Overview
The Fund will purchase short-term, first-lien, residential mortgages originated to finance property stabilization, rehabilitation, and new construction. All loans are originated and underwritten by Upright! The Fund provides investors with portfolio diversification, quarterly income distributions, and the significant tax benefits of a REIT, with returns amplified through leverage.
The Details
Tax Advantages
Horizon is equivalent to a much higher return due to its favorable tax structure.
Diversification
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.
Leverage
Returns are amplified thanks to the additional investment power of senior financing.
Prior Quarterly Return
7.7% - 9.1%
Preferred Return
8%
Distributions
Quarterly
Minimum Holding Period
Members may not withdraw or redeem their Membership Interests until Twelve (12) months from the purchase of said Membership Interests. Members who have been Members of the Fund for a period longer than Twelve (12) months may request withdrawal (the “Withdrawal Request”) from the Fund by providing prior written notice no later than Ninety (90) days from the intended date of withdrawal from the Fund. All Withdrawal Requests must be made in writing and include the intended date of withdrawal (the “Withdrawal Date”) and the specific balance of Membership Interests the Member seeks to withdraw and redeem (the “Withdrawal Balance”). The withdrawal date shall be effective upon the Manager’s approval of the Member’s Withdrawal Request (the “Effective Withdrawal Date”).
The Fund shall deliver the Withdrawal Balance 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. Any remittance of a Member’s Withdrawal Balance shall be made on the first day of the month. The foregoing shall be limited by the following restrictions: (1) The maximum aggregate amount of Withdrawal Requests that the Fund will process each fiscal year is limited to Ten Percent (10%) of the total outstanding contributions to the Fund, or One Million Dollars ($1,000,000), whichever is less.
It is presently intended that after April 1, 2026, the limitations on Withdrawal Requests described in the preceding paragraphs (with the exception of the Manager’s right to suspend withdrawals) 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.
Investment Minimum
$15,000 initial, $5,000 incremental
Fees
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.
Structure
Delaware limited liability company with a REIT subsidiary.
Maximum Offering
$30,000,000
Number of Investors
331
Fund Equity
$23,423,000
Loan Amount Managed
$49,411,085
Number of Loans
157
Next Admittance Date
October 1st, 2024
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?
All loans purchased by HRIF must pass an exhaustive underwriting and analysis process. All loans first have to get through the highly-selective underwriting process at Upright, where only 6% to 8% of loans are approved. On top of that, all loans purchased by HRIF also go through the FTF Capital Management investment committee before being approved for purchase.
The Horizon Residential Income Fund offers accredited investors the opportunity to spread a single investment across a managed portfolio of short-term, first lien, residential mortgages originated to finance property stabilization, rehabilitation, and new construction. All loans are originated and underwritten by Upright! Through the fund, investors get the benefits of:
- Instant diversification across multiple geographies, borrowers, and projects, amplified through leveraged debt
- No need to research and select individual projects, while eliminating the time and effort to redeploy capital when investments repay
- Tax benefits of a REIT to amplify net income
- Short-term loans with fixed interest rates, minimizing the impact of rate fluctuation
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 Upright. 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 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 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.
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 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.
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
Earned an income that exceeded $200,000 (or $300,000 together with a spouse or spousal equivalent) in each of the prior two years, and reasonably expects the same for the current year, or
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 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.
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 initial investment minimum is $15,000. Once invested in the fund, any incremental investments have a minimum of $5,000.
How long should I expect to hold my investment?
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.
Can I request a withdrawal from the Fund?
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.
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 Upright's other investment offerings?
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.
Where can I go for more information?
Please refer to the Fund’s Private Placement Memorandum for further information. This information is available here.