# Break it down for me

lets say I borrow minnimun 100k, 14% for 6 months. does this mean I am paying 14k intrest no matter how fast I sell?? please show what exactly is paid monthly and when all said and done using these #'s (100k @ 14%)…
Thanks
The new guy :anon

The interest rate is typically quoted as an annual rate. You don’t provide enough info to calculate the monthly payment, need to know the amortization period if any or is this an interest only loan. Assuming \$100k, 14% annual interest and 30 year amortization your monthly payment would be \$1,184. After six months you will have paid about \$7,109 in total of which \$6,998 is interest and \$110 is principal for an ending balance of \$99,890. Knowing that 30 year amortization is a very slow paydown of principal you could guesstimate the six month interest cost on this loan by simply multiplying \$100k by 14% and dividing by two.

sorry for the lack of info, this is a 6 month loan intrest only with the six months of payments get rolled into the loan to keep cost minimul. not really wondering about the payment but rather how much total repayed (whats actually cutting into profit).

Okay that makes things more clear. So you really have no payments for six months as the interest is simply rolled into the loan balance. This improves your monthly cash flow but it does not reduce your costs, it in fact increases them. The monthly balance is going up as payments are rolled into the loan thus interest expense each month actually goes up rather than down like a normally amortizing loan.

Regarding your original post, the loan rate is 14% annually. Divide 14 by 12 to get the monthly rate. Simply multiply the loan balance by 1+monthly rate to get the new balance and do this for every month the loan is outstanding. If you pay the loan off in six months you will owe about \$107,200, representing \$7,200 in interest expense and \$100,000 principal repayment. Notice that your actual cost works out to be a bit more than 14% annualized because the loan is actually getting larger each month because you are making no payments.

Thanks, I was thinking It may be a solid 14k, but I was wrong… I am approved already for this type loan but really didnt want to eat away profits but That is not as bad as I thought it would be… Considering my credit is a little below average… Ill let you guys know how my ffirst flip goes :help :eyecrazy :banghead2 :grim :dance2 :crying :crying2 :huh ;D :flush :argue :shocked :biggrin :anon

hey if you don’t mind me asking… whats the ARV on the property? I’m thinking about a hard money loan for my first flip as well. I’m assuming you have to repair the place?

Just so there’s no surprises - sometimes there will also be “points” rolled into this type of loan (typ 1 to 6). So, if you borrow a \$100K for 6-months at 14% APR and have to pay 3-pts (\$3K on a \$100K loan), your total loan costs will be approx \$10,200 instead of the \$7,200 (weather you pay it off in 1-month or 6-months).

In addition, if it’s a typical HML, you may be pre-approved for a certain amount BUT keep in mind that HML lenders will typically only loan up to 65 or 70% of the After Repair Value and will only give you the amount you need to close on the purchase. The remaining funds are usually distributed on a multiple Draw system as the repair work progresses (not always - but usually). So, you may have to have some money up front to pay your repair contractors until you can get the first payout from the Lender (they often do onsite inspections to confirm the work has been done).

Good luck!

Gary,

Thank you for your information! I find it very informational as I am working on a REO duplex that need some fixing. I am purchasing the property for 115K, 25K in repairs and the ARV is 200K. Which gives me a 70%LTV…do you think this will fly? So I can finance purchase and repairs with minimal money out of my pocket. Also, I have poor credit but I am working with a business partner that has excellent credit. Our goal is to purchase, rehab with hard money and refi within 90 days. We want to keep the property since rents with be 1200/mo. Also, is it correct to assume 80% LTV for multiunits when we refi?

rodav12,

Sounds like a winner!

You shouldn’t have any problem with the “80% LTV” refi, I’m not sure about the Refi within 90-days though - best to ask your banker or one of the loan experts in the “Financing” forum about that. Sometimes the record of ownership has to be longer before you can refi.

As far as an initial HML loan, a 70% ARV (after repair value) loan will fly with many HMLs but some will cut it off at 60 or 65%. You’ll probably have to do a little shopping.

If the rents are \$1200/m each and you refi ~\$150K there is no problem; but, if the rents are \$1200/m total (\$600 ea) it’s going to be a bit tight (if not impossible) meeting the PITI/repairs/operating costs/etc with a fixed rate 30-yr loan. Make sure all mechanicals and major systems are in tip-top shape so you don’t get hit with a big unexpected repair bill.

If you haven’t already considered it, you may want to look into forming an LLC with your partner to hold title in. Assest/personal liability protection issues. Typically costs \$400 to \$1000 to get the LLC set up. Again, consult the experts on this.

Above all, what I have found, is that you absolutely must look at the numbers closely! If you take the time to estimate things properly and add a contingency amount based on your experience you can avoid those killer suprizes. I started rehabbing houses in the early 80s and I still add a 5 to 15% contingency to my estimates. This applies to the buy/fix/hold senario as well - I just flip em.

Best of luck to you!