Pretty Perfect Investment Corporation issues a hard money loan to Jorge for a renovation project in Stockbridge, GA, on a property that is listed for $350,000. The terms of the deal include a 80% loan-to-value (LTV), so he must bring 20% of the price as cash at closing, which makes the principle note amount $280,000. The deal also has these features: 1) a 18 month length, 2) a 11% interest-only note, and 3) a three percent origination charge.
On top of the $8,400 origination fee, Jorge will also have to fund $70,000 of the purchase with his own money, or 20% of the sales price. Once the deal is closed and Jorge takes over the project, he will need to begin making monthly payments of $2,567 to the lender ($280,000 principle x 11% / 12 months). If Jorge achieves his goal of a $507,500 sales price when the loan term expires, he would make a gross profit of $102,900 after re-paying the principle and deducting the cash he brought to closing, the origination fee, and the total interest payments.