Real estate crowdfunding platforms offer a passive way to get involved with real estate investing. You don’t have to worry about managing a property and there is usually a team providing in-depth analysis for each deal.

Fund That Flip is a platform that offers an experienced team and a deal flow that's steady enough to keep investors happy. However, it's only open to investors who are accredited. 

If you do happen to be an accredited investor, there’s a good chance you’ll like what Fund That Flip has to offer. Keep reading to learn more about how the platform works and what exactly you would be investing in if you decide to join.

Who Is Fund That Flip?

Fund That Flip provides an efficient method for providing capital to real estate investors. It was founded in 2014 and is based in New York, NY. Its founder and CEO is Matt Rodak, a Chartered Property Casualty Underwriter. The company has raised $13.2 million through a Series A. Below, Rodak talks about his inspiration for creating the company.

“I was lending money out on the Lending Clubs and Prospers of the world, and I’m getting a 9% or 10% return on unsecured consumer credit,” Rodak said to Cleveland Magazine. “And at the same time, I’m paying my lenders on my real estate business upward of 18% interest."

Rodak realized that if he and others were willing to pay up to 18% for real estate redevelopment loans, there should be an easy way to invest in them (just as there was for unsecured personal loans). So Fund That Flip was launched which allows investors to lend to real estate redevelopers who use the funds to buy and rehabilitate distressed properties.

What Do They Offer?

Fund That Flip (FTF) provides opportunities for both investors and lenders. For lenders, FTF loans start at 8.49%. These are hard-money loans. Each lender will deal with FTF directly, as they do not sell their loans. In this article, we’ll focus on the investor side of things.

FTF real estate investments are completely passive. There’s no dealing with tenants, contractors, or any decision-making about the properties. These are also debt deals. This means that you should expect regular payments plus the return of your principal once the loan is paid back.

FTF says that investors can earn up to an 8.75% annual yield on their lent funds. Those earnings come completely from loan payments. There are no equity deals with FTF so you aren't able to take advantage of any property appreciation.

Due Diligence

Fund That Flip puts a lot of effort into its due diligence process. This helps to reduce the probability that any deal will go bad. 

The company says that only 6-8% of applicants make it through the initial vetting process. Once approved, borrowers must also put up 15-20% equity in the project, risking their own funds. This ensures that there is alignment in incentives.

The due diligence team is made up of an experienced group. Everyone on the team must have completed at least four projects in the last 12 months.

Borrower Dependent Notes

A Borrower Dependent Note (BDN) is the debt instrument that an investor is actually investing in with FTF. Let’s unpack the BDN to get a better understanding of what it is.

The BDN is a derivative of another note that FTF has invested in with the redeveloper. The BDN's performance and protections are tied to an underlying first-position mortgage.

Unlike the BDN, the underlying mortgage is a secured debt. So if the deal goes bad, the investor has some protections by the property's value and the borrower's equity stake.

Loan Prepayment

Borrowers can pay back their loans before maturity. However, there is a minimum number of months of interest that borrowers must agree to when taking any FTF loan. This prevents investors from receiving only two or three payments, for example.

An early loan payoff will reduce the overall return of your investment. Still, you'd be in a much better position than if you had to deal with a borrower default. If the loan is paid off early, you will receive all payments up the prepayment point plus the full return of their principal.

Are There Any Fees?

Yes, but they are not taken out explicitly. Instead, Fund That Flip takes the difference between the interest rate it charges its developers and what it is paid to its investors. This is generally 1-3%.

Because FTF’s fee is bundled into the spread, you don't have to deal with all the various fees that other platforms may charge such as application, processing, appraiser, inspection, and legal fees. But even though you won't pay any fees out-of-pocket, you'll still want to pay attention to the interest rate spread. 

For example, let's say FTF is willing to offer you 8% on a real estate deal and another platform is offering a similar deal at 11% with a 1% AUM fee. In this case, you may be better off choosing the competing platform as you'd earn a better net return on your investment.