Ida takes a hard money loan from Superior Investment Group in order to rehab a duplex to flip in the East Richmond Heights subdivision of Richmond, CA. The sales price of the property is $330,000. Since the lender sets a 85% loan-to-value, Ida will have to put 15% down and the total amount of the note will be $280,500. The terms of the loan dictate a 12% note for 12 months. They also require a 2 point origination fee, that will also need to be paid upon closing.
In addition to paying the $5,610 origination fee, Ida will also need to fund $49,500 of the purchase with her own cash, or 15% of the sales price. Once the deal is executed and Ida takes over the property, she will need to begin making monthly payments of $2,805 to Superior Investment Group ($280,500 principle x 12% / 12 months). If she sells the rehabed project for $462,000 at the end of the 12 month term, her gross profit (not accounting for rehab expenses) would be $92,730. This is calculated by taking the purchase price ($462,000) and subtracting the original note amount ($280,500), the origination fee ($5,610), the cash she contributed to closing ($49,500), and the total interest payments ($33,660).