The fund will invest in short-term residential bridge mortgage loans underwritten & originated by Fund That Flip and is designed to provide portfolio diversification, current income, and the significant tax benefits of a REIT to investors. Watch intro video.
Geographies That Outperform
There is no national housing market. Regional economies and markets are diverse, and require local, in-depth understanding.
We don't just observe the markets; we are in them.
Residential property investments means diversification through volume. We don't invest in one or two massive complexes, we invest in hundreds of individual projects and communities.
Our Unique Qualifications
We are experts in the space — Fund That Flip was built on this asset class.
This Fund has organically developed out of the success of the company — new opportunities for a new class of investor.
10% – 13% net of all fees and expenses.
Minimum Holding Period
Management fee of 1% of net asset value. Performance fee of 20% of net profits after payment of preferred return and other fees and expenses.
Delaware limited liability company with a REIT subsidiary.
Expected Maximum Offering
Next Admittance Date
December 1st, 2023
Disclaimer: Accreditation, Sub Agreement Signature, and Fund Clearance must be complete before final date of admittance. This can take as long as 4 business days.
The HRIF Advantage
WHY INVEST IN THE HRIF?
The Horizon Residential Income Fund offers accredited investors the opportunity to spread a single investment across a managed portfolio of short-term, residential bridge mortgage loans originated and underwritten by Fund That Flip. You also get the benefits of:
- Instant diversifiation across multiple geographies, borrowers, and projects
- No need to research and select individual projects
- Tax benefits of a REIT
- Short-term loan values are less sensitive to fluctuating interest rates
- Fund asset values are expected to be comparable to typical REIT that purchases 30-year mortgages
How does this work?
When you invest and become a member in the Horizon Residential Income Fund I, you invest in a diverse, curated pool of whole loans originated by Fund That Flip. HRIF utilizes leverage to offer higher returns and offer greater diversification. Income is distributed to members quarterly.
a dedicated investor success team
Success is built on relationships. Not only with our investors, but between our internal teams as well. Our Investor Relations team has a deep understanding of each loan's structure and progress, working closely with our Underwriters, Analysts, and Account Managers, so you get industry-leading transparency — and peace-of-mind — with every deal you invest in.
tax advantages equate to a higher return
Factoring in the 20% pass-through deduction, a given return on HRIF is equivalent to a much higher return for taxable investors on an otherwise similar investment without the REIT tax benefits.
REITs have always received favorable tax treatment in that they do not pay income tax at the entity level despite being a corporate entity.
Since the passage of the Tax Cuts and Jobs Act of 2017, most taxpayers are generally eligible for a deduction equal to 20% of qualifying business taxable income from the federal income tax.
This deduction generally applies to qualified REIT dividends, including any REIT dividends earned through a pass-through entity such as HRIF.
Every taxpayer is different. Please consult with your tax advisor for advice and guidance related to your specific tax situation. Example above assumes a taxable investor subject to the 37% maximum federal income tax bracket and ignores state, local and other taxes. Comparison is to an investment that does not have the tax benefits of a REIT, with all income being taxed as ordinary income.
Frequently Asked Questions
The following is a summary of Frequently Asked Questions as it relates to the Horizon Fund.
What is passive real estate investing?
Passive real estate investing is what our investors do: they invest money into an asset with the expectation of generating income, but without the extra work of building, rehabilitating, managing, or operating the related real estate asset. It’s the traditional definition of an investment. In this case, the asset – a residential bridge mortgage loan originated by Fund That Flip and acquired by the fund – is backed by a note and a first-position lien on the underlying real estate.
On the flip side, active real estate investing, or what our borrowers do, means investing both equity and time into a real estate asset to generate income or create value, such as being a landlord or rehabbing a home. Active real estate investors are responsible for both the financial commitment as well as the hands-on work such as sourcing properties for acquisition, getting financing, overseeing construction and contractor teams, and/or managing tenants.
What do I own when I invest in the Horizon Residential Income Fund I (HRIF)
You will own a membership interest in Horizon Residential Income Fund I, LLC (HRIF, or the “Fund”), a Delaware limited liability company.
What will HRIF invest in?
HRIF will invest in short-term residential bridge mortgage loans originated by Fund That Flip. These loans typically range in term from 6 to 18 months, bear fixed rates of interest, and are made to experienced borrowers to provide financing for fix-and-flip and new construction projects, with a heavy focus on the single family residential sector. HRIF may also use leverage.
What is the investment objective of the Fund?
The primary objective of HRIF is current income, while using diversification and a rigorous underwriting process to minimize risk and preserve invested capital.
Who will manage the Fund?
The Fund will be managed by FTF Capital Management, LLC (the “Manager”). The Manager is a wholly-owned subsidiary of Fund That Flip, Inc., and draws upon the extensive industry and asset class experience of the Fund That Flip team for the benefit of investors in HRIF.
Who can invest in the Fund?
HRIF is only open to accredited investors. The definition of an accredited investor can vary based on the type of entity. To qualify as an accredited investor, a person must generally meet at least one of the criteria listed below. Additional criteria apply to other types of entities.
To qualify as an accredited investor, an individual must have:
A net worth of at least $1 million, either alone or together with a spouse or spousal equivalent (excluding the value of the person's primary residence), or
A Series 7, 65, or 82 license in good standing.
A Series 7, 65, or 82 license in good standing.
What is Real Estate Investment Trust (REIT)?
A REIT is a company that owns, operates, or finances real estate. REITs were created by Congress in the 1960’s to give all investors, especially smaller investors, access to real estate investments that were previously available only to large institutional investors. REITs – and the dividends distributed by REITs – also receive favorable tax treatment on a number of levels.
Is HRIF a REIT?
HRIF has established a subsidiary REIT (the “sub-REIT”) that will be used to conduct the Fund’s lending and investing activities. This sub-REIT structure provides operational flexibility to the Fund, while still allowing investors to enjoy the tax benefits of a REIT. The resulting income from the sub-REIT is distributed to investors through the Fund and generally retains any tax advantages associated with REIT dividends, even though HRIF itself is not technically a REIT.
What are the tax advantages of a REIT?
EITs have several tax advantages. One major tax advantage of a REIT is the 20% deduction for pass-through business income, which includes qualified REIT dividends. For taxable investors, this typically means a 20% tax savings. These tax savings equate to a higher return relative to an otherwise similar investment that does not offer the same tax advantages. In addition, REITs are not taxed at the entity level, eliminating the issue of “double taxation” that exists when a corporation is taxed at the entity level and distributions are taxed yet again at the investor level. Finally, the REIT structure utilized by the Fund is expected to block any unrelated business taxable income (UBTI).
As a reminder, we do not provide tax advice or guidance. Each person's tax situation is different, and investors should consult with their financial advisor, tax preparer, or CPA to understand how an investment in the Fund will be taxed.
What type of tax form will I receive?
HRIF investors will receive a Schedule K-1 each year. A Schedule K-1 (often simply called a “K-1”) breaks down each investor’s share of the Fund’s income, losses, deductions, and credits for the tax year. The deadline for the Fund to file a tax return is generally March 15 of each year. However, it is very common for entities of this type to take advantage of an automatic tax extension. The Fund will use its best efforts to deliver K-1s to investors in a timely manner. Due to the interdependencies of the tax preparation process for entities such as the Fund, there is a risk that delivery of K-1s will be delayed beyond the March 15 deadline, requiring investors to extend their own tax filing accordingly.
What do you mean by "leverage"?
Leverage refers to the use of borrowed money for an investment, with an expectation that any additional earnings or investment income will be greater than the interest payable on the borrowed funds. The Fund expects to make use of leverage to enhance returns and increase the level of diversification within the Fund’s investments, but only to the extent deemed prudent so as not to expose investors to excessive risk.
What is a"preferred return"?
A preferred return – often simply called the “pref” – is the minimum return that an investor must receive before certain income or fees are paid to another class of investors or to the fund manager or sponsor. In the case of HRIF, the preferred return is an annual percentage – 8% to be exact - that is payable to investors prior to any profit participation by the Manager. The preferred return is calculated and payable on a quarterly basis. The payment of the preferred return prior to any Manager profit participation is designed to keep the interests of the Manger aligned with those of the investors.
What is a "target return"?
A target return is the return – expressed as an annual percentage - that an investor is expected to receive after payment of all fees and expenses. In the case of HRIF, the target return includes the preferred return plus any share of net profits allocable to investors. Investors in HRIF receive 80% of net profits after payment of the preferred return and other fees and expenses.
What fees will I pay as an investor in HRIF?
The Manager will earn an asset management fee equal to 1% of the net asset value of the Fund. The distinction of “net” asset value is important, as it means that the Manager will not earn an asset management fee on any debt incurred by the Fund. In addition, the Manager will participate in the distribution of net profits of the fund, but only after investors earn the full preferred return for each quarter. Profit sharing, combined with the concept of the preferred return – which is paid to investors prior to any profit sharing – helps to align the interests of the Manager with those of the investors. The Manager will receive 20% of the net profits of the Fund after payment of the preferred return and all fees and expenses, with 80% of the net profits going to investors. The Fund be responsible for paying its operating expenses, which could include, but are not limited to, expenses for accounting, banking, interest, transactional fees, legal costs, tax preparation, and custodial expenses.
How can I invest in HRIF?
Through FundThatFlip.com, investors will create a user account and investment entity, link a bank account, sign a subscription agreement, and verify accreditation before they will be admitted into the Fund. Once admitted as a member of HRIF, an investor will begin to participate in the earnings of the fund, including accrual of the preferred return. The Fund will generally admit new members on the first day of each month.
Will the Fund make distributions?
HRIF will make quarterly distributions of earnings to investors, with distributions expected to begin with the quarter ending June 30, 2023. Distributions will be made in arrears as soon as practicable after the end of each calendar quarter. Statements will also be provided on a quarterly basis, matching the timing of distributions.
What are the risks of investing in HRIF?
As with any investment, an investment in the Fund entails risk. Please refer to the Private Placement Memorandum for more information.
How will I know the status of my investment?
The Fund will regularly update investors as the projects related to Fund investments progress. Further, each investor will receive quarterly performance statements prepared by our fund administrator.
What is the minimum amount I can invest?
The investment minimum is $25,000.
How long should I expect to hold my investment?
Investors may not withdraw or redeem their investment in the Fund until 12 months after admission to the Fund. After 12 months, investors may request withdrawals from the Fund, subject to certain limitations. Any withdrawals granted after the initial 12-month minimum holding period will not be subject to any penalties. In general, the Fund is designed for investors who do not need liquidity in their investment.
Can I request a withdrawal from the Fund?
Yes, after 12 months, investors may request a withdrawal from the Fund. Withdrawal requests may be granted by the Manager, subject to certain limitations.
Can I sell my investment?
There is no public market for an investment in the Fund, and none is expected to develop in the future. An investment in the Fund is subject to substantial restrictions on transfer.
How is HRIF different from Fund That Flip's other investment offerings?
Like the other investment offerings from Fund That Flip, HRIF is focused solely on short-term residential bridge mortgage loans underwritten and originated by Fund That Flip. And like the Residential Bridge Note Fund (RBNF) product, HRIF will invest in a curated portfolio of these loans. Beyond those basic similarities, HRIF is a completely new type of investment offering from Fund That Flip. HRIF is a traditional debt fund product that allows investors to purchase a stake in the Fund rather than a debt instrument or note. HRIF offers the tax advantages of a REIT that are not available through any of the other current investment offerings from Fund That Flip, but requires a minimum investment larger than other investment offerings. HRIF also offers a longer, open-ended investment timeline that allows investors to earn passive income without the need to reinvest upon maturity of individual notes. We expect that an investment in HRIF will provide higher returns to our investors, and those returns can be further enhanced once potential tax benefits are considered.
Where can I go for more information?
Please refer to the Fund’s Private Placement Memorandum for further information. This information is available here.