Valerie finds a duplex in Monterey, CA to rehab and sell. Since she does not have enough cash on-hand to buy the $260,000 project outright, she takes out a hard money loan from Advanced Lending Group. The loan to value (LTV) on the loan is 65%. This means Valerie will need to bring 35% of the purchase price to closing and the principle will be $169,000 on the note. The deal also consists of these features: 1) a 18 month length, 2) a 14% interest only note, and 3) a two percent origination fee.
Valerie will have to contribute a total of $32,400 upon closing to cover the $91,000 down payment plus the $3,380 origination fee. Advanced Lending Group will collect $1,972 in monthly interest from the Valerie. This is computed by taking the total loan value of $169,000, multiplying by the 14% rate of interest, and then dividing that amount by 12. If Valerie sells the house for $351,000 after 18 months, she would earn a total profit of $52,130 after subtracting the original principle of $169,000, the funds paid at closing of $91,000, the origination fee of $3,380, and the aggregate interest payments of $35,490. This amount does not include building costs.