F2 Finance is hoping to grab a share of the “fragmented” fix-and-resale market at a time when a shortage of housing inventory has severely limited transactions.
“There are roughly 8,500 remodel-and-resale mortgage lenders in the U.S., which shows how dispersed lenders are,” Christian Feis, founder of F2Finance, said in an interview with Housingwire. The U.S. remodel-and-resale short-term real estate market is estimated to be worth $68 billion a year, according to F2Finance.
“This opportunity is interesting in that there is a housing shortage, so fix-and-resale financing directly helps with the supply and demand issue in terms of creating new housing stock or upgrading otherwise aging housing stock,” Faes said.
F2Finance, which launched in April, is the first venture introduced by Faiz & Co, the fintech investment firm founded by Faiz in 2023. Faiz & Co is also involved in building a short-term mortgage lender in Ireland.
Faes's background in mortgage lending dates back to 2008, when he co-founded non-bank mortgage lender LendInvest, which listed on the London Stock Exchange in 2021. Faes said LendInvest has more than $4.7 billion (£3.7 billion) of capital under management and is funded by a number of institutions, including JP Morgan, Citibank and Wells Fargo.
The Santa Monica, Calif.-based lender focuses on short-term lending — offering fix-and-flip loans and bridge loans — in markets that suffer from a shortage of existing homes for sale, including California, Texas and Florida.
More than 407,000 homes were resold in 2022, up 14% from 2021, but the typical return on investment (ROI) for fix-and-resale transactions in 2022 declined for the fifth time in the past six years, according to ATTOM.
Only well-capitalized lenders are expected to weather the headwinds as they will be able to gain market share as other smaller lenders in the industry retreat.
While interest rates on fix-and-flip and bridge loans are in line with others in these niche lending markets, at 9% to 12%, Faiz noted that what sets the company apart is the speed at which borrowers can get approved for their loans.
“From a borrower's perspective, they come to us [because] “We don't have to look at months of bank statements or verify the borrower's income. We can essentially lend against the assets and we can move very quickly,” Faes said.
F2Finance is funding its own loans and is “standing up significant capital to lend to this sector” with investors who previously backed the company's UK and Ireland businesses.
The firm plans to launch a credit fund in the coming months.
Fix-and-resale or bridge loans typically have loan terms as short as one month and as long as 12 months, and borrowers can refinance with F2 Finance without any penalties or fees.
“For example, if we see an opportunity where a property developer wants to buy a property this week, we can provide them with the cash to do so. And then next month, [if] “If you get a more conventional loan, you can refinance it without any penalty or cost. This is opportunistic capital for borrowers,” Faes said.
F2Finance declined to disclose the amount of the loan disbursement, citing the early stage of the project.
The company is focused on increasing its staff from the current five to 10 by the end of 2023, expanding into other markets including Georgia, Virginia and Maryland, and working with referral partners to scale up production.
“We started with just a few referrals. The group we met in the marketplace brought us deal flow… It's a big market. It was just a matter of building our profile and we are seeing momentum for the brand growing,” Faes said.