Despite how simple and entertaining HGTV may make it seem, flipping houses is not for the weak of heart.
One startup aims to simplify the procedure by providing an alternative method of borrowing funds to finance the purchase. Backflip is a late-2020 startup that provides short-term loan financing to real estate investors. In addition to assisting users with funding, Backflip’s technology assists investors with locating, monitoring, analyzing, and assessing possible investments. Imagine it as a hybrid of Shopify and Zillow.
Via Double Backflip, LLC, a subsidiary, Backflip originates loans. Fascinatingly, the processing team includes ex-workers from Better.com, a digital mortgage lender that saw ups and downs primarily due to management and market conditions but was praised for its technological prowess.
CEO and co-founder Josh Ernst said in an interview with TechCrunch, “We help investors source properties and curate their pipeline, analyze the deals that they might want to invest in, and hopefully make lower risk, better buying decisions.”
In 2021, Backflip began a covert private beta program, which continued through the first half of 2022. It was difficult to enter the market at a time when interest rates were rising, according to Ernst, a former venture capitalist and investment banker who has backed companies like Polychain Capital. Nevertheless, in 2023, the business increased its sales by almost five times to reach an annualized revenue of $10 million. It further states that it is “near profitability.”
Additionally, the company exclusively revealed to TechCrunch that it has raised $15 million in a Series A funding round headed by FirstMark Capital, a company that made early investments in companies like Shopify, Airbnb, and Pinterest.
Ernst stated that users examine $5 billion worth of properties on the Backflip platform on average each month and that the startup has funded over 900 homes since its mid-2022 launch to provide some perspective on the volume of business that has been done on the platform thus far. On the platform, users have made an average gross profit of $82,000 per property and usually return their loans in six months.
According to Ernst, the majority of Backflip’s loans are for 12 months (referred to as bridge loans), and they are offered at interest rates that are 2% to 4% higher than those of a normal residential loan.
Investors have two options: they can refinance into a longer-term loan from a different lender, or they can sell the property and repay Backflip.
Ernst stated, “Our customer pays more for our loans than a bank because our interest rates are higher than those of a retail bank.” However, what we’re actually doing is lending them money while also underwriting the person, the asset, and the business plan.
He claimed that the traditional loan application process is slower and less expensive. Additionally, Backflip users can apply for loans without requiring a W-2. Additionally, the business combines the construction and rehab loans into one package to make it simpler and quicker for investors to complete all of these transactions.
“We insure not only W-2 income but also business plans, assets, and personnel. Ernst added, “We also give credit for post-repair valuation and provide capital for home renovation.”
Subscription fees are not currently collected by the company. Its business plan is to act as a financial products marketplace. It operates the lending origination business in conjunction with capital providers, earning revenue from the take rate on the loans.
Ernst stated, “We’re assisting with the underwriting of the properties and, concurrently, we’re receiving an increasing amount of data that can be utilized to make an efficient and precise underwriting decision on a particular loan product, which our members use to purchase and renovate the property.”
Therefore, Backflip, which originates the loans and subsequently sells them, gives the investors the money.
FirstMark’s managing director, Adam Nelson, told TechCrunch that flipping presents a huge opportunity. According to 2023 research from the National Association of Home Builders, more than 50% of homes in the United States are over 40 years old. These homes are “not up to the standard of new homeowners and institutional single-family residential buyers,” he said.
He stated, “The business owners in the ‘fix and flip’ sector offer a crucial service in bringing the current housing stock up to code and risk their own money and sweat equity to do it in both bull and bear housing markets.”
The company’s nearly five-fold annual growth “with an efficient <1x burn multiple” has impressed Nelson, he continued.
“With the ability to create value, monetize various aspects of the fix and flip transaction, and eventually institutionalize the asset class, we see Backflip as the operating system for this $100 billion+ annual transaction market,” Nelson continued.
The startup currently employs 47 people, and its headquarters are located in Denver and Dallas.
In addition to angel investors, the round included current backers Vertical Venture Partners, LiveOak Venture Partners, Revel Partners, ECMC, and the real estate firm Crow Holdings. Backflip has collected $67 million in debt financing in addition to $28 million in equity.
