In investing, there’s a simple piece of math that’s far more important than any complex financial model. It’s a concept that’s easy to understand, yet widely ignored in the relentless chase for higher returns. It’s the asymmetric math of loss. If you lose 50% of your capital, you don’t need a 50% gain to get back to where you started. You need a 100% gain. If you lose 33%, you need a 50% gain to break even. The deeper the loss, the exponentially harder it is to recover. This is why the single most important rule in my playbook is not “how high can returns go?” but “how do we avoid losing the capital we already have?”
This principle isn't just a theoretical exercise for me. It's a lesson I've learned firsthand, in the real world, with my own money on the line. I've experienced real, permanent losses of capital in my investing career. Experiencing that pain—seeing your hard-earned money vanish—cements the importance of capital preservation in a way no textbook ever could. It's why every decision we make at Harvey Capital, particularly within our Income fund, is filtered through the lens of avoiding that same outcome for our investors.
The Foundation: Conservative Underwriting
Our entire strategy for the Harvey Capital Funding I LP is built on this foundation of prioritizing capital preservation. It starts with our underwriting. We are not trying to squeeze every last drop of return out of a deal. We are trying to build a margin of safety into every loan we originate. The most critical metric for us is the After-Repair Loan-to-Value (ARLTV). We keep our weighted-average ARLTV across the portfolio at 66.52%, and we never extend a loan above 75% ARLTV.
What does this mean in practice? It means if a borrower defaults, the property’s value would have to fall by more than a third before our investors’ principal is at risk. By lending only on a senior, first-lien position, we ensure that we are the first to be repaid in a foreclosure scenario. We don’t do second liens or unsecured lending. Period. This isn’t because those can’t be profitable; it’s because they fundamentally change the risk equation and dramatically increase the odds of permanent capital loss if something goes wrong.
The Borrower: Betting on the Jockey, Not Just the Horse
A conservative valuation is only half the battle. The other half is the operator. We focus exclusively on lending to experienced, professional house flippers. These are people who have successfully completed dozens of projects, who know their markets inside and out, and who have a proven track record of executing on time and on budget. We are vetting the operator as much, if not more, than the property itself.
An inexperienced borrower can turn a great deal into a disaster. They might underestimate renovation costs, take too long to complete the project, or fail to market the property effectively. By partnering with seasoned professionals, we mitigate a huge source of operational risk. These are individuals who have navigated challenging markets before and have the systems in place to handle the inevitable surprises that come with any construction project. Our success is tied to their success, which creates a powerful alignment of interests.
The Structure: Diversification and Short Duration
Even with conservative underwriting and experienced borrowers, risk still exists. That’s why the structure of our fund is designed to be resilient. We have originated over $3 million across more than 25 loans. This diversification is crucial. If any single loan were to go into default and result in a loss—which, to date, has not happened—the impact on the overall portfolio would be muted. The goal is to ensure that no single event can permanently impair our investors’ capital.
Furthermore, our loans have short durations, typically around 9 months. This is a subtle but powerful risk management tool. A lot can change in the real estate market over two or three years; much less can change in nine months. This short timeframe reduces our exposure to macroeconomic shifts, interest rate fluctuations, and other market-wide risks. It allows us to continuously re-evaluate the market and redeploy capital into the most attractive opportunities as they arise. It also means our investors receive their capital back sooner, providing liquidity and peace of mind.
Putting It All Together: A Strategy Built on Experience
The 18.36% annualized return our LPs saw in the first year of Harvey Capital Funding I LP is a direct result of this disciplined approach. It’s an attractive number, and we’re proud of it. But it’s the byproduct of our primary focus: not losing money. The high returns are generated by the structure—the 12% interest rate, the 3% origination points, and our 82/18 profit split that heavily favors our investors—but the safety is generated by the process.
I invest my own capital right alongside our Limited Partners in every deal. When I say we're focused on not losing money, I mean *our* money. The lessons from my past losses were expensive, but they were invaluable. They taught me that chasing the highest possible return is a fool's errand. The real path to building long-term wealth is through consistent, repeatable performance that prioritizes keeping what you have. It's about playing the long game, and that starts with avoiding the kind of catastrophic loss that can take you out of the game entirely.