The borrower will have to contribute 40% of the sales price in cash to the closing based on a 60% loan-to-value set by the lender. This makes the principle amount from P & J Finance Corporation $222,000. The interest rate on the note is 12% for a term of 18 months and the lender requires a five point origination fee at the closing. The interest is to be paid monthly and the principle will be returned after the property sells.
The borrower will need to bring a total of $32,400 up front to pay the $148,000 down payment plus the $11,100 origination fee. After the deal is closed and Hope takes on the property, she will begin making monthly payments of $2,220 to the lender ($222,000 principle x 12% / 12 months). If Hope sells the project for $518,000 after 18 months, she would then make a total profit of $96,940 after deducting the original principle of $222,000, the cash paid at the close of $148,000, the origination fee of $11,100, and the total interest payments of $39,960. This profit doesn't include remodeling costs.