Willard closes on a $200,000 renovation project in Rolla, MO, using a hard money loan from South End Finance Group. The terms of the loan include a 75% loan to value (LTV), so he must contribute 25% of the price as cash at closing, making the principle loan amount $150,000. The interest rate on the loan is 13% for a term of 6 months and the company requires a three point origination fee at the close. The interest is to be paid monthly and the principle amount will be repaid after the property sells.
Therefore, Willard will be required to make a $50,000 down payment in addition to paying a $4,500 origination fee. The monthly interest-only payments will then be $1,625 to South End Finance Group. At the end of the loan, he sells the renovated property for $290,000. After subtracting the $9,750 in interest expenses ($1,625 times 6 months), the $4,500 origination fee, the $150,000 principle on the loan, and the $50,000 he contributed to closing, he will make a total profit of $75,750 ($290,000 price minus $214,250 in costs). This profit would be reduced by any building costs paid out of pocket.