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

House flipping is not for the faint of heart, regardless of how fun and easy it could seem on HGTV.

One startup wants to simplify the process by offering one other way to borrow money to finance such a purchase. Founded in late 2020, Backflip offers real estate investors a service of securing short-term loans. In addition to helping users secure financing, Backflip’s technology also helps investors source, track, calculate and evaluate potential investments. Think of it as a cross between Zillow and Shopify.

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

“We help investors source and advise on properties, analyze deals they may want to invest in, and hopefully make less risk and better purchasing decisions.” CEO and co-founder Josh Ernst he told TechCrunch in an interview.

Backflip launched a private stealth beta in 2021 that ran through the first half of 2022. Entering the market at a time when rates of interest were starting to skyrocket was a challenge, said Ernst, a former investment banker and enterprise capitalist (he backed m including Polychain Capital). However, the company managed to increase its revenue almost fivefold in 2023 and achieve annual revenue of $10 million. It also claims to be “almost profitable.”

Today, the company proclaims that it has raised $15 million in a Series A funding round led by FirstMark Capital, a firm that has made early investments in firms like Airbnb, Shopify and Pinterest, TechCrunch reported exclusively.

Existing backers Vertical Venture Partners, LiveOak Venture Partners, Revel Partners, ECMC and real estate firm Crow Holdings, in addition to angel investors also participated in the round. Overall, Backflip raised $28 million in equity and $67 million in debt financing.

To provide context on how many transactions have been conducted on the Backflip platform so far, Ernst said that users are analyzing an average of $5 billion in real estate per 30 days on the platform, and that as of mid-2022, the startup has financed greater than 900 home starts. Users have made an average gross profit per property on the platform of $82,000 and typically repay their loans inside six months.

According to Ernst, most Backflip loans are for 12 months (called a bridge loan), but they arrive at an rate of interest that is 2% to 4% higher than a typical home loan.

Investors can either sell the property and repay the backflip, or refinance and take out a long-term loan through one other lender.

“Our interest rates are higher than a retail bank, so our customer pays more for our loans than the bank,” Ernst said. “But what we do is give them money, insure the assets, underwrite the business plan and insure the person.”

The conventional (and cheaper) lending process, he says, is slower. With Backflip, customers do not need a W-2 to qualify for a loan. In addition, the company combines renovation and construction loans, thanks to which the investor can perform all these transactions easier and faster.

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

Currently, the company does not charge subscription fees. Its business model is intended to function a marketplace for financial products. It earns interest on loans from its lending business, which it operates through partnerships with capital providers.

“We help insure real estate, and we are receiving more and more data all the time, which can then be used to make a quick and accurate decision to insure the specific lending product that our members use to purchase and renovate a property,” Ernst said.

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

Adam Nelson, managing director at FirstMark, told TechCrunch that the opportunities for flipping are huge. According to them, in the US, over 50% of homes are over 40 years old Research 2023 from the National Association of Home Builders and “no to the standards of recent home owners and institutional buyers of single-family houses,” he said.

“Fix-and-flip entrepreneurs provide an important service by bringing existing housing stock up to specifications and putting their own equity and capital at risk to do so in both bull and bear housing markets,” he said.

Nelson was impressed by the company’s ability to grow nearly fivefold year-over-year “with an effective burn rate of <1x," he added.

“We see Backflip as the operating system for a $100+ billion-a-year trading market, with the potential to add value and monetize many different parts of fix and flip trading and ultimately institutionalize the asset class,” Nelson added.

The startup currently employs 47 people and is headquartered in Dallas and Denver.