Hannah closes on a $340,000 renovation project in the North Hills subdivision of North Hills, CA, using a hard money loan from Presitge Funding Corporation. Because the lender agrees to a 85% loan to value, Hannah will be required to put 15% down and the total amount of the note will be $289,000. The terms of the deal also include a five percent origination fee which is to be paid at the closing and a 12 month, interest only note with a 11% interest rate.
In addition to paying the $14,450 origination fee, Hannah will also need to fund $51,000 of the purchase with her own cash, or 15% of the purchase price. After the loan is executed and Hannah takes the project, she will have to begin making monthly payments of $2,649 to Presitge Funding Corporation ($289,000 principle x 11% / 12 months). At the end of the loan, she sells the renovated house for $476,000. After deducting the $31,790 in interest expenses ($2,649 multiplied by 12 months), the $14,450 origination fee, the $289,000 principle amount on the loan, and the $51,000 she contributed to the closing, she will make a gross profit of $89,760 ($476,000 sales price minus $386,240 in costs). This profit would be reduced by any renovation costs paid by Hannah.