Erik closes on a $370,000 renovation project in the Eldersburg area of Sykesville, MD, using a hard money loan from All American Funding. The lender agrees to write a note with a 65% loan-to-value (LTV) so they will extend $240,500 on the house. The deal also includes the following features: 1) a 12 month length, 2) a 10% interest only note, and 3) a three percent origination fee.
Erik will have to contribute $129,500 at closing (35% on the 65% loan to value), plus he will need to pay the $7,215 origination fee. After the deal is executed and Erik takes over the property, he will begin making payments each month of $2,004 to the lender ($240,500 principle x 10% / 12 months). Assuming he sells the remodeled project for $555,000 at the end of the 12 month term, his total profit (not including remodeling expenses) would be $153,735. This is computed by taking the sales price ($555,000) and subtracting the original note amount ($240,500), the origination cost ($7,215), the funds he brought to closing ($129,500), and the total interest expenses ($24,050).