What is Fund That Flip?
Fund That Flip is a real estate investing platform similar to Groundfloor. The platform provides accredited investors with opportunities to make fractional investments into real estate loans supporting new construction and renovation projects.
What Is The Horizon Residential Income Fund?
On March 23, Fund That Flip announced a new offering, their Horizon Residential Income Fund (HRIF). Basically, the HRIF is an actively managed fund structured as an LLC which owns a REIT. That REIT is the entity that will make the actual real estate investments, which will be a portfolio of short-term residential bridge mortgage loans. Accredited investors can membership interests (shares) of the fund with a minimum investment of $25,000.
How Does It Work?
The fund will initially be open-ended. As the underlying loans in the portfolio are paid back, those funds will be used to source new investments. This is one of the aspects that makes the HRIF unique from previous offerings.
At some point, the fund will become closed and funds received from repaid loans will just be repaid to investors. However, Fund That Flip does not provide a timeline for how long the fund will be open for and in their FAQ about the fund state:
In general, the Fund is designed for investors who do not need liquidity in their investment.– Horizon Residential Income Fund Page
The company will allow investors to request a withdrawal after 12 months of their investment without any penalty.
How will investors see a return then? The fund will provide quarterly dividend payments which will be based on the interest earned from the underlying loan portfolio.
What Are The HRIF Fees?
The fund is using a common structure of an asset under management (AUM) fee and a performance fee. Fund That Flip will collect a 1% AUM fee and will earn 20% of the returns that exceed the 8% annual target.
The accreditation requirement will limit the amount of people this will appeal to. With that out of the way, it’s good to see alternative investment companies competing to develop new products to give investors more choice. An open-ended fund structure will allow for HRIF to be an option for new investors on the platform for the foreseeable future.
With a target return of 10-13% and a minimum holding period of only 12 months, this is an interesting option for anyone that wants a diversified portfolio of real estate loans that can be a completely passive investment.