HLM vs. PM partnership on flip

[Mark Allen]

I had a discussion yesterday w/ a guy using 100% private money @ 6% and splitting profits 50/50 w/ the lender. He thinks this is a great deal and that 70% LTV hard money at 2 points and 12% interest is a rip off. I tried to convince him otherwise. My argument to him is below ... please feel free to poke holes in it if you're so inclined!

I agree that private money with no points is ideal, esp if you can get PM to do 100%. But your idea of splitting the profit w/ PM lender suddenly makes it much less interesting to me. (Would only seem interesting if no personal cash available in which case sure, better than no deal at all.)

Again, correct me if I'm missing something but this is how it looks to me.

To use real easy numbers let's say all in @ $100K w/ net profit of $25K (counting all costs except financing) and (too be conservative) a 6-month holding period. And let's say that holding costs unrelated to financing = $500/mo and that's already worked into our 6-month numbers.  So here goes:

HML

$25K net excluding cost of $70K loan

- $1,400 points

- $4,200 interest

= $19,400 profit.  

On a $30K investment = 170% annualized ROI.  Every month of speed adds another $1,200 profit so 3 month turnaround = $23,000 profit = 211% ROI 

PM Partnership

$25K net excluding cost of $100K loan

- $0 point

- $3K interest

= $22K shared profit

divided by 2 = $11K profit 

ROI is of course infinite here but does that really mean anything if you're already sitting on $30K plus?   

Speed has less impact in this case:  3 months = $12,500 profit

So looks to me like that partnership money is 76% more expensive than HM on a 6-month flip, and 84% more on a 3-month.  Right?