Carmela finds a duplex in Temecula, CA to remodel and resell. Since she doesn't have enough cash to buy the $320,000 house outright, she takes out a hard money loan from Friendly Funding. The loan to value (LTV) on the loan is 65%. This means that Carmela will have to bring 35% of the sales price to closing and the principle will be $208,000 on the note. The note is interest only, paid monthly, and is for 18 months at 8% interest with 1 origination points paid at closing.
Carmela will need to bring $112,000 at closing (35% on the 65% loan-to-value), plus she will have to pay the $2,080 origination fee. After the deal is executed and Carmela takes the property, she will need to begin making monthly payments of $1,387 to Friendly Funding ($208,000 principle x 8% / 12 months). Carmela's plan is to finish the renovation within the 18 months and resell it for $400,000. If she succeeds she will make a gross profit of $52,960 ($400,000 sales price - $208,000 principle - $112,000 cash paid at closing - $2,080 origination fee - $24,960 in total interest payments.