Tax question re Hard $ lender

Hello all,

This topic got me thinking of the tax implications of this situation.
My understanding is that the hard money lender (hml), is putting up money to facilitate a property being flipped.
And will be compensated with a % of the net profits.
But the invested funds will be in the form of a mortgage or deed of trust, not as a co-owner or purchaser.

For the hml, is his profit taxed as interest from a mortgage?
And not as a short term gain on the resale of the property.
Are these two different sources of income taxed at different rates? (I think so)

If so, then my real question is, is it better for external investors (who don't manage the rehab nor disposition of an acquired property)
to invest in "flipping properties" as mortgage lenders? At least for tax purposes?

Thanks