F2 Finance wants to scoop up a share of a “fragmented” fix-and-flip market as a lack of housing inventory sharply limits transactions.
“There’s about 8,500 fix-and-flip mortgage lenders in the U.S. just to give an idea of how fragmented it is in terms of the lender,” Christian Faes, founder of F2 Finance, said in an interview with HousingWire. America’s fix-and-flip short-term property market is estimated to be worth as much as $68 billion a year, according to F2 Finance.
“The opportunity is interesting in the sense that there’s a housing shortage. So fix-and-flip lending is directly helping that supply and demand issue in terms of creating new housing stock or upgrading what would otherwise be dilapidated housing stock,” Faes said.
F2 Finance – which launched in April – is the first venture introduced by a fintech investment firm Faes & Co – founded by Faes in 2023. Faes & Co has also been involved with building a short-term mortgage lender in Ireland.
Faes’ career in mortgage lending goes back to 2008 when he co-founded non-bank mortgage lender LendInvest, which was listed on the London Stock Exchange in 2021. LendInvest has more than $4.7 billion (£3.7 billion) funds under management and funding from numerous institutions, including J.P. Morgan, Citibank and Wells Fargo, according to Faes.
The Santa Monica, California-based lender is focused on short-term financing – providing fix-and-flip loans as well as bridge loans – in markets that are struggling with the lack of existing homes for sale – including California, Texas and Florida.
While more than 407,000 homes flipped in 2022, up 14% over 2021, the typical return on investment (ROI) for a fix-and-flip deal in 2022 represented the fifth decline in the past six years, according to ATTOM.
Only the well-capitalized lenders are projected to survive the headwinds because it allows them to increase market share as other smaller lenders in the space pull back.
Rates for fix-and-flip loans and bridge loans are between 9% to 12% in line with where the rest of the market for those niche loans are, but it’s the speed at which borrowers can get approved for the loans is what differentiates itself from the pack, Faes noted.
“From a borrower’s perspective, they come to us [because] they’re not having to go through an extensive X number of months of bank statements and certifying the borrower’s income. We are able to essentially lend against the asset and move very quickly,” Faes said.
F2 Finance funds its own loans and has “quite a bit of capital lined up to lend into this space” with the investors who had previously backed its UK and Irish businesses.
In the next several months, the firm plans to launch a credit fund.
Financing periods for fix-and-flip or bridge loans typically range from a minimum of one month to a maximum of 12 months where the borrower can refinance at no penalty or costs at F2 Finance.
“If a property developer sees an opportunity where they want to sort of purchase a property this week, for example, we can provide them the cash to do that. Then maybe next month, [if] they get a more mainstream loan, they can refinance at no penalty or costs. It’s an opportunistic sort of capital for the borrower,” Faes said.
F2 Finance declined to share the loan origination volume given the infancy stage of its business.
The lender is focused on adding more staff members from the current five to 10 by the end of 2023; expanding to other markets including Georgia, Virginia and Maryland; and connecting with referral partners to bring in production.
“We started with just a couple of introducers – groups we got to know in the market that were able to feed us deal flow (…) It’s a big market, it’s just a matter of building our profile and we can see momentum building behind the brand,” Faes said.