•  Real Estate

Fund That Flip Review

Fund That Flip operates as something akin to a hard-money lender, offering developers short-term loans for residential rehab (fix-and-flip) projects, then selling the loans fractionally to investors. They stand out for offering detailed info on prior loans, and their “Residential Bridge Note Fund” is worth a close look for easy diversification across multiple loans.

Fund That Flip

  • Investment Types: Real Estate
  • Sectors: Residential Real Estate
  • Minimum Investment: $5,000
  • Advertised Returns: 9-12%
  • Must be accredited
 Pros
  • Investments are pre-funded
  • More than 1,300 loans funded to date
  • Easy to view borrower's prior projects
  • Transparent view of activity on prior loans
 Cons
  • Only open to accredited investors
  • Relatively low number of open investments

Overview

Fund That Flip operates as something akin to a hard-money lender, offering developers short-term loans for residential rehab (fix-and-flip) projects, then selling the loans fractionally to investors. All of the Fund That Flip investments are “pre-funded”, which means Fund That Flip funds the loan with its own money (or money from investors in one of its “Residential Bridge Note Funds”), and then recoups those funds from investors. That can mean that as an investor, you’d begin receiving payments sooner than if the loan had to wait to be fully funded by investors, as is the case with some other platforms.

Fund That Flip was founded in 2014, and since then has financed more than 1,300 projects totaling $400M+. Fund That Flip is venture-backed, raising $13M over four financing rounds.

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Types of investments Fund That Flip offers

Fund That Flip only offers real estate debt investments, and only for residential projects. Most of their loans have 6-18 month terms. Borrowers apply for loans directly with Fund That Flip, and if approved (according to Fund That Flip, fewer than 8% of applicants approved) the loan is pre-funded by Fund That Flip. That means the borrower can start the project right away without waiting for the loan to be fully funded by investors (it also means some offerings remain underfunded once the loan term starts, which means you can find loans with shorter terms than the original loan).

Once you’re logged-in and have verified accreditation status, you can review details of each prospective investment, including background on the borrowers (which includes, usefully, previous Fund That Flip projects), financials and budget for the project, and property information, including an appraisal if available.

Fund That Flip also offers what they call “Bridge Note Funds” which is set up as a fund used to pre-fund a portfolio of loans offered through Fund That Flip. The funds offer a fixed return amount and a fixed maturity date (as anyone who’s done a home renovation can attest, real estate projects don’t always finish on time…)

What do you get when investing with Fund That Flip?

One of the appeals of real estate investing (especially debt investments) is that the investment is backed by a tangible asset that can be sold off to recover investor money if something goes wrong. But as with many of the crowdfunded real estate investment platforms, your investment is, strictly speaking, not actually secured by the underlying property. Instead you receive what’s known as a “Borrower-Dependent Payment Note” which entitles you to a specific share of the principal and interest payments received from the borrower on the mortgage.

How does Fund That Flip make money?

Fund That Flip does not charge any direct fees to investors. They charge borrowers between 1.5%-3.5% of the loan amount at closing (i.e., “points”), and there is a “spread” between the interest rate charged to borrowers and what is paid to investors. For example, the borrower may be paying 12% on a loan, while investors receive 10%. Fund That Flip also earns the full interest on any portion of a loan not funded by investors.

Investors should also note that if there are any costs associated with recovering a loan in default, those are deducted from the principal & interest repayment.

Potential returns and cashflow

The open investments on Fund That Flip at the time of this writing offer between 10-12% APRs, with most of them at 12%. Payments are made monthly, and while the loans can be prepaid early by borrowers, most loans include a minimum amount of interest (for example, 3 months) even if the loan is paid off early.

Breadth of offerings on Fund That Flip

Fund That Flip has funded more than 1,300 projects, and there are full details for each on their website (you must be registered to see the full details), and as of this writing there are 14 open investments, including a Bridge Loan Fund. The Bridge Loan Fund is used to help finance the pre-funding of other Fund That Flip Loans. Rather than picking individual loans, investors get exposure to a number of loans, and with a fixed maturity date (for more on the benefits of spreading risk among multiple debt investments, see Are You Investing to Win or Investing to Not Lose?).

For investors looking at individual loans, you can also filter by state.

Regulatory framework and due diligence expectations

Fund That Flip offers investments only to accredited investors, under SEC Reg D. They are not a registered broker-dealer or investment advisor. Their loans are originated through a wholly-owned subsidiary (FTF Lending, LLC).

Fund That Flip touts that they approve less fewer than 8% of applicants, though the published underwriting requirements seem like table stakes for any private lender (e.g., “3+ projects under your belt and a network of contractors, legal professionals and real estate agents who help you achieve your goals” and “You should supply us with a detailed statement of work with line item costs of all the repairs you plan to make”).

Via email, Fund That Flip provided more detail on their diligence approach:

Out of all submitted deals, 33% pass the initial screening by our risk team. Only 15% of all submitted deals reach the due diligence phase. Only 5% of all submitted deals are originated.

Our trained team of Real Estate Analysts use aggregated MLS data across the country to form After Repair Values (ARV's) of each property. These ARV's are then cross referenced with a local appraiser that visits the property and provides an opinion of value.

Historically, we have maintained a Loan To After Repair Value of 65% and a Loan To Cost of 85%. Our redevelopers maintain 15-20+% of equity in each deal to keep incentives aligned for a successful completion.

Fund That Flip deserves credit for how transparent they are on displaying activity on prior investments, including detailed updates from projects that underperformed. Browsing prior projects will give prospective investors (especially those new to real estate) an eye-opening perspective on how common it is for rehab projects to be delayed. Fund That Flip reports they’ve returned 99% of investor principal, and paid out $20M in interest payments, though that doesn’t mean that all of the loans delivered the expected return – and especially on the expected timeline. Investors without the time and experience to deeply analyze projects should look at the Bridge Note Fund for a low-cost way to get exposure to a portfolio of loans, and with a set maturity and term.


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