Why would I ever become a HML?

[Derrick S.]

I know that HML is a lose term, but I'd define it as loaning money for interest plus points once a deal has been verified. It seems like I could make a lot more as a professional JV, partnering in the profits 50/50 and having a say in how the property is handled to make sure profits are there. If the deal goes bad I didn't do my homework, but the money I put in is still owed me...

Maybe it's not one person that becomes a HML, it's the funds and groups, and in that case it makes a little more sense. But as an individual, is there a reason to pursue the HML model?

[David Begley]

Originally posted by @Derrick S.:

I know that HML is a lose term, but I'd define it as loaning money for interest plus points once a deal has been verified. It seems like I could make a lot more as a professional JV, partnering in the profits 50/50 and having a say in how the property is handled to make sure profits are there. If the deal goes bad I didn't do my homework, but the money I put in is still owed me...

Maybe it's not one person that becomes a HML, it's the funds and groups, and in that case it makes a little more sense. But as an individual, is there a reason to pursue the HML model?

I'm not sure the Private Money Lender v HML model is any different - as I understand it, an HML is usually a company/group and a Private Money Lender is a one man band but the business model is pretty much interchangeable. I pay my Private Money Lender 1 point and 8-10% interest whereas most HMLs are more expensive - 2 to 5 points and 12 - 15% interest. There are many reasons, as an individual, to pursue that model especially if the individual is looking for a more passive route to real estate investing. You can easily earn 12% to 16% return on your money on a secured/collateralized investment; whereas rehabbing with a 50-50 JV partner will not CONSISTENTLY produce those returns. A JV partner rehabber will occasionally lose money on a deal; a GOOD HML or Private Lender rarely will since they typically have a 1st lien position and a 65% or lower LTV secured position. As a Private Lender/HML, oftentimes you can make more money when the Borrower defaults. I am speaking in generalities.....