Debora takes a hard money loan from North Side Investment Corporation in order to rehab a property to flip in Willowbrook, IL. The list price of the property is $170,000. The loan to value (LTV) on the loan is 65%. This means Debora will have to bring 35% of the purchase price to closing and the principle amount will be $110,500 on the note. The interest rate on the note is 13% for a term of 18 months and the lender requires a two point origination fee at closing. The interest payments are to be paid monthly and the principle amount will be paid back after the property sells.
The borrower must bring a total of $32,400 upon closing to cover the $59,500 down payment plus the $2,210 origination fee. The lender will collect $1,197 in monthly interest from the Debora. This is calculated by taking the full note amount of $110,500, multiplying by the 13% interest rate, and then dividing that amount by 12. If Debora sells the property for $229,500 after 18 months, she would earn a gross profit of $35,743 after deducting the principle amount of $110,500, the funds contributed at closing of $59,500, the origination fee of $2,210, and the total interest payments of $21,548. This amount doesn't account for remodeling costs.