Milton finds a townhome in the Ellerbe Woods neighborhood of Shreveport, LA to rehab and sell. Since he does not have enough cash available to acquire the $240,000 property outright, he takes out a hard money loan from All American Funding Company. The terms of the deal include a 55% loan-to-value (LTV), so he must contribute 45% of the price as cash at closing, making the principle note amount $132,000. The loan is interest only, with monthly payments, and is for 18 months at 12% interest with 5 origination points to be paid at the closing.
Milton will need to bring a total of $32,400 upon closing to cover the $108,000 down payment plus the $6,600 origination fee. The monthly interest only payments will then total $1,320 to the lender. Assuming Milton sells the remodeled project for $324,000 at the end of the 18 month term, his total profit (not including renovation expenses) would be $53,640. This is calculated by taking the purchase price ($324,000) and subtracting the original principle ($132,000), the origination fee ($6,600), the money he contributed to closing ($108,000), and the total interest payments ($23,760).