12 Questions to Discover Fund That Flip
Fund That Flip has made waves in improving the real estate loan model for house-flippers. Read our full interview with Fund That Flip’s CEO, Matt Rodak.
LendingRobot: How would you describe Fund That Flip in one sentence?
Matt Rodak: Fund That Flip allows investors to build a diversified portfolio of short-term real estate loans that offer double digit returns, monthly income and minimum investments of \$5,000.
LendingRobot: Where did the idea come from?
Matt Rodak: Back in 2012 I was borrowing money to fix-and-flip residential real estate and paying upwards of 18% annual interest. At the same time I was investing on Peer-to-Peer platforms such as Lending Club and Prosper and earning a 10-11% return.
I remember thinking, “why am I paying more for a secured first-position loan than I’m earning on an unsecured consumer loan? This makes no sense. This market isn’t operating efficiently.”
From there, I set out on a mission to create a platform that provided better service for experienced real estate developers who need capital to improve homes while also creating a new way for investors to access this desirable asset class and earn a fair risk-adjusted return.
LendingRobot: What makes you unique from others in your space?
Matt Rodak: More than \$14B will be lent to fix-and-flippers in 2017. The majority of these loans will be originated by a very fragmented cohort of local mom-and-pop lenders. The largest originator has less than 5% of the overall market share. What this means for borrowers is that their local lender likely doesn’t offer an online experience that you’d expect to get in 2017. We’re changing that by providing a better experience built on first-class technology.
From an Investor’s perspective, this means that unless you know one of these originators and are willing to invest \$50k or more per project, this asset class isn’t even an option for you. We’re changing this by allowing investors to invest as little as $5,000 per project while getting access to a diverse set of projects across the country. Investors are able to review, invest and manage their portfolio online, similar to how they manage a stock portfolio.
We’re not alone in our endeavor to bring real estate investing online. The industry has been dubbed Real Estate Crowdfunding and there are several platforms like ours. Where we’re different from the rest of the industry is our 100% focus on the short-term residential debt market. Our team has deep experience in this space as both operators and lenders. We were proud to be 1 of 6 finalists this year at Lendit for Emerging Real Estate platforms, an affirmation to our unique approach to this market.
LendingRobot: Who is your typical investor?
Matt Rodak: We have doctors, lawyers, entrepreneurs, business executives, retirees, and just about every other occupation you can think of. I’d say the common theme among our investors is that they realize the importance of investing in real estate and also allocating to an asset class that is less correlated to the stock market.
LendingRobot: How do your investors choose their investing strategy?
Matt Rodak: We have two types of investors. The first is the type that has become comfortable with our underwriting and invests \$5,000-\$10,000 in nearly every investment. This maximizes their diversification and builds in some liquidity each month as investments repay.
The other type has certain criteria they look for. It may be a combination of market, loan to value, borrower experience, credit and a number of other factors they consider important. They tend to do a higher degree of their own diligence on each project and when they find one they like, they invest a larger amount (i.e. $50-$100k). While they have less diversification, they believe the extra work they do will offer better performance.
The great thing about our platform is that it caters to either strategy. Investing smaller amounts is manageable and the investment process is rather streamlined. At the same time, we provide a plethora of detail about each project for the investor that likes to dig deeper.
LendingRobot: How does your investment fit into an investor’s portfolio?
Matt Rodak: Documented best-practices around asset allocation say that an investor should have between 5-20% of their portfolio in real estate. There are different ways to invest in real estate such as a personal residence, REITs, investment properties, and now Real Estate Crowdfunding. RECF has a lot of advantages in the sense that: a.) it’s rather passive (i.e. if a pipe breaks in a property, you won’t get a call at 3 in the morning); b.)You can diversify across many projects unlike direct property ownership and c.) It’s far less correlated to the stock market than a publicly traded REIT.
LendingRobot: What is a typical loan like on Fund That Flip?
Matt Rodak: The average loan on our site is \$260,000. Average return to investors over the last 3 months is 10.5% and the majority of loans payoff within 7-8 months. All of our borrowers are experienced real estate developers that in most cases are rehabbing homes full-time.
LendingRobot: Could you describe your risk assessment and credit model?
Matt Rodak: We only fund 4-6% of loans submitted on our platform. The borrower has to have completed 3 projects prior to us considering them for a loan. While we require the borrower to have experience and we review credit and background, the rest of our underwriting revolves around the fundamentals of the property.
We analyze the value of the property in its current condition. We review the borrower’s scope of work as it relates to the improvements to be made. And finally, we analyze what we believe the house will be worth once complete. Our proprietary underwriting model scores dozens of property and market attributes to determine max loan amounts and pricing.
In all cases, the borrower is required to contribute at least 20% equity to the project. This ensures our investors have downside protection while also aligns the borrower towards completing the project and paying back the principal.
LendingRobot: What are three milestone numbers for Fund That Flip?
Matt Rodak: In the next three years we expect to be originating in excess of \$1B of loans each year. While doing so, our goal is to maintain a 0% loss rate for our investors. Together, with the help of our borrowers and investors, we plan to restore 4,000 homes per year, revitalizing neighborhoods and creating value for all involved.
LendingRobot: What are the goals you can share for the next year?
Matt Rodak: I made a bet with my sales team that if we exceeded our numbers by 15%, I’d get a Fund That Flip tattoo on my rear end. I’m hopeful I’ll be ringing in the New Year at a tattoo parlor.
LendingRobot: What is your greatest challenge?
Matt Rodak: We operate a two-sided marketplace. Maintaining balance on both sides is challenging as we continue to grow. Some weeks we have more investment capital than we have projects that meet our standards. Other months we have more high-quality projects than we do capital.
LendingRobot: If you had one wish for your niche in the alternative lending space, what would it be?
Matt Rodak: Our market is starting to get competitive around winning the business of borrowers. My hope is that the industry remains disciplined around underwriting and due diligence. While we’ve all benefited from the collective success of this burgeoning industry, a single bad actor could set back years of progress. Therefore, I wish for nothing but success for all of the other RECF platforms.
Many thanks to Matt Rodak, CEO of Fund That Flip, for taking the time for this interview. We hope you enjoyed learning more about Fund That Flip!
- Vanessa Hoying
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