With Fund That Flip, you can invest in pre-vetted real estate development loans to diversify your portfolio. This provides monthly interest payments and a completely passive investment. And since Fund That Flip typically maintains lower loan-to-value ratios and prefunds some loans, it helps reduce the risk of debt investing.
However, Fund That Flip is only open to accredited investors. And it's important to understand the risks and fees of this type of debt investing.
Our Fund That Flip review is covering exactly how this platform works, the pros and cons, and what your alternatives are.
Pros & Cons
What Is Fund That Flip?
Found That Flip is a real estate loan provider and investing platform that began in 2014. For developers, it provides a fast and cost-effective way to borrow money for real estate development projects. And for investors, Fund That Flip is a passive way to invest in short-term real estate debt.
Since its inception, Fund That Flip has seen over $1.9 billion in loan originations and paid investors over $48 million in interest. Just note that it's only open to accredited investors, and there's a $1,000 minimum investment requirement.
How Does Fund That Flip Work?
As an investor, Fund That Flip lets you invest in individual private real estate development projects or funds of short-term notes. This is a form of debt investing, and you get paid monthly interest on your short-term loans.
According to its website, Fund That Flip investors earn an average of 10.8% annually with principal repayments generally taking under 10 months.
As for the technicalities, you're investing in Borrower Dependent Notes (BDNs). This is a debt instrument that's tied to the performance of the note that Fund That Flip invests in with the developer of the project. As Fund That Flip explains on its website, BDNs are unsecured debt instruments. However, each debt offering is secured by a first position lien on the property.
Importantly, some loans are also pre-funded by Fund That Flip. This provides borrowers with certainty that their projects are going to be funded. And for investors, it lets them earn interest faster. Plus, since Fund That Flip puts its own money into loans, it actually has skin in the game.
Borrowers make monthly loan repayments, so note distributions also happen monthly and deposit into your account. Borrowers can prepay loans, but there's a minimum number of months of interest which they're required to pay, so you at least earn some interest plus your principal back.
The main appeal of Fund That Flip for investors is that it's completely passive. Fund That Flip's team sources deals, works with developers, and handles the legal side of things so you don't have to. And it's a short-term investing strategy since many loan terms range from six to 12 months.
As for borrowers, Fund That Flip provides access to fast hard money loans with loan rates starting at 8.49% and term lengths ranging from three to 24 months. According to its website, 93% of borrowers return to continue raising capital for their flips.
Fund That Flip Offerings
There are two types of investment opportunities on Fund That Flip:
- Bridge Note Offerings: Invest in individual deals starting at a $5,000 minimum.
- Series Note Offerings: Invest in a diversified pool of short-term loans in $1,000 increments.
The fact Fund That Flip has loan funds is a plus since it makes it easier to diversify your portfolio of loans to limit risk. The offerings page also provides plenty of information to help you with due diligence. For example, offerings include information like the loan to ARV percentage, loan term, minimum investment amount, underlying security (usually 1st position), and information about the property.
Offering pages also have a “Use of Proceeds” section which outlines what the loan is being used for. There's also a strategy section that highlights the property improvements that are being made. Additionally, you can find information on the developer's previous projects and read a brief risk statement about the project.
We like that Fund That Flip provides resources for investors to vet properties. And its own underwriting team also conducts due diligence. Less than 8% of applicants receive funding according to Fund That Flip, and it also boasts a 99.6% total percentage of principal returned.
Fund That Flip Fees
Investors don't pay to sign up for Fund That Flip, and there aren't out-of-pocket fees either. To make money, Fund That Flip charges a spread on each loan and generally charges developers 1-2% more than the interest rate you earn. You can find the spread fee when researching offerings.
According to its website, Fund That Flip has done over $1.9 billion in loan origination volume and paid over $535 million in interest, fees, and principal returns to investors. This consists of 2,600+ repaid loans and over $48 million in interest payments. All-in-all, Fund That Flip says it has a 10.8% average gross yield.
More impressively, the company says it's seen 99.6% of principal returned to investors. Based on this figure, it seems as if Fund That Flip has done an excellent job at vetting their borrowers and reducing risk for lenders, although I can't confirm this figure is true.
However, Fund That Flip published monthly performance reports that are very useful for due diligence. Here's a snapshot from its May 2022 performance report:
As you can see, 5.72% of its book was 30 days or more late on payments. Additionally, 2.13% are in foreclosure; a significantly higher percentage than just a few months earlier.
In its performance report, Fund That Flip states it's seeing a “slight increase in delinquent loans” because of several high-dollar loans remaining in delinquency and continued supply chain issues and labor shortages.
Granted, Fund That Flip still limits risks with lower LTV ratios and has a strong track record. But real estate investing does have risks that investors should be aware of.
There isn't a secondary marketplace for BDNs, so Fund That Flip is a highly illiquid investment. When you invest, you must hold your BDN until maturity. In some instances, Fund That Flip can also extend the underlying note by several months.
Is Fund That Flip Safe & Legit?
Fund That Flip is a legitimate company that lets investors add short-term real estate debt to their portfolios. But as it explains on its website, real estate debt investing is inherently risky. Additionally, every project is different, and there's no guarantee that borrowers are going to complete projects on-time and meet all of their repayments.
That said, principal preservation is of course one of the most important goals of Fund That Flip, otherwise it wouldn't attract investors. We also like Fund That Flip since it prefunds some loans and has skin in the game. It also tends to keep lower LTV ratios to help reduce overall risk.
The company actually has a very informative podcast episode on the steps it takes to handle borrowers who fall behind on payments.
If you're thinking about investing, I highly recommend listening to the episode. It explains how Fund That Flip gets borrowers caught up on payments and mitigates risk.
How to Contact Fund That Flip
You can contact Fund That Flip's investor relations team by emailing email@example.com. You can also call 646-895-6090 Monday through Friday from 9:00 am to 5:00 pm ET.
There are numerous real estate crowdfunding websites you can use to invest in real estate these days. Many are equity-based, so you're buying shares of income-generating real estate and usually earn quarterly or annual dividends. But some platforms like Fund That Flip also focus on short-term, debt investing.
|Account Fees||1%/year||No Fees for Investors||2% annual management fee|
Groundfloor is the closest alternative to Fund That Flip. The main differences are that the minimum investment amount is $10, and you don't need to be an accredited investor. And since the investing minimum is so low, you can easily diversify your loan portfolio to reduce risk.Fundrise is another excellent alternative for investing in real estate without much money. It pays quarterly dividends and only charges 1% in annual management fees. Historically, investors have earned around 8-9% from Fundrise before fees. Streitwise is another alternative you can consider if you're interested in dividend income. The platform's generated an average of 9.2% in annual dividends since 2017, although fees are higher than Fundrise.
If you want to add short-term real estate debt to your portfolio, Fund That Flip is one of the better options out there. It has reasonable fees, and the fact you can invest in diversified funds of notes is a plus. We also like that its website provides ample information and documentation to help you with due diligence.
The main downside is that it's only open to accredited investors. If this isn't you, our article on the best real estate investing sites for non-accredited investors should be of interest.
And just remember: short-term debt investing is risky. You should never invest money you can't afford to lose, and consider how debt fits into your overall asset allocation before using Fund That Flip.