Natalie closes on a $200,000 rehab project in Ontario, CA, using a hard money loan from Riverside Funding Group. As the lender agrees to a 50% loan-to-value, Natalie will be required to put 50% down so the total amount of the loan will be $100,000. The parameters of the deal dictate a 12% note for 12 months. They also stipulate a 1 point origination fee, which will also need to be paid at closing.
In addition to paying the $1,000 origination fee, Natalie will also fund $100,000 of the purchase with her own funds, or 50% of the purchase price. Riverside Funding Group will collect $1,000 in monthly interest from the Natalie. This is computed by taking the total loan amount of $100,000, multiplying by the 12% rate of interest, and then dividing that number by 12. If Natalie accomplishes her goal of a $240,000 sales price when the loan term expires, she would pocket a gross profit of $27,000 after re-paying the principle and subtracting the money she brought to closing, the origination points, and the total interest payments.