Blue Door Finance Corporation issues a hard money loan to Dana for a renovation project in Valrico, FL, on a property that is listed for $200,000. Since the lender agrees to a 65% loan-to-value, Dana will be required to put 35% down and the principle amount of the loan will be $130,000. The rate on the loan is 14% for a term of 6 months and the lender requires a one point origination fee at the closing. The interest payments are to be paid on a monthly basis and the principle amount will be paid back after the property sells.
In addition to paying the $1,300 origination fee, Dana will also fund $70,000 of the purchase with her own cash, or 35% of the sales price. After the deal is closed and Dana takes the property, she will begin making payments each month of $1,517 to the lender ($130,000 principle x 14% / 12 months). If Dana sells the house for $240,000 after 6 months, she would then realize a total profit of $29,600 after subtracting the principle of $130,000, the cash contributed at the close of $70,000, the origination fee of $1,300, and the total interest payments of $9,100. This gross profit doesn't account for building costs.