How Difficult (And Smart) To Start A HML Fund--Am I Nuts?

35 Replies

I have been doing HML for a few years. Really enjoy it and the returns have been pretty good. Am I crazy for wanting to start a private fund for HML? I really don't know anything about it except it requires SEC paperwork, etc. Saw another poster on BP just state they are moving forward with their fund but are buying low end properties in the Midwest. I don't think I want to pursue that model. I want to be a paper-boy:)...and reap the rewards. Anyone started or worked for a fund? Is the field too saturated? Last but not least, if we have a total meltdown, I do fear a fund could get wiped out. Thoughts?

Originally posted by @Charlie Fitzgerald :

Broker to an established lender in the space...less headache...less risk...more consistent me for more details if you like.

 Out of curiosity, if one was to broker to an established lender, what prevents established lender from stealing clients?

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You are one of the good guys.  I was a mortgage broker for a short time years ago, I would submit a loan to Countrywide's wholesale department only to have my client tell me they got a call from Countrywide's retail department with a lower rate that I couldn't possible meet let along beat.  Frustrating to say the least.  Finding a broker with integrity is like trying to find a 'good' realtor, or a 'good' attorney, or a 'good' CPA ... easier said than done.  I guess it's like any other relationship, you keep looking until you find an honest person.

Originally posted by @John Thedford :

I would probably take everything through a licensed lender..just do the funding. Too expensive?

 You'll run out of money using only your funds, assuming you do a sizeable scale.

Originally posted by @John Thedford :

That is why I was wondering about raising private funds, the SEC filings, etc.

 I think what Charlie is saying is instead of starting a fund simply broker the loans to an other broker that has a ton of money and you keep part or all the points...much less headache.

I see. The downside to that is giving up all the steady interest income. If I borrow funds at 7-8% and lend at 12% plus points and keep the spread? Enough profit to be worthwhile?

Originally posted by @John Thedford :

I see. The downside to that is giving up all the steady interest income. If I borrow funds at 7-8% and lend at 12% plus points and keep the spread? Enough profit to be worthwhile?

 I've never done that, only lent my own money and brokered some loans to other brokers.  I'll let the experts respond, other than to say that it strikes me as a pretty thin spread between borrowed (7-8) and lent (12) monies.  The 0% you pay for your fund money idea gives a much better spread:)

@John Thedford

You can either become a hard money lender yourself, which requires starting a company, website creation, legal assistance, program creation all to find yourself marketing a product that you have possibly little experience in, and potentially losing money for awhile . . . OR . . . you can work with a hard money lender that has been through all of that, knows what they are doing, and could use your funds to reimburse their loan money disbursed, and see if they will part with their performing mortgage notes. It allows you to BE THE BANK without actually buying the bank! Thanks!

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Thanks @Darren Eady

Almost all my notes are written for one year. Most pay off early. I don't think they would be very marketable having only 1,2,3 months seasoning. Besides that fact, because I charge points, the APR can go through the roof with an early payoff. I have no complaints with how things are going, just wondering if I could change strategies somewhat to increase income. I have become pretty fond of HML even though there have been a few issues along the way. I am only lending MY funds, so at this point I can do that legally in Florida. If I start lending for others the rules change. Thoughts?

Why was Charlie's post deleted? Because he said "PM me"? Some times I don't get it.

Regarding the topic at hand, some posters have indicated they lend their own funds as I have done... I think to answer your question, though, is that a lot of it depends if you are planning an intra-state or inter-state operation. Huge difference for people like me in NC...

@John Thedford are you just into RE notes? Curious if you consider other collateral, like cars. I only ask because from the small sample (3) of people I talked to, it seems the return on auto notes (originated from used car dealers, sold at discount to investors) can be good. One guy cautioned of repo problems... but I think that was because he 'serviced' what he sold and held notes to maturity. He really didn't want to talk to me. Probably because he was making a killing;)

@Chris Martin

I see a few people constantly advertising on CL for investors for their car lots. I haven't researched that space. At this time I am originating 1st liens and most pay off within 3-5 months though some will not pay off for one year. I like the RE aspect and the fact that I put out 100K in one transaction.
I am getting 12% plus points and have a few customers that are now repeats. I have had a few tough ones, was able to collect, and of course no longer lend to those:) We all have our specialty and what we are comfortable with. Thanks for asking my friend. 

@John Thedford

Personally I find the short term performing notes are better for some people that don't want to tie up their money too long, even though the love the return on their money.  When they are repaid, they will usually be right back for another note a year later.

I can't tell what you are lacking in from your posts.  What are you looking for more of, less of?

@Darren Eady

I am doing short terms right now. Just curious if I am missing something as far as selling the notes and then lending it again. I don't think this works for me because most pay off quickly. I do want to grow my PL business and that is why I posted the original question as to starting a PL fund. If it is a LOT of work and time consuming it probably isn't for me. I like my freedom too much..

@John Thedford Have you looked in to crowdfunding as a solution? I'm not familiar with FL rules, but NC intrastate CF law just went into practice and even if you stick to all accredited investors (which IMO is a good idea) the regulations give some structure that can (again IMO) put people on the regulatory bypass.... a 'fast track' of sorts.

Seems like you are doing everything right. I think I'd be tempted to keep it to myself and just borrow funds from friendlies and banks (collateralize the notes in a credit pool) since you have a good track record.