USA Investment Group makes a hard money loan to Ina for a rehab project in Midlothian, IL, on a property that costs $340,000. The lender agrees to make a loan with a 80% loan to value (LTV) so they will extend $272,000 on the house. The note is interest only, paid monthly, and is for 12 months at 8% interest with 3 origination points paid at closing.
According to the terms of the deal, Ina will need to pay a $8,160 origination fee in addition to 20% of the purchase price, or $68,000, based on the 80% LTV. After the loan is executed and Ina takes on the project, she will have to begin making monthly payments of $1,813 to USA Investment Group ($272,000 principle x 8% / 12 months). At the end of the loan, she sells the rehabed property for $476,000. After subtracting the $21,760 in interest payments ($1,813 times 12 months), the $8,160 origination fee, the $272,000 principle amount on the loan, and the $68,000 she contributed to the closing, she will make a gross profit of $106,080 ($476,000 price minus $369,920 in total costs). This profit would be reduced by any building costs paid by Ina.