Lesley closes on a $380,000 rehab project in Valdosta, GA, using a hard money loan from Prosperity Investment Group. The terms of the deal include a 50% loan to value (LTV), so she must contribute 50% of the price as cash to closing, making the principle loan amount $190,000. The parameters of the deal also stipulate a two point origination fee which is to be paid at closing and a 12 month, interest only note with a 10% interest rate.
The borrower must contribute a total of $32,400 up front to cover the $190,000 down payment in addition to the $3,800 origination fee. Prosperity Investment Group will collect $1,583 in monthly interest payments from the Lesley. This is calculated by taking the full loan value of $190,000, multiplying that by the 10% interest rate, and then dividing that amount by 12. If Lesley sells the house for $494,000 after 12 months, she would then make a total profit of $91,200 after subtracting the principle amount of $190,000, the money contributed at closing of $190,000, the origination fee of $3,800, and the total interest payments of $19,000. This profit doesn't account for building costs.