Claudia finds a townhome in Okemos, MI to rehab and re-sell. Since she does not have enough cash available to buy the $330,000 house outright, she decides to take out a hard money loan from Prosperity Funding Group. The loan to value (LTV) on the loan is 75%. This means that Claudia will bring 25% of the sales price to the closing and the principle amount will be $247,500 on the note. The terms of the note also stipulate a one point origination fee which is to be paid at the closing and a 6 month, interest-only note with a 11% interest rate.
The borrower will need to fund a total of $32,400 upon closing to pay the $82,500 down payment plus the $2,475 origination fee. she must then pay $2,269 per month to Prosperity Funding Group. Assuming she sells the renovated house for $445,500 at the end of the 6 month term, her total profit (not accounting for rehab expenses) would be $99,413. This is computed by taking the sales price ($445,500) and subtracting the original note amount ($247,500), the origination cost ($2,475), the cash she contributed to closing ($82,500), and the total interest expenses ($13,613).