Hi, @David A. - good questions all around. I grew up in Litchfield County and my business partner (Mom) and lots of family still live there, so I know the area of which you speak. I think your numbers sound reasonable; it won't be easy, but it's doable, imho.
Others here can answer your questions better than I could, however, I do have experience working with hard money lenders in CT. I think it's probably the same process everywhere, but here goes: they do expect you to bring money to the table and you do make monthly interest-only payments with a balloon payment at the end. Basically, they will fund a percentage of the purchase price (something like 80%) and then potentially the full rehab. You pay the points up front. So yes, the bummer of it is that, on that 100k purchase, you're bound to have to scrape together 20k toward purchase plus additional closing costs (including those 5k in points in this example). Then you make those monthly payments.
Then, on the rehab funds, the money goes into escrow and they will coordinate a draw schedule with you. These draws are milestones at which they will release funds. Let's say you have three draws. You could find yourself floating some funds up front to cover materials and some contractor work in order to get the work done; then the lender will likely come to the property to inspect (some, if long distance, accept photos) and then will release that first draw. If you can find a contractor who is comfortable with the scenario and can wait on the funds, great. But, being your first project and first time working with the contractor, they'll most likely want some payment up front, perhaps for materials and some portion of the labor. On that last draw, many lenders will want to see that all permits are signed off on. So that can be an even longer gap - thinking from the contractor's point of view - between when the actual labor was done and when the funds are released because the work will finish and then you wait a few days or so for the town/city inspector to come out and approve. Then the lender will do their inspection. Again, you may be floating some funds for materials and to the contractor (though I wouldn't pay them in full until all permits have been cleared). Others here may have a good way to address this gap issue.
Hard money lenders play an important role and have been integral in helping us build our flip business. However, they are indeed expensive and there is a good chunk of cash you'll be expected to come up with. But don't get discouraged, it can be done! Read some of the posts and blogs here about ways to come up with money, listen to some of the podcasts, and perhaps buy @Brandon Turner's book on investing with no and low money down.
Good luck!
