Backflip raises $15 million to help real estate investors flip homes

Flipping houses is not for the faint of heart, no matter how fun or easy HGTV makes it seem.

One startup wants to make the process less complicated by offering another way to borrow money to finance such a purchase. Founded at the end of 2020, Backflip provides a service to real estate investors for securing short-term loans. In addition to helping users secure financing, Backflip's technology also helps investors find, track, curate and evaluate potential investments. Think of it as a cross between Zillow and Shopify.

Backflip provides loans through its subsidiary Double Backflip, LLC. Interestingly, the processing team includes former employees of Better.com, a digital mortgage lender that has had ups and downs, mainly related to its management and market conditions, but was praised for its technology.

“We help investors find properties and manage their pipeline, analyze the deals they might want to invest in and hopefully make better purchasing decisions with lower risk.” CEO and co-founder Josh Ernst told JS in an interview.

Backflip launched a stealth private beta in 2021 that ran until the first half of 2022. Entering the market at a time when interest rates were starting to rise was a challenge, said Ernst, a former investment banker and venture capitalist (his backers include Polychain capital). Still, the company managed to nearly quintuple its revenue by 2023, reaching annualized revenue of $10 million. It also claims to be “almost profitable.”

And today, the company is announcing that it has raised $15 million in a Series A funding round led by FirstMark Capital, a firm that made early investments in Airbnb, Shopify and Pinterest, among others, it told JS exclusively.

Existing backers Vertical Venture Partners, LiveOak Venture Partners, Revel Partners, ECMC and real estate firm Crow Holdings also participated in the round, as well as angel investors. Backflip raised in total $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 worth of properties on the platform every month and that the startup has financed more than 900 properties since mid-2022. launch. Users have made an average gross profit of $82,000 per home on the platform and typically pay back their loans within six months.

Most of Backflip's loans have a term of twelve months (a so-called bridging loan), but according to Ernst are provided at an interest rate that is 2% to 4% higher than that of a typical home loan.

Investors can sell the property and pay Backflip back, or refinance and take out a longer-term loan with another lender.

“Our interest rates are higher than those of a retail bank, so our customer pays more for our loans than a bank,” says Ernst. “But what we do is give them money, endorse the property, endorse the business plan and endorse the person.”

According to him, the conventional (and cheaper) loan process is slower. And with Backflip, customers don't need a W-2 to qualify for a loan. Furthermore, the company bundles the rehabilitation and construction loans so that it is easier and faster for an investor to quickly go through all these transactions.

“We underwrite business plans, assets and people, not just W-2 income… and we provide capital for home renovations and provide post-repair appraisal credit,” Ernst said.

The company currently does not charge any subscription fees. The business model is to serve as a marketplace for the financial products. It makes money through the take rate on loans in the lending sector, which it operates by partnering with capital providers.

“We help underwrite the properties and in the meantime we get more and more data that can then be used to make a quick and accurate underwriting decision for a specific loan product, which our members use to purchase the property and renovate the property ,” Ernst said.

So the investors get the money from Backflip, which makes the loans and then sells the loans.

Adam Nelson, director of FirstMark, told JS that the potential for flipping is huge. In the US, more than 50% of homes are older than 40 years 2023 study of the National Association of Home Builders and “not at the level of new homeowners and institutional buyers of single-family homes,” he said.

“The entrepreneurs in the 'fix and flip' industry provide an important service to bring existing housing stock up to par and risk their own capital and sweat equity to do this in both bull and bear housing markets,” said he.

Nelson is impressed with the company's ability to grow nearly five times year over year “at an efficient <1x burn multiple," he added.

“We view Backflip as the operating system for this $100+ billion annual transaction market, with the potential to add value and monetize multiple different parts of the fix and flip transaction and ultimately institutionalize the asset class,” Nelson added to it.

Currently, the startup has 47 employees with headquarters in Dallas and Denver.