Marvin takes a hard money loan from Big Money Funding Group in order to remodel a duplex to resale in the Saugus area of Valencia, CA. The sales price of the property is $210,000. The terms of the deal include a 50% loan to value (LTV), so he must bring 50% of the price as cash at closing, which makes the principle note amount $105,000. The parameters of the loan dictate a 14% note for 6 months. They also require a 4 point origination fee, that will also be paid at closing.
Therefore, Marvin will have to contribute a $105,000 down payment in addition to paying a $4,200 origination fee. The monthly interest only payments will then be $1,225 to the lender. At the end of the note, he sells the renovated property for $304,500. After deducting the $7,350 in total interest payments ($1,225 multiplied times 6 months), the $4,200 origination fee, the $105,000 principle on the note, and the $105,000 he brought to the closing, he will earn a total profit of $82,950 ($304,500 price minus $221,550 in costs). This profit would then be reduced by any rehab costs paid by Marvin.