As every investor knows, diversification is the name of the game when it comes to structuring their portfolios. By spreading risk throughout various investments and asset classes, any downturn in a particular stock, bond, or investment is mitigated by the level of diversification achieved. Fund That Flip believes that real estate investments hold a spot in every portfolio, offering strong returns, balanced against well-underwritten risk. Below, we will dive a little bit deeper into the virtues of real estate as an asset class that every investor should consider exploring.
A primary reason that Fund That Flip is bullish on this asset class are the potential returns that are available to investors. Through investing directly into projects offered on our platform, investors can earn up to 12% annualized returns, as well as share in the upside from fees collected throughout the life of the loan. Our newly released RBNF product allows investors access to a diversified pool of real estate loans, offering up to 11% annualized returns. In contrast, the S&P 500 has returned an annualized CAGR of ~9% over the past 30 years.
In addition to offering returns that are competitive to major equity indices, real estate investing also gives several unique risk mitigants not available in other asset classes. First, when investing in real estate with Fund That Flip, not only are you making an investment into an asset class backed by real collateral, but you are also making an investment with an experienced real estate developer who is an expert within their current market place.
Before Fund That Flip provides funding for any real estate project, there is a rigorous underwrite of both the property, as well as the developer completing the project. Every developer that Fund That Flip works with is required to have completed at least two to three projects of similar type in the past 24 months. Fund That Flip ensures that the developer has demonstrated strong financial behavior in the recent past. These checks are completed through Fund That Flip’s credit score verifications, as well as minimum liquidity requirements. These factors help Fund That Flip ensure that the developer has both the building experience, as well as the proper financial resources needed to complete the project.
When reviewing the merits of just the project, the most important factor that Fund That Flip considers is the leverage provided to the borrower. Taking the above metrics into play, we determine what LTC (Loan to Cost) and LTARV (Loan to After Repair Value) we can extend to the developer. By underwriting to slightly lower leverage metrics, we can compensate for any risks that we may have identified, keeping the overall risk-return profile competitive.
Another unique risk mitigating factor to consider when investing in real estate with Fund That Flip are the multiple paths of recourse that can be taken to preserve investor principal in the event a project goes south. First, it is important to note that every loan originated by Fund That Flip is backed by a first-lien position against the collateral. If a project were to go south, the secured first-lien position puts Fund That Flip and its investors in a position to be the first beneficiary of any liquidation events. Recourse actions that can take place include deed in lieu of foreclosure, foreclosure, and short sale. Although each action may have a different outcome, each helps ensure that projects in default are brought to liquidity in a timely manner, while preserving as much of investor principal as possible.
Investing in real estate presents an intriguing option for those aiming to generate passive returns while diversifying their portfolio. With investment offerings ranging in duration from 6-12 months, investing with Fund That Flip can be a great way to get your real estate portfolio started.
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Looking for an alternative to stocks? Real estate investors can earn up to 12% annual returns on pre-vetted, low LTV, real estate-secured loans. Fund That Flip offers industry-leading visibility into each project, enabling investors to be highly selective in the loans they choose to fund. Click below to make an investment today!
