Hard Money Math

[Andy Tomaswick]

Hi all,

I'm trying to better understand the math behind how much would be owed to a hard money lender that would fund a potential flip.  I've made up some numbers to give an example of my understanding and would appreciate any feedback on whether this is right or wrong.

Let's say I have a flip that needs $100K for the house and all the rehab costs.  I get a hard money deal with 2 "points" and 12% interest.  It takes me three months to do the flip.  So in total I would be paying:

$100K * .02 = $2000

($100K * .12) / 12 = $1000 * 3 = $3000

$2000 + $3000 = $5000

So in total, I would have to pay back the hard money lender $105K when I sold the house three months later. 

Does that math make sense?  Thanks in advance for the feedback and best of luck for your deals!

[Shawn M.]

Usually the points are paid at closing and the interest is paid monthly. 105k is the total just not paid at the end. Unless you can work out a deferred interest payment plan with the lender.