Brad is an investor in Loxahatchee, FL. He discovers an older property for sale and decides to renovate it and resell it for a profit. The house costs $290,000 but he does not have the full amount so he obtains a hard money loan with Success Funding Company. The loan to value (LTV) on the note is 80%. This means Brad will have to bring 20% of the purchase price to the closing and the principle amount will be $232,000 on the loan. The deal also consists of the following features: 1) a 12 month length, 2) a 8% interest-only note, and 3) a four point origination charge.
In accordance with the parameters of the deal, Brad will need to contribute a $9,280 origination fee plus 20% of the purchase price, or $58,000, based on the 80% LTV. Once the deal closes, he will have to pay the lender $1,547 in monthly interest fees, or 8% multiplied by $232,000 divided by 12 months in the year. If Brad sells the property for $435,000 after 12 months, he would then make a gross profit of $117,160 after subtracting the principle amount of $232,000, the money paid at the close of $58,000, the origination points of $9,280, and the aggregate interest payments of $18,560. This gross profit does not include rehab costs.