Sample hard money deal (my first loan).

An experienced flipper approached me with a inexperienced partner who had locked up a good deal (they actually outbid me on the property by a thin margin). I already knew the deal made sense and had done some diligence on the property.

I agreed to finance 100% of the purchase, as long as the buyers posted a reserve for the construction costs. The total loan was just shy of $90,000. The rehabbed value of the property was roughly $250,000, and the renovation would cost roughly $70,000.

The exit plan was either a sale or a refinance, and the time to exit was pegged at <1 year. The loan was at 12% with a 2% financing cost. The gross profit for the flippers would be $90k. Exit costs assuming a sale would be $12,500 in brokerage and $3,500 in legal and misc.

We are now at $74k in net profit prior to holding costs and interest. For the term, the cost of the loan would be $12,600 and the holding cost would be around $8,000 Net that from the $74k and the net profit to the owner would be $53,400. Not bad for a $70k cash investment.

Nine months later, the borrower finished the project and refinanced at an appraisal of $250k. He was given 70% LTV and cashed out $175,000. Of that he repaid the $90k in principal, $8k in interest and $1,800 in the fee.

The loan cost $4k to close, and the carry was around $6k. The sponsor netted $65k, which was roughly the amount he had spent on construction. So he got back all his equity and retained ownership over the property. I earned an annualized 14.5% return on my loan.