Penny closes on a $340,000 rehab project in the San Antonio Heights subdivision of Upland, CA, using a hard money loan from Blue Square Investment Company. The loan-to-value (LTV) on the note is 70%. This means that Penny will have to bring 30% of the purchase price to the closing and the principle will be $238,000 on the note. The parameters of the loan dictate a 10% note for 6 months. They also require a 1 point origination fee, which will also need to be paid at closing.
Penny will need to fund a total of $32,400 up front to cover the $102,000 down payment plus the $2,380 origination fee. she will then pay $1,983 monthly to Blue Square Investment Company. If she sells the remodeled house for $476,000 at the end of the 6 month term, her total profit (not accounting for renovation expenses) would be $121,720. This is calculated by taking the sales price ($476,000) and subtracting the original principle ($238,000), the origination cost ($2,380), the money she brought to closing ($102,000), and the total interest expenses ($11,900).