Douglas takes a hard money loan from Blue Square Funding Corporation in order to remodel a duplex to resale in Lithonia, GA. The sales price of the house is $270,000. As the lender sets a 75% loan-to-value, Douglas will have to put 25% down and the principle amount of the loan will be $202,500. The loan is interest-only, paid monthly, and is for 12 months at 12% interest with 3 points paid at closing.
By the parameters of the note, Douglas will need to contribute a $6,075 origination fee plus 25% of the purchase price, or $67,500, based on the 75% LTV. The lender will collect $2,025 in monthly interest payments from the borrower. This is calculated by taking the total loan amount of $202,500, multiplying that by the 12% rate of interest, and then dividing that number by 12. Assuming Douglas sells the renovated house for $337,500 at the end of the 12 month term, his total profit (not including remodeling expenses) would be $37,125. This is calculated by taking the sales price ($337,500) and subtracting the principle ($202,500), the origination cost ($6,075), the money he contributed to closing ($67,500), and the total interest payments ($24,300).