Top Dog Finance Company makes a hard money loan to Daryl for a rehab project in New Smyrna Beach, FL, on a house that costs $240,000. Because the lender agrees to a 60% loan-to-value, Daryl will be required to put 40% down so the amount of the loan will be $144,000. The terms of the deal also include a two point origination fee which is to be paid at the closing and a 12 month, interest-only note with a 12% rate of interest.
In accordance with the parameters of the deal, Daryl will need to pay a $2,880 origination fee in addition to 40% of the sales price, or $96,000, based on the 60% LTV. After the loan is executed and Daryl takes the property, he will have to begin making monthly payments of $1,440 to the lender ($144,000 principle x 12% / 12 months). If Daryl sells the project for $336,000 after 12 months, he would realize a total profit of $75,840 after deducting the principle of $144,000, the funds contributed at the close of $96,000, the origination points of $2,880, and the total interest payments of $17,280. This gross profit doesn't account for building costs.