Friend interested in providing a loan

[Ben Zimmerman]

Scenario: I have a friend, mid 30s who has some money he would like to invest as he 'does not want to work until he is 65'. He has approached me and from what I can gather he isn't interested in partnering in a purchase for profit splitting, but rather providing a loan with some form of decent returns. He has talked to me a few times about it, but he seems hesitant to throw out an actual offer, and I think he want's me to make the initial offer. I've never used a HML or private money before, and not exactly sure what would be considered a fair return for him given the facts. I don't NEED the money, but like all investors I could put it to good use if I had it.

On the one hand, he is a friend and I don't want to insult him with a lowball offer for terms. 

On the other hand, he approached me and not the other way around. I know traditional HML charge some insane rates, but typically you will have an exit strategy to refinance out of that loan as soon as possible mitigating the pain of the insane interest rates. In this case since he is interested in investing for the long term, there would likely be no early payback option meaning the loan would carry the duration of the term, given his age I would assume he would be willing to do a 30yr term if the numbers were right.

How would you all approach this? Would you accept the loan at all?  And if so where would you start the negotiations?  Since he approached me would you start by offering him roughly what banks get?  What the average expected return in the stock market would be?  What HMLs get?  Would you do a full 30yr term, or do something like a 10yr interest only with balloon payment type of deal?