The concept of “flipping houses” doesn’t have the best connotation. It’s often associated with buying rundown houses cheap, splashing on a coat of paint and selling them for a profit.
That’s far from how Matt Rodak operates. His firm, Fund That Flip, brings well-heeled lenders together with reputable home renovators to create quality housing in underserved markets; improve entire neighborhoods, especially those that are struggling; and generate jobs for tradespeople.
“Our mission is to help our lenders create wealth and our borrowers grow their businesses, and provide people really nice homes that would otherwise be unlivable,” Rodak, founder and CEO of Fund That Flip, says. “We are creating tools and services to make that happen.”
The business model is working. Rodak says that since Fund That Flip began operations in 2015, its revenues have doubled every year. That growth has intensified during the past few months, with revenue increasing by about 40% each quarter. He expects revenue will triple from 2020 to 2021.
Since its inception, Fund That Flip has financed more than $700 million in real estate transactions, and of that amount, $200 million was invested within the past six months alone.
Although the company is headquartered in New York, it has a bustling Cleveland office, and it funds home renovations in states throughout the Midwest, Mid-Atlantic and Southeast — generally, anywhere east of the Mississippi River, although it has also made inroads in the West.
As it grows, Fund That Flip has expanded its services. Last year, it started selling portfolios — collections of various investments in single packages — for lenders who prefer not to look through each and every funding opportunity on the company’s website. Portfolio products already have produced $50 million in revenue.
Also, the company — which so far has focused on short-term loans since houses are purchased, renovated and sold relatively quickly — is about to introduce longer-term loans of up to 30 years, because some borrowers are holding onto their properties and renting them out instead of selling them.
A Rare Product
Fund That Flip is a lender specializing in commercial loans for renovations of residential properties and construction of new homes. The loans are given from accredited investors, meaning high-net-worth people and organizations like doctors, lawyers, business executives, angel investors, banks and financial institutions.
The investors lend in increments of $1,000 to $5,000, mostly for short durations, typically 12 months. Each investment earns returns of between 8 to 9%.
“It’s a relatively rare type of product, short term with high yields,” Rodak says.
Fund That Flip uses a different formula than banks when deciding which home projects to finance. While banks consider credit scores and incomes, Fund That Flip looks at the experience of the home renovator, as well as the debt service coverage ratio: Can the contractor repay the debt from its operating income? Also, banks, unlike Fund That Flip, shy away from loans for homes that need a lot of work.
Loans from Fund That Flip range from $100,000 to several million dollars, with an average loan amount of $300,000. The contractor might work on 10 to 15 renovations at a time but must apply for a different loan for each project. On average, contractors spend 62% of the loan amount on the home rehab.
Rodak says other companies provide similar services but they tend to be small and local. He says Fund That Flip, in comparison, is professionalizing the house-flipping industry through technology and topnotch customer service. His in-house team of software engineers has designed a website that makes it easy for lenders to shop for and choose home rehab projects to fund, directly deposit money, close loans and track a home renovation’s progress.
“We are massively transparent with our investors, letting them know the details about projects and keeping them up to date after they start,” Rodak says.
Moving & Growing
Rodak, 37, was born and raised in the Canton area and graduated from Louisville High School. He was always pulled toward the real estate industry, and ran his own landscaping company while growing up. It was then he first came into contact with home renovators.
In 2007, Rodak earned a degree from John Carroll University, where he had studied finance. Unfortunately, the real estate market was collapsing at the time, so Rodak, instead of entering the real estate field, landed a job with a commercial property insurance company. He worked there for seven years and was sent to Rhode Island to head sales and marketing for a fast-growing division of the company.
While in Rhode Island, Rodak’s love of real estate was rekindled, and he started flipping houses. He met real estate professionals who advised him that banks were not good options for house flippers seeking capital.
That’s when Rodak saw an opportunity to launch a lending business for those looking to invest in something besides the fast-moving stock market. The business would also have a clear understanding of the needs of property redevelopers.
Paving the way for Rodak was the Jumpstart Our Business Startups Act, signed by President Barack Obama in 2012. Previously, companies weren’t allowed to advertise for or solicit investors online. The new law created an exemption that allowed businesses like Fund That Flip — known as peer-to-peer lenders, which match investors with borrowers on the web — to seek out lenders.
“It was a new frontier,” Rodak says. “The passage of that legislation made new types of business models possible.”
Rodak established his business in New York because of the city’s strong venture capital support system for startups. However, he found the Big Apple a hard place to grow a company, so, since he was already funding home renovations in his hometown area, he opened a second office here. Today, two-thirds of his team, about 65 to 70 workers, are in Cleveland.
Initially, Fund That Flip set up shop in a cozy space within the Fifth Third Center on Superior Avenue. The company moved several times as it grew and now takes up an entire floor in the AECOM Building, formerly the Penton Media Building, on East 9th Street.
Rodak expects to expand even more. He says the U.S. has been underbuilding homes, and that only 37% of millennials, now the largest generation group in the country, own homes. Rodak believes that will change during the next five to 10 years because millennials will need homes to live in — and purchase.
“We have a housing supply shortage across the country,” Rodak says. “Fund That Flip provides a solution for the housing market both by recycling older homes and creating new inventory.”