No matter how fun and easy it may seem on HGTV, flipping a house is not for the faint of heart.
One startup wants to simplify that process by offering another way to borrow money to fund those purchases. Founded in late 2020, Backflip offers a service to help real estate investors secure short-term loans. In addition to helping users secure financing, Backflip's technology also helps investors find, track, compare and evaluate potential investments. Think of it as a mix of Zillow and Shopify.
Backflip originates loans through its subsidiary, Double Backflip, LLC. Interestingly, the company's processing team includes former employees of Better.com, a digital mortgage lender that was highly praised for its technology despite experiencing ups and downs, mostly related to management and market conditions.
“We help investors find properties, organize their pipeline, analyze deals they might want to invest in, and hopefully make better buying decisions with less risk,” CEO and co-founder Josh Ernst told TechCrunch in an interview.
Backflip launched a stealth private beta in 2021, running through the first half of 2022. “It was hard to get into the market at a time when interest rates were just starting to spike,” said Ernst, a former investment banker and venture capitalist (his investments include Polychain Capital). But the company grew revenue nearly fivefold in 2023, hitting $10 million in annual revenue. The company also claims to be “nearly profitable.”
And today the company exclusively told TechCrunch that it has raised $15 million in a Series A funding round led by FirstMark Capital, early investor in Airbnb, Shopify, and Pinterest, among others.
Existing backers Vertical Venture Partners, LiveOak Venture Partners, Revel Partners, ECMC and real estate firm Crow Holdings also participated in the round, along with angel investors. In total, Backflip has raised $28 million in equity and $67 million in debt funding.
As for how many transactions have taken place on Backflip's platform so far, Ernst said that users analyze an average of $5 billion worth of properties on the platform each month, and the startup has funded more than 900 homes since launching in mid-2022. Users realize an average gross profit of $82,000 per property on the platform and typically pay off their loans in six months.
Most Backflip loans are for 12 months (known as bridge loans), but Ernst said they are offered at interest rates 2% to 4% higher than a typical mortgage.
Investors can either sell the property to pay off Backflip or refinance to get a longer-term loan through a different lender.
“Our rates are higher than retail banks, so our clients end up lending us more than they would with a bank,” Ernst says, “but what we do is provide them with capital, we underwrite their assets, we underwrite their business plans and we underwrite their people.”
He said the traditional (and cheaper) loan process is time-consuming, and with Backflip, customers don't need a W-2 to qualify for a loan. Plus, the company offers a bundled renovation and construction loan, making it easier and faster for investors to get all of these transactions done quickly.
“We take on not only W-2 income but also business plans, assets and personnel. We also provide financing for home renovations and credit the assessed value after the repairs are made,” Ernst said.
The company does not currently charge subscription fees. The company's business model is to act as a marketplace for financial products. The company generates revenue through a take rate on loans in its loan origination business, which it operates in partnership with capital providers.
“We're helping underwrite the property, but at the same time, we have more and more data that we can use to make quick and accurate underwriting decisions on the specific loan products that our members use to buy and renovate their properties,” Ernst said.
This means that investors will receive their funds from Backflip, which originates the loans and then sells those loans.
Adam Nelson, managing director at Firstmark, told TechCrunch that the opportunity for resale 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 old and “not up to the standards of new homeowners or institutional single-family homebuyers,” Nelson said.
“Fix it and flip entrepreneurs provide a vital service by renovating existing housing stock to spec, and they do so with their own capital and labor in both strong and weak housing markets,” he said.
Nelson was impressed with the company's ability to grow nearly five-fold year over year through efficient management.
“We see Backflip as a system that will drive a $100 billion+ annual transaction market, adding value, generating revenue for various segments of the fix-and-flip trade, and potentially ultimately institutionalizing the asset class,” Nelson added.
The startup currently has 47 employees and is headquartered in Dallas and Denver.
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