Backflip raises $15 million to help real estate investors flip houses

Flipping houses is not for the faint of heart, no matter how fun or easy HGTV may make it seem.

A startup wants to make the process less complicated by offering a different way to borrow money to finance such a purchase. Founded in late 2020, Reverse jump offers a service to real estate investors to secure short-term loans. In addition to helping users secure funding, Backflip’s technology also helps investors source, track, compare and evaluate potential investments. Think of it as a cross between Zillow and Shopify.

Backflip originates loans through its subsidiary, Double Backflip, LLC. Interestingly, among its editing team are former employees of Better.com, a digital mortgage lender that has had its share of ups and downs mostly related to management and market conditions, but was praised for its technology.

“We help investors source and curate properties, analyze the deals they might want to invest in, and hopefully make better, lower-risk buying decisions.” CEO and co-founder Josh Ernst he told TechCrunch in an interview.

Backflip launched a secret private beta in 2021 that ran into the first half of 2022. Entering the market at a time when interest rates were starting to rise was challenging, said Ernst, who is a former investment banker and entrepreneur (he backs the likes of Polychain Capital). However, the company managed to increase its revenue almost 5 times in 2023 and reach an annual revenue of 10 million dollars. It also claims to be “nearly profitable”.

And today, the company is announcing that it has raised $15 million in a Series A funding round led by FirstMark Capital, an early investor in companies like Airbnb, Shopify and Pinterest, he told TechCrunch exclusively.

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

To give some context on how much business has been conducted on the Backflip platform so far, Ernst said that users analyze an average of $5 billion in real estate each month on the platform, and that the startup has financed more than 900 homes through of 2022 launch. Users have made an average gross profit of $82,000 per property on the platform and typically pay off their loans in six months.

Most of Backflip’s loans are for 12 months (called a bridge loan), but they come with an interest rate 2% to 4% higher than a typical mortgage, according to Ernst.

Investors can either sell the property and pay back the Backflip or refinance and move on to a longer term loan through another lender.

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

The conventional (and cheaper) lending process, he said, is slower. And with Backflip, customers don’t need a W-2 to qualify for a loan. In addition, the company bonds the rehabilitation and construction loan so that it is easier and faster for an investor to move quickly through all these transactions.

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

The company does not currently charge subscriptions. Its business model is to act as a marketplace for financial products. It earns money through the interest rate on the loans in the lending business, which it operates in partnership with capital providers.

“We help underwrite properties and get more and more data that can then be used to make a quick and accurate underwriting decision on a particular loan product that our members use to buy the property and renovate the property,” Ernst said.

So investors get the money from Backflip, which originates the loans and then in turn sells the loans.

Adam Nelson, CEO of FirstMark, told TechCrunch that the turnaround opportunity is huge. In the US, more than 50% of homes are over 40 years old, according to Research 2023 from the National Association of Home Builders and “no by the standards of new homeowners and institutional single-family home buyers,” he said.

“Entrepreneurs in the ‘fix-and-flip’ industry provide an important service in bringing existing housing stock up to specification and putting their own capital and sweat equity into doing so in both bull and bear housing markets,” he said.

Nelson was impressed by the company’s ability to grow nearly 5x year-over-year “at an effective <1x burn multiple," he added.

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

The startup currently has 47 employees with headquarters in Dallas and Denver.