Dianna takes a hard money loan from Red Oak Funding Company in order to renovate a townhouse to flip in the Landmark-Countryside Homeowners Assoc subdivision of Oldsmar, FL. The price of the house is $250,000. The lender agrees to write a loan with a 55% loan to value (LTV) so they will extend $137,500 on the project. The note is interest-only, paid monthly, and is for 6 months at 10% interest with 4 points paid when the deal closes.
On top of the $5,500 origination fee, Dianna will also need to fund $112,500 of the purchase with her own cash, or 45% of the sales price. Once the loan is closed and Dianna takes over the property, she will have to begin making monthly payments of $1,146 to Red Oak Funding Company ($137,500 principle x 10% / 12 months). At the expiration of the loan, she sells the renovated house for $337,500. After subtracting the $6,875 in interest payments ($1,146 multiplied by 6 months), the $5,500 origination fee, the $137,500 principle amount on the loan, and the $112,500 she brought to the closing, she will earn a total profit of $75,125 ($337,500 sales price minus $262,375 in total costs). This amount would then be reduced by any renovation costs paid by Dianna.