Amie finds a property in Oswego, IL to rehab and resell. Since she doesn't have enough cash available to buy the $270,000 house outright, she takes out a hard money loan from North Star Lending Group. The borrower will need to fund 25% of the purchase price in cash to closing based on a 75% loan-to-value set by the lending company. This makes the principle amount from North Star Lending Group $202,500. The interest rate on the loan is 10% for a term of 6 months and the lender requires a one point origination fee at closing. The interest payments are to be paid on a monthly basis and the principle will be paid back after the property sells.
Amie will have to bring $67,500 at the closing (25% on the 75% loan to value), plus she will need to pay the $2,025 origination fee. After the loan is closed and Amie takes the property, she will have to begin making payments each month of $1,688 to the lender ($202,500 principle x 10% / 12 months). If Amie sells the project for $324,000 after 6 months, she would then realize a total profit of $41,850 after deducting the principle of $202,500, the money paid at the close of $67,500, the origination points of $2,025, and the total interest payments of $10,125. This gross profit doesn't include renovation costs.