Russell takes a hard money loan from Easy Brook Finance Company in order to rehab a townhome to flip in Nottingham, MD. The list price of the house is $260,000. The lender agrees to make a note with a 70% loan-to-value (LTV) so they are willing to loan $182,000 on the project. The interest rate on the note is 10% for a length of 12 months and the company requires a one point origination fee at the closing. The interest is to be paid on a monthly basis and the principle amount will be returned after the sale of the property.
In addition to paying the $1,820 origination fee, Russell will also need to fund $78,000 of the purchase with his own money, or 30% of the purchase price. Once the loan is executed and Russell takes on the project, he will need to begin making payments each month of $1,517 to the lender ($182,000 principle x 10% / 12 months). If Russell sells the property for $377,000 after 12 months, he would then earn a gross profit of $96,980 after deducting the principle of $182,000, the money paid at the close of $78,000, the origination points of $1,820, and the total interest payments of $18,200. This gross profit does not account for renovation costs.