You will own a membership interest in Horizon Residential Income Fund I, LLC (HRIF, or the “Fund”), a Delaware limited liability company.

HRIF will invest in short-term residential bridge mortgage loans originated by Upright. 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.

The primary objective of HRIF is current income, while using diversification and a rigorous underwriting process to minimize risk and preserve invested capital.

The Fund will be managed by FTF Capital Management, LLC (the “Manager”). The Manager is a wholly-owned subsidiary of Upright d.b.a. Fund That Flip, Inc., and draws upon the extensive industry and asset class experience of the Upright team for the benefit of investors in HRIF.

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:

Read more here.

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.

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.

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.

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. 

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.

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.

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.

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.

Through Upright.us, 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.

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.

As with any investment, an investment in the Fund entails risk. Please refer to the Private Placement Memorandum for more information.

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.

The initial investment minimum is $15,000. Once invested in the fund, any incremental investments have a minimum of $5,000.

Investors should expect to hold their investment for at least 36 months.  Withdrawals prior to this period are restricted, as summarized above.  Ultimately, fund members may not withdraw or redeem their investment in the Fund without penalty until 12 months after admission to the Fund. After 12 months, investors may request withdrawals from the Fund, subject to strict limitations outlined in the Private Placement Memorandum (PPM).

Any withdrawals granted after the initial 12-month minimum holding period will not be subject to any penalties but collective withdrawals cannot exceed $250,000 per quarter. In general, the Fund is designed for investors who do not need liquidity in their investment, as the fund plans to operate and generate income for our members indefinitely.

Yes, however, there are restrictions that are made clear within the Private Placement Memorandum (PPM). To summarize, a withdrawal request within twelve months of an initial investment will be subject to a 3% fee, and only honored if undue hardship is documented and the fund performance is not hindered.  Members who have been members of the Fund for a period longer than twelve months may request a withdrawal from the Fund by providing written notice no later than ninety days from the intended date of withdrawal from the Fund without penalty. However, the maximum aggregate amount of Withdrawal Requests that the Fund will process each fiscal year is limited to One Million Dollars. The Fund shall distribute the withdrawal requests on a limited basis, as follows: Twenty Five Percent (25%) of such Member’s Withdrawal Balance, remitted quarterly, such that it will take at least Four (4) quarters for a Member to withdraw the total Withdrawal Balance requested.

It is presently intended that after April 1, 2026, the limitations on Withdrawal Requests described above shall be removed, and upon Manager’s approval, Withdrawal Requests shall be processed on a pro-rata basis as the Fund’s loans mature and are paid off. The Fund will use its best efforts to honor Withdrawal Requests subject to, among other things, the Fund’s then cash flow, financial condition, and prospective transactions in assets. Any and all returns of contributions associated with Withdrawal Requests shall be processed at the Manager’s discretion and in the best interest of the Fund.

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.

Like the other investment offerings from Upright, HRIF is focused solely on short-term residential bridge mortgage loans underwritten and originated by Upright. 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 Upright. 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 Upright, 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. 

Please refer to the Fund’s Private Placement Memorandum for further information. This information is available here.