Interest only payments

[David C.]

Of course, I am a new investor. I was looking at one hard money loan situation. They require 400000 min loan at 13.5 percent and interest only payments per month. Would the monthly payments be around 5,000? Seems the profits would be eaten up pretty quickly if I don't sell quick enough.

Thanks,
Dave

[Jon Holdman]

Payments would be $4,500. That's 13.5%/12 * $400,000.

I would assume 3-6 points on this loan, too, which means you'll only get $376-388K from this $400K loan.

This must be a fix and flip or else an apartment building. No way can you get enough rent from a $400K SFR to be a good rental.

The rule of thumb for fix and flips is that your purchase plus rehab cost needs to be under 70% of the eventual selling price (i.e., the ARV - after repaired value). After paying all the costs and this kind of interest, that should net you a profit of 10-15% of ARV.

With a $400K loan, you're looking at at ARV around $600K. That probably puts you into non-conforming loan territory for your end buyer. Be sure you can find buyers and they can actually get loans.