No More Keeping Up with the Joneses

Back in the early 2000s, a former insurance executive was just cutting his teeth in house flipping and real estate investing, which had been his dream since high school. He was searching for deals on the real estate market and looking for ways to finance them.

He met “Manny,” a private lender. After a few weeks, Manny was convinced the young flipper’s goals were legitimate and lucrative and agreed to provide the financing to acquire and rehab the aged house.

The young flipper rejoiced. Until he saw the interest rate, which was unsustainable and cutting into his profits to purchase his next deal. He also encountered unforeseen issues with the rehab, which required more money for the repairs. Manny’s money was tied up elsewhere for the time being, so the young flipper had to find another source of financing.

And then the young flipper realized it would be very difficult to scale and turn this into a full-time business with these interest rates, long wait times for funding commitments, and without knowing whether the money would always be there.

This is, of course, somewhat the story of Matt Rodak, founder and CEO of Fund That Flip. A few liberties were taken and names were changed to protect good-hearted private money lenders, but the story is the same: Private lending is not always the best way—or only way—to create wealth for real estate developers or investors.

Fund That Flip is the nation’s leading lender of residential rehab loans—and the fastest-growing real estate fintech marketplace. Our platform and team provide funding solutions for real estate entrepreneurs for rehab, new construction, and rental investment projects. Investors have historically earned more than 10% annual returns by passively investing in fractional shares of those loans. Through a people-first approach and proprietary tech, our mission is to help real estate entrepreneurs scale their businesses, create wealth, and transform their communities through real estate.

Real Estate Lenders & Investors

Who are you, Private Money Lenders?

Doctors, lawyers, business owners, tech-creators, C-suite execs, and entrepreneurs? In other words, you have other things going on in your life. In addition to your careers, you have families, hobbies, bills, vacations, and pets.

For many years, real estate investing was limited by “who you knew”—and in your case, it still is. You could be missing out on the most lucrative investment opportunity of your life, but you don’t know the team that’s redeveloping the purpose-built multifamily community 15 minutes away, so you’re missing out.

If you still want to do some private lending, there’s always an opportunity. Builders and redevelopers still need private money because most crowdfunded lenders only finance a portion of the loan—assume 90%—so the borrower has some skin in the game. To completely finance their deal, they often turn to private money lenders, giving you another opportunity for great returns with perhaps a little less risk.

Simplify Your Investments

Lending on a crowdfunded investing platform versus with a group of colleagues can make it much simpler to find deals to passively earn income.

Investment platforms give you the opportunity to put your private money toward fractional shares of loans for residential rehabs and new construction—virtually the same as you were doing before. However, now you can do it from your laptop or phone while sitting on your couch. You also have greater access to investment opportunities throughout the U.S., and you can sometimes choose to invest with a specific developing team, or in a certain state or community.

Get to Know Your Investment

Platform and Borrowers

Obviously, there’s risk involved with any investment. Any time you’re investing, you should do your research, as well as talk to a financial adviser. But when you invest on many peer-to-peer real estate investment platforms, real estate analysts and underwriters are also researching every borrower and diligencing every deal before anyone can invest in it. For platforms like Fund That Flip, each deal is completely pre-funded.

The area where you’ll want to do a little research is the operations and policies of the investment platform:

• How do they decide which deals to finance?
• How much visibility do you have into the borrowers’ history and experience before investing?
• How often do you get updates on the status of the loan?
• Does the platform allow auto-investments?
• What is the minimum investment?

Depending on your investment strategy and goals, there are other questions you probably have. Sites such as therealestatecrowdfundingreview.com are non-affiliate sites that do in-depth research on investing platforms to help you decide where to invest.

Don’t Chase Your Principal

As an investor, you probably love to chase returns and a deal, but you don’t want to chase your principal.

When it’s just your money in the deal, what do you do when a borrower falls behind in payments? Or abandons a project?

If you’re a lender on a real estate investment platform, you rely on their team to handle it. Many investment platforms have teams who work diligently to resolve issues of loan extensions, late payments, and defaults to get investors their money while providing status reports of what’s going on and discussions taking place.

Builders, Redevelopers, and House Flippers

Crowdfunded real estate investing sites like Fund That Flip launched so builders and redevelopers could stop looking high and low for funding with banks, rich uncles, friends, and their own bank accounts—and get the majority of their financing from one reliable place. These various real estate investing platforms offer a multitude of benefits such as sustainable or low rates, 24/7 support, support for exiting a loan, refinancing, easy technology, etc.

One caveat: Many crowdfunded real estate investment platforms only finance a portion of a loan, assume about 90%. This is so you, the builder, have some “skin in the game.” But it also means you need to come up with the additional 10% to completely fund your deal. While this 10% typically comes directly from you, the borrower, some developers parlay their private money relationships into a form of equity on their projects to achieve maximum scale. The point is you don’t just want, but need, a diverse capital stack to scale your business.

When you’re relying on a direct lender for the majority of your funding, it gives you more opportunities to make decisions about what is most important to you and your business goals.

Charlotte, North Carolina, rehabbed home financed by Fund That Flip

Flexibility in Funding

You might be thinking that working with a corporation for funding is going to mean really strict terms and no flexibility. Not so. While we can’t speak for every lender—some of them might have strict terms—many direct lenders offer real estate entrepreneurs flexibility in their loan structure. True, there may be more paperwork involved than dealing with a private money lender, but you also get more support and consistency.

Slow Lenders Kill Good Deals

Banks can take 45 to 60 days to close a deal. If your rich uncle is on vacation, he might not get back to you for a week.

Good online direct lenders understand how important speed is to your livelihood and your business.

When you apply for funding, don’t let them ask all the questions. Here are some you should be asking:

• How quickly can you commit to funding?
• How much financing am I preapproved for?
• How quickly can you close?
• What are your requirements for me as a borrower?
• What are your underwriting requirements?

And if a lender doesn’t get back to you quickly after you apply for funding, move on. If they’re slow to even find out what you need, they’re probably not going to get any faster during the life of the loan.

People-First Lending

The next time you’re looking for funding, ask yourself:

• When was the last time your lender visited your job site?
• Does your current lender (or rich uncle) know your business goals?
• Can you easily get in touch with your lender via email, text, or a call?
• How quickly does your lender get back to you?
• Does your lender explain the benefits of various exit strategies or establishing an LLC for your business?

If you answered “no” to any of these, then you’re not working with a lender that puts your business first.

Fund That Flip is proud to sponsor NHRA drag-racing team MBR.

Your business is just as important as the lender’s business. We’re all here to make money, but it can’t be at the expense of each other. Builders and redevelopers practically expect to receive less-than-average service from their lenders, but there are many lending platforms looking to change that. Find one that’s interested in helping your business grow, not just make money from your efforts.