North Star Investment Company makes a hard money bridge loan to Leslie for a renovation project in the Eklutna Valley subdivision of Chugiak, AK, on a house that is listed for $150,000. Because the lender sets a 60% loan-to-value, Leslie will have to put 40% down so the total amount of the loan will be $90,000. The deal also consists of the following features: 1) a 18 month term, 2) a 14% interest-only note, and 3) a three point origination charge.
Leslie will have to contribute $60,000 at the closing (40% on the 60% LTV), plus he will need to pay the $2,700 origination fee. The monthly interest-only payments will then be $1,050 to the lender. If Leslie sells the remodeled project for $180,000 at the end of the 18 month term, his total profit (not including rehab expenses) would be $8,400. This is computed by taking the sales price ($180,000) and subtracting the original note amount ($90,000), the origination cost ($2,700), the money he brought to closing ($60,000), and the total interest payments ($18,900).