What is Fund That Flip?
Fund That Flip is a real estate crowdfunding platform focused on the residential market. As the name implies, the company specializes in short-term loans intended for "fix-and-flip" projects, including both single-family homes and multifamily projects.
Fund That Flip aims to be the leader in the short-term residential crowdfunding space, and as a leader, the goal is to offer the best products to borrowers while minimizing risk to investors. The company has originated more than $450 million in funding to hundreds of developers across over 25 states. Signing up for an account to browse projects and review all of the other content on the site is free.
The big differentiator with Fund That Flip is the nature of the investment opportunities. Instead of allowing investors to participate in large-scale commercial real estate projects, Fund That Flip offers entirely residential investment opportunities.
It's also important to realize that Fund That Flip offers debt investments, not equity. When you put your money into a Fund That Flip deal, you become the lender -- that is, you are paid a predetermined interest rate on the money you lend. You are not buying into the equity of any project and won't be entitled to a share of the deal's profit as you would be with a crowdfunding platform that offers equity investments in deals.
Summary: Is Fund That Flip a Good Investment?
If you're looking for steady income and aren't worried about equity appreciation, Fund That Flip could be a good investment platform for you. The fees are a bit on the higher end, but the company does a good job of delivering strong income without a ton of risk.
Fund That Flip Pros and Cons
Like any crowdfunding investment platform, Fund That Flip has pros and cons that investors should be aware of:
- Fund That Flip does a great job of conducting due diligence on the loans offered for investment on the platform.
- Fund That Flip has an easy-to-use platform that is well-suited to investors of all skill and experience levels.
- There is a lot of deal flow on the platform, so investors have many options to choose from.
- A $5,000 minimum is quite reasonable for a platform limited to accredited investors.
- Attractive passive income. Investors have, on average, generated an annualized return of more than 10.75% with principal repayments in 10 months.
- Fund That Flip has a relatively high fee structure. An interest rate spread of as much as 3 percentage points can really eat up a lot of investors' returns.
- Non-accredited investors cannot participate in Fund That Flip investments.
- There are only debt-based real estate investments; no equity deals are available.
- No secondary market. Investors most hold loans until the borrower repays them.
Is Fund That Flip legit? How strong is it?
Fund That Flip is a legitimate company that allows investors to become the lender on highly vetted fix-and-flip projects.
Fund That Flip performance
Fund That Flip’s stated goal is to provide industry-leading transparency. One aspect of that is to provide lenders on its platform with a monthly performance report, which breaks down how many of the company's loans are in various stages of delinquency and how many are in foreclosure. At the time of this review, the company’s most recent performance statistics were from December of 2020. It originated 86 loans for $19.3 million, its highest in one month. Further, it reported that 7.5% of its total loan book was delinquent at the time. The rest of its loans were performing as anticipated. The company reported that, on average, investors have earned an annualized return of more than 10.75% with principal repayment in less than 10 months.
Fund That Flip management
Fund That Flip was founded by Matt Rodak, who remains in the CEO role. He is a Chartered Property Casualty Underwriter and has raised over $400 million of capital in his career. The company's other executives also have significant relevant experience.
How Fund That Flip works: How are investments sourced?
Fund That Flip offers residential debt investments. In other words, think of Fund That Flip like a peer-to-peer lending platform, but your loans are backed by real estate assets. When you make an investment through Fund That Flip, you become the lender.
Fund That Flip offers two main types of rehab loan investments -- funds and individual deals. Investors can choose to finance some (or all) of a specific rehab project proposed by an investor. While the deals obviously change regularly, you can find everything from single-family home fix-and-flip projects, apartment building rehabs, and condominium conversions to new-construction developments.
Or, you could choose to invest in a fund that spreads your money out over a portfolio of rehab-focused loans. Fund That Flip offers investment funds called Residential Bridge Note Funds (RBNFs), which are designed to be representative of the company's overall lending operation.
Most of the loans offered for investment on the platform mature in a year or less, although terms can range from three to 18 months. Borrowers typically have the option to extend the loan for a few months (for a fee). Loan amounts range from $100,000 to $5 million (average loan size of about $300,000), and interest rates charged to borrowers range from 8.49% to 12%. The minimum to invest in an individual deal or a fund through Fund That Flip is $5,000.
The loans are interest-only, which is standard in the rehab loan industry. This means during the term of the loan, you'll receive interest payments on the amount of money you contribute, and your entire principal contribution will be returned in a lump sum when the loan is repaid.
It's important to realize that although debt investments are typically thought of as lower risk than equity, the investments offered by Fund That Flip aren't low risk. No investment that pays 10% or more in interest is. While the platform does take prudent steps to set its investors up for success -- including only approving 6% to 8% of the projects submitted on its platform and requiring that borrowers put 15% to 20% of their equity into each flip -- it's entirely possible that a borrower won't be able to repay their loan.
Fund That Flip does a very good job with transparency in this respect, posting monthly performance reports, and while the statistics vary from month to month, the percentage of loans in delinquency or foreclosure is not zero.
Since the loans are backed by the underlying real estate, at least some money is likely to be recouped if a loan goes bad, but there is still significant risk of loss. Invest accordingly.
Who can invest on Fund That Flip?
Currently, Fund That Flip is only open to accredited investors. This means that at least one of the following criteria needs to apply:
- Your net worth is $1 million or higher, excluding the value of your primary residence.
- You earned at least $200,000 ($300,000 if you file joint tax returns) for the past two years, with an expectation of the same this year.
- You're investing on behalf of an accredited entity, such as a venture capital fund.
Fund That Flip may offer investment opportunities to non-accredited investors in the future. According to the company:
"Legislation has been passed which will allow for unaccredited investors to participate in the future, and the SEC has finalized under what circumstances this will be allowed. Currently, these regulations do not make it commercially possible for Fund That Flip to offer investments to non-accredited investors. We will continue to watch the development of this new law."
Investors can self-accredit to view deals but will be verified by Fund That Flip before the first investment is made.
It's also worth mentioning that Fund That Flip can allow for investments from self-directed IRAs or other tax-deferred accounts. And if you don't have an account that will allow you to do this, Fund That Flip maintains a list of preferred partners to help facilitate the process.
What is the minimum Fund That Flip investment?
There is a $5,000 minimum investment required to open an account on Fund That Flip's platform, which is on the lower end for crowdfunding platforms limited to accredited investors.
What are Fund That Flip's fees?
Fund That Flip makes its money in three ways:
- Origination fees: This fee typically runs 1% to 3.5% of the loan amount and is charged to the borrower.
- Interest rate spread: Fund That Flip charges borrowers a slightly higher interest rate (1 to 3 percentage points) than it pays investors. In other words, if Fund That Flip charges a borrower 12% interest on a rehab loan, it might pay its investors a 10% yield.
- Pre-funding: Instead of waiting for investors to fully crowdfund each loan, Fund That Flip pre-funds its loans using the company's own capital and then sells (syndicates) them to investors. This allows borrowers to get started on their rehab projects right away, and Fund That Flip earns all of the interest on the loan in the period between funding and when investors put their money in.
In other words, there are no direct fees to investors such as management fees -- even on its fund-style investments. The interest rate spread Fund That Flip earns is disclosed to borrowers on every deal. Additionally, most loans have an option to extend for a few months (standard in the fix-and-flip world), and there's an extension fee charged to the borrower if it's used. This fee is split 50/50 between Fund That Flip and the deal's investors.
Fund That Flip returns: What should you expect?
Fund That Flip charges borrowers interest rates ranging from 8.49% to 12% and pays investors anywhere from 1 to 3 percentage points less. So, depending on the risk profile and characteristics of the loans you invest in, it's reasonable to expect annualized returns in the 6% to 10% range. However, investors have, on average, earned a 10.75% annualized return with principal repayment in 10 months.
When (and how) can you sell Fund That Flip investments?
There isn't a secondary market for Fund That Flip loans, and to "cash out," you'll typically need to hold the loan until maturity. However, keep in mind that these are relatively short-term loans (three to 18 months), so your money won't be tied up for too long since the average loan has repaid its principal in 10 months.
Going mobile: Is there a Fund That Flip app?
At the present time, there is not a Fund That Flip mobile app. However, the company's website is optimized for both desktop and mobile use.
Fund That Flip risks: Is Fund That Flip safe to invest with?
To understand the safety of Fund That Flip, it's important to understand the vetting process and the criteria for would-be borrowers. (Note: Most crowdfunding platforms focus on commercial real estate, and we refer to the party receiving the funding as the deal sponsor. Typically this is a development company that focuses on large-scale projects. With the fix-and-flip nature of Fund That Flip's loans, the borrowers are a combination of individual real estate investors and developers.)
Fund That Flip has a streamlined preapproval process. Each potential deal is analyzed for profitability, stress-tested, and more by the sales and underwriting teams. The borrower's qualifications are closely examined as well, including a background and credit check. While the process is designed to be quick and efficient, it is quite selective -- only 6% to 8% of project applications received by Fund That Flip end up being originated. Here's a high-level overview of what Fund That Flip looks for in its borrowers and the fix-and-flip projects themselves:
- The borrower must have relevant experience in their market, with a preference of at least four completed rehab projects in the last 12 months.
- While there are no formal credit cutoffs, a background and credit check are run on each borrower. Personal financials are also examined to ensure the borrower has enough money to complete the project and service the debt. The borrowers must also sign a personal guarantee.
- Loan-to-cost (LTC) is a maximum of 85%, so the borrower has significant money on the line as well.
- The maximum loan-to-ARV (after-repair value) is 70%, so there's a margin of safety when it comes to equity in the project. All projects are also stress-tested for adverse scenarios, such as a lower-than-expected selling price, construction delays, unforeseen rehab costs, and more.
- A third-party appraiser is used to confirm the valuation estimates on most projects.
- Construction funds are dispersed over time and are closely managed to ensure that LTV and LTC requirements are maintained throughout the rehab process.
In a nutshell, Fund That Flip is a solid choice for investors whose primary focus is on generating income rather than capital appreciation. The platform is a legit marketplace of short-term fix-and-flip loans that are carefully selected by the company's extensive vetting process. Just be aware that short-term real estate debt investments like these aren't exactly "low-risk" income investments, and they may not be appropriate for investors with relatively low risk tolerance.