Flourish Investment Group makes a hard money loan to Fannie for a rehab project in Maple Lake, MN, on a house that costs $370,000. As the lender sets a 80% loan to value, Fannie will need to put 20% down and the total amount of the loan will be $296,000. The parameters of the note also stipulate a three point origination fee that is to be paid at closing and a 12 month, interest only note with a 12% interest rate.
Therefore, Fannie will have to contribute a $74,000 down payment in addition to paying a $8,880 origination fee. Once the loan closes, she will pay the lender $2,960 in monthly interest fees, or 12% multiplied by $296,000 divided by 12 months in the year. At the expiration of the loan, she sells the renovated house for $481,000. After subtracting the $35,520 in total interest payments ($2,960 multiplied by 12 months), the $8,880 origination fee, the $296,000 principle amount on the loan, and the $74,000 she brought to closing, she will make a gross profit of $66,600 ($481,000 price minus $414,400 in costs). This amount would be reduced by any building costs paid out of pocket.