We’ve recently adjusted the interest rate on multiple projects from 12% to 14%. Rather than sending you a “Good news, you can now earn a 14% interest rate” email, we thought it might be useful to provide an explanation as to why this is happening.
When we increase the interest rate on an investment, some investors jump to the conclusion that the project must be of lower quality or carry additional risk. While interest rate and risk are often correlated, I’d like to offer another explanation as to why interest rates on certain loans may now be higher.
This boils down to two important factors currently at play. The first is that given the current environment, the “supply” of capital and the “velocity” at which it is being deployed has slowed. The second factor is that because our minimum investment is $5,000, a larger loan requires more investors to fully fund an offering. When loans take longer to fully fund, we have less capital to deploy into new loan origination. To try and increase the velocity of capital on these larger loans, we have made a business decision to increase the interest rate.
Each project has its own unique risk and return profile and we encourage you to always weigh all factors such as LTV, LTC, geography, borrower experience, and credit when making an investment decision. While the interest rate of an investment may have historically proven to be a useful indicator of risk, we ask that you also consider that we are now in a unique time. A higher interest rate may be caused by an imbalance in capital velocity which we are trying to counterbalance with a higher rate.
I understand that the abruptness of the changes we have all experienced in the market due to COVID-19 have created quite a bit of noise and confusion. Making prudent investment decisions and optimizing for risk and return across your portfolio is as important as ever. We continue to be committed to providing high-quality investments with complete transparency to you, our investor partners.
As always, please contact us at investorrelations@fundthatflip.com with any questions and comments.
- Matt Rodak, CEO
*Note that if you’ve already invested in one of these projects, you’ll now benefit from this increased rate.
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