No matter how fun and easy it looks on HGTV, flipping houses is not for the faint of heart.
One startup wants to reduce the complexity of the process by offering another way to borrow money to finance such purchases. Founded in late 2020, Backflip provides services to real estate investors to secure short-term loans. Backflip's technology not only helps users raise funds, but also helps investors source, track, aggregate, and evaluate potential investments. Think of it as a combination of Zillow and Shopify.
Backflip provides financing through its subsidiary Double Backflip, LLC. Interestingly, the company's processing team also includes former employees of Better.com, a digital mortgage lender whose stock price ups and downs were primarily related to management and market conditions. However, the technology was highly praised.
“We help investors source real estate, curate their pipeline, analyze the deals they want to invest in, and hopefully reduce risk and make better purchasing decisions,” said Josh, CEO and co-founder. Ernst said in an interview with TechCrunch.
Backflip launched a stealth private beta in 2021 that ran through early 2022. Ernst, a former investment banker and venture capitalist, says it was difficult to break into the market when interest rates started skyrocketing (he runs Polychain Capital). Still, the company managed to grow its revenue nearly five times his in 2023, reaching $10 million in annual revenue. The company also claims to be “almost profitable.”
And today, the company announced it has raised $15 million in a Series A funding round led by FirstMark Capital, an early investor in Airbnb, Shopify, Pinterest and more, it exclusively told TechCrunch.
Existing backers Vertical Venture Partners, LiveOak Venture Partners, Revel Partners, ECMC and real estate company Crow Holdings also participated in the round, as well as angel investors. In total, Backflip has raised $28 million in equity and $67 million in debt financing.
To provide some context on how much business has been done on the Backflip platform to date, Ernst said that users analyze an average of $5 billion in real estate on the platform each month, and that the startup expects to grow by 2022. It said it has financed more than 900 homes since mid-2011. launch. A user realizes an average gross profit of $82,000 per property on the platform, and he typically pays off his loan in six months.
Most Backflip loans are for 12 months (called bridge loans) but come at interest rates 2 to 4 percent higher than typical mortgages, Ernst said.
Investors can either sell the property to pay off the backflip or refinance and move to a long-term loan through another lender.
“Our interest rates are higher than retail banks, so our customers pay more on their loans than they would at a bank,” Ernst said. “But what we do is we give them money, we take on assets, we take on business plans, we take on individuals.”
He says the traditional (and cheaper) lending process is time-consuming. Also, with Backflip, a customer does not need his W-2 to receive a loan. Additionally, the company bundles rehabilitation and construction loans, making all these transactions easier and faster for investors.
“We take on not only the W-2 income, but also the business plan, assets and personnel…and provide capital for home renovations and credit the appraised value after repairs,” Ernst said.
The company currently does not charge a subscription fee. Its business model is to act as a marketplace for financial products. The company generates profits by earning interest on loans through its loan origination business, which it operates in partnership with capital providers.
“As we support real estate underwriting, our members are gaining access to more and more data that can be used to quickly and accurately make underwriting decisions for specific loan products. buy real estate and renovate the property,” Ernst said.
Therefore, the investor receives funds from the backflip. Backflip originates the loan and then sells the loan.
Adam Nelson, managing director at FirstMark, told TechCrunch that the opportunity for a reversal is huge. According to a 2023 study by the National Association of Home Builders, more than 50% of homes in the U.S. are older than 40 years and “fall short of standards for new homeowners and institutionally designated single-family home buyers.” he said.
“Entrepreneurs in the 'fix-and-flip' industry provide a critical service by adapting existing housing stock to specifications and risking equity and capital to do so in both bullish and bearish housing markets. “We are doing so,” he said.
Nelson added that he is impressed with the company's ability to grow nearly 5x year-over-year “with an efficient burn multiple of less than 1x.”
“We see Backflip as the operating system for this $100 billion-plus annual trading market, adding value and monetizing multiple different parts of fix-and-flip transactions and ultimately expanding the It has the potential to be institutionalized,” Nelson added.
The startup currently has 47 employees and headquarters in Dallas and Denver.
Want more fintech news in your inbox? Sign up for TechCrunch Fintech here.
Want to provide a tip? Email maryann@techcrunch.com or text Signal 408.204.3036. You can also send a note to all TechCrunch staff to tips@techcrunch.com. For more secure communications, click here to contact us. This includes links to SecureDrop (instructions here) and encrypted messaging apps.