Susana finds a townhouse in Rossville, GA to renovate and re-sell. Since she doesn't have enough cash on-hand to purchase the $240,000 project outright, she decides to take out a hard money loan from Affluent Investments. The terms of the loan include a 70% loan to value (LTV), so she must bring 30% of the price as cash at closing, making the principle loan amount $168,000. The loan is interest-only, with monthly payments, and is for 6 months at 10% interest with 2 points paid when the deal closes.
By the parameters of the loan, Susana will have to pay a $3,360 origination fee in addition to 30% of the sales price, or $72,000, since there is a 70% LTV. she must then pay $1,400 per month to Affluent Investments. Susana's plan is to complete the project by the end of the 6 months and re-sell it for $300,000. If she succeeds she will earn a profit of $48,240 ($300,000 price - $168,000 principle amount - $72,000 funds brough to closing - $3,360 origination points - $8,400 in total interest paid.