Kelli finds a townhouse in Wilmington, DE to renovate and re-sell. Since she does not have enough cash to buy the $200,000 property outright, she takes out a hard money loan from Axis Funding Company. The loan-to-value (LTV) on the deal is 80%. This means Kelli will have to bring 20% of the sales price to closing and the principle amount will be $160,000 on the note. The loan is interest-only, with monthly payments, and is for 18 months at 14% interest with 5 origination points paid when the deal closes.
On top of the $8,000 origination fee, Kelli will also need to fund $40,000 of the purchase with her own cash, or 20% of the sales price. The monthly interest-only payments will then be $1,867 to Axis Funding Company. At the expiration of the note, she sells the rehabed property for $270,000. After deducting the $33,600 in total interest payments ($1,867 multiplied times 18 months), the $8,000 origination fee, the $160,000 principle amount on the note, and the $40,000 she contributed to closing, she will make a total profit of $28,400 ($270,000 sales price minus $241,600 in costs). This profit would then be reduced by any rehab costs paid out of pocket.