Real estate investment is no longer limited to those who have the time and will to manage properties or find deals themselves. Thanks to crowdfunding platforms like Fund That Flip, you can invest in property development projects with minimal hassle and maximum potential returns. There’s just one catch: you have to be an accredited investor.
In the Fund That Flip review below, we’ll examine:
- What Fund That Flip is and how it works
- Fees and returns to expect
- How to create an account and use the platform
- Pros and cons compared to other platforms
Let’s get into it!
Table of Contents
Fund That Flip: Quick Facts
- Minimum investment: $5,000
- Fees: Spread of 1%-3%
- Expected returns: 7-12%
- Usual loan terms: 6-18 months
- Loan types: Pre-funded fractional loans
- Project type: Real estate redevelopment
- Who can invest: Accreditors investors only
Pros
- Low loan-to-value
- Easy to use
- Low minimum investment
- High potential returns
- Transparent
- Good customer service
Cons
- Limited choice of projects
- Accredited investors only
- Low investment volume
- Some projects are in judicial states
What Is Fund That Flip?
Fund That Flip is a crowdfunding platform that specializes in residential real estate projects. In a nutshell, it funds property development projects and then sells them on to investors like you as fractional loans.
Unlike many other digital real estate investment platforms, you’re not directly funding the borrowers — Fund The Flip acts as a third party by pre-funding the projects then selling them on.
This implies losing out on some of the profits, but it also has its perks; you won’t have to wait for other investors to provide the rest of the funding a project needs before you start receiving returns.
Most development opportunities involve renovating homes as part fix and flip or rehab projects — no prizes for guessing where the platform’s name comes from.
Fund That Flip was launched in 2014 by founder Matt Rodak, who realized that many of the emerging online peer-to-peer lenders were offering returns of 10% or less, despite involving significant risk. Meanwhile, real estate investors were earning far more.
Why not combine the two, he wondered?
Thanks to its unique offering, Fund That Flip has done well among venture capital firms, securing nearly $15 million across various financing rounds.
Is Fund That Flip Legit?
Yes, Fund That Flip is absolutely a legitimate platform.
It crowdfunds under Rule 506(C), which is why only accredited investors can provide funds. The company continually checks the accredited status of all investors, in addition to verifying their identity initially.
On the other side of the fence, Fund The Flip also takes extra care about which borrowers it approves, claiming fewer than 8% of applicants are successful. To receive a loan, developers must demonstrate their experience (four other projects completed over the last year) and put down up to 20% of their own funds as equity.
Plus, the platform has a good track record. It’s been around for the best part of a decade and has funded more than 1,400 loans successfully, worth more than $400 million in total.
Thanks to the platform’s transparency, you can even browse prior projects to see the returns other investors have been able to generate. In fact, it was one of the first platforms of its kind to publish the past performance of all projects so transparently. Impressed yet?
Minx Tip: Check the monthly performance reports on the FundThatFlip blog to make sure you understand the risk you’re taking on at any given point.
How Does Fund That Flip Work?
As we’ve said already, Fund That Flip focuses solely on real estate investments for residential projects. However, you’ll have three options for how you invest: the Borrower Dependent Note, the Bridge Note Fund, or the Pre-Funding Note Fund.
The Borrower Dependent Note is an investment in a single project, and the returns you’ll receive depends on that project’s performance.
In contrast, the Bridge Note Fund is a more diversified option with a fixed maturity date and return (although they’re still subject to change). The Pre-Funding Note Fund is similar, but you’ll be investing in the same fund using a short-term line of credit, resulting in a shorter term.
What To Expect
Across all the invest types, loan terms vary between six and eighteen months. These can be even shorter in reality since they’re prefunded by Fund That Flip, meaning many projects end up starting before they’ve achieved their full funding target.
The loan to value amount is typically lower than other platforms, with all projects below 65%. This minimizes risk by ensuring that, if there’s a problem with the project (or, worst-case scenario, a foreclosure), there will be reserves in place to fund it.
As for the returns, you can expect somewhere between 10% and 12% (with most projects falling on the higher end), which is paid in monthly installments. Borrowers may repay early, which impacts your returns, but they have to commit to at least three months of interest.
The investment volume on Fund That Flip is lower than other platforms, which can increase risk — with fewer investors, there are fewer people for you to share your risk with. However, considering the loans are prefunded, this isn’t a huge problem.
What Happens if the Borrower Defaults?
If the borrower stops paying, Fund That Flip’s first course of action is to strike up a negotiation. Then, if that doesn’t work, it will start the foreclosure process. This can take either a few months or years (depending on the state and whether it’s judicial).
To keep the chance of facing complications low, avoid investment opportunities in judicial states, where it’s more expensive and lengthy to get your investment back if something goes wrong.
Even if the project you invest in enters foreclosure, you won’t lose all your money — but you will stop receiving your interest, and you won’t be able to get your principal back until the process is finished. You may also have to cover fees associated with the process.
On the bright side, you can profit from this unfortunate occurrence if the penalty fees are substantial enough for Fund That Flip to profit from overseeing the rehab and selling the property itself.
Fortunately, the default rate is low thanks to Fund That Flip’s careful vetting process. Only 1.8% of projects result in foreclosure, and only 2.39% become overdue.
Minx Tip: Check whether a project is in a judicial or nonjudicial state before you invest, and avoid judicial states where possible.
Pricing and Fees
There are no explicit fees on the platform. Instead, Fund That Flip makes money by the spread it charges between what investors earn and what borrowers pay — there’s a difference of around 1.5% to 3.5%.
However, if the borrower defaults, the money will be deducted from your principal and interest, potentially costing you money. There are also some legal and appraisal fees along the process, but they don’t add up to much.
Using the Platform
As soon as you sign up to Fund That Flip, you’ll be able to browse the projects currently open for investment, in addition to the fully funded and repaid projects.
You’ll be able to see the following details about each available opportunity:
If you click on a project, you’ll also be able to find important details such as the track record of developers, property information, total budget, and projections.
However, to actually make an investment, you’ll need to verify your status as an accredited investor by providing the right documentation (bank statements, tax returns, etc.).
When you try to invest in a project, you’ll be met with the following screen:
Minx Tip: Make sure you have a recent letter from a registered financial professional or proof of your assets to prove your status as an accredited investor.
Getting Money Out
Withdrawing your money from Fund That Flip is simple. You’ll set your default payment on your account page, which can either be your bank account or your Fund That Flip wallet (allowing you to withdraw to your bank account at a time of your choosing).
You can connect an international bank account if necessary.
However, bear in mind that there’s no way to sell your investments prematurely — you’ll need to wait until the end of your loan term.
Customer Experience
If anything goes wrong along the way, rest assured that you’ll be able to contact Fund That Flip’s excellent customer service team for assistance. The platform issues regular status updates, values transparency, has senior members on hand to answer questions regularly, and the customer service team will go above and beyond to provide a smooth experience.
In fact, there have been past cases of Fund That Flip stepping in to provide the extra money needed when projects went wrong, ensuring investors didn’t lose their money.
The Verdict
First off, it’s worth highlighting that this type of investment isn’t exactly free of risks. The principal advantage of real estate investment is that properties have tangible value, but you won’t get the full benefit of this through a crowdlending platform like Fund That Flip. As you’ll be getting a fractional loan, you won’t be entitled to the property itself (just a share of the principal and interest).
Then there are the drawbacks of the platform itself. The choice of investments is rather limited — there are never many opportunities open at once, and they’re all residential rehab projects. Other platforms offer more breadth.
Another potential disadvantage is that the platform is only for accredited investors, but this is pretty standard for real estate crowdlending, so anyone that doesn’t fit the bill would be better off looking into alternatives.
Plus, the low investment volume means you could be taking on more risk, and the number of loans in judicial states is something to watch out for.
Does any of this mean you should avoid Fund That Flip? Absolutely not — on the contrary, it’s a fantastic investment opportunity for the right type of person.
The low loan to value ratios and extensive vetting process will keep your investment relatively safe, while the transparency over past returns on projects ensures you’ll always know what you’re signing up for.
Meanwhile, the top-tier customer service means help will always be on hand — and you know there’ll be someone fighting your corner to ensure you can recuperate as much of your investment as possible if anything goes wrong. The low minimum investment of $5,000 and relatively high expected returns are pretty attractive too.
Plus, there’s a great user experience in general for browsing projects and signing up.
Before You Fund That Flip…
If you’re bullish on real estate but would welcome the prospect of earning passively, Fund That Flip could be a fantastic choice. It stands out compared among its competitors thanks to low LTVs, high returns, and commitment to transparency, among other factors.
But it’s not without its flaws (as with all investment opportunities), so make sure you understand how the process works beforehand. Fortunately, given the low minimum investment, you can get to grips with the platform before you commit to much.
Whether you decide to embrace or avoid Fund That Flip, as a lover of alternative investments, you’re probably all too aware of the difficulty of tracking your diversified portfolio. At Money Minx, our net worth tracker will do the work for you — and you can get started for free.
Or, if you just want to discuss possible opportunities with likeminded people, why not check out the Money Minx community? You don’t even need to be a subscriber to join.
