Cody is a house flipper in North Pole, AK. He discovers an older property and decides to renovate it and sell it for a profit. The house costs $180,000 but he doesn't have the full amount so he obtains a hard money loan with Affluent Finance Group. The borrower will be required to contribute 25% of the purchase price in cash to the closing based on a 75% loan-to-value stipulated by the lender. This makes the loan principle from Affluent Finance Group $135,000. The terms of the loan dictate a 13% note for 18 months. They also stipulate a 3 point origination fee, that will also have to be paid when the property closes.
On top of the $4,050 origination fee, Cody will also have to fund $45,000 of the purchase with his own money, or 25% of the purchase price. The lender will collect $1,463 in monthly interest from the borrower. This is calculated by taking the total note value of $135,000, multiplying that by the 13% rate of interest, and then dividing that amount by 12. Assuming he sells the rehabed house for $243,000 at the end of the 18 month term, his total profit (not accounting for rehab costs) would be $32,625. This is calculated by taking the sales price ($243,000) and subtracting the original principle ($135,000), the origination cost ($4,050), the cash he brought to closing ($45,000), and the total interest payments ($26,325).