Ten Questions with Josh Ernst, CEO at Backflip

"We believe value-added real estate investing that leverages the right decision-making tools can succeed in just about any market condition."

Zillow tried the iBuying model only to back out after disastrous consequences. And the U.S.'s last remaining iBuyer, Opendoor, continues to face significant financial struggles.

Zoom out to Europe, and Casavo expanded (and quickly exited) international markets with its own version of iBuying model, only to pivot the entire business into a mortgage brokerage amid serious headwinds.

In short, the evidence shows that, for now, iBuying doesn't make for a successful model in the long term.

But maybe flipping properties is a more palatable alternative.

With a $15 million Series A round secured, Backflip wants to facilitate this model for real estate entrepreneurs and investors in the United States.

We caught up with CEO Josh Ernst (pictured) to find out more about housing issues in the country, "nimble loans", artificial intelligence as the backbone of investment opportunities in the future, and much more.

Here are ten questions with Backflip...

Josh Ernst, CEO at Backflip

Josh, hi. What problem does Backflip solve?

Backflip is the all-in-one real estate and financial technology platform for real estate entrepreneurs. We support entrepreneurs as they acquire and renovate single-family homes (aka flipping), reinvigorating the housing supply and their local communities.

We offer purpose-built technology and capital products to source, analyze and finance residential real estate investments.

The Backflip app—an "analyst in your pocket"—helps members pull relevant comparisons and evaluate potential investments. Additionally, you can secure project financing through Backflip.

Who is your primary audience and what can you tell us about them?

Our members are real estate entrepreneurs who typically run small businesses focused on a specific geographic area, and their work is reinvigorating the housing supply of their local communities.

When we first interact with them, they are scaling their business—anywhere from a few, to dozens of homes per year.

They are looking for tools and capital to uplevel their operations. Alternatively, they are getting started in this industry and are searching for the right community and partners to begin their journey.

How does Backflip perceive the Flipping/iBuying segment in the United States? This has been a difficult space to operate in for some time…

When value-added real estate investing leverages the right decision-making tools, a well-run business can succeed in just about any market condition.

Because our members will typically sell or refinance homes within a few months of purchasing (our average loan duration is 6 months), the differential between purchase and sale price is much more related to the value of their rehab and improvement work than to the relatively small changes in the market during a fairly short period.

Compare this to pure buy-and-hold investors, who are heavily dependent on Home Price Appreciation and borrowing conditions.

Importantly, the majority of the homes that our members invest in end up selling at an entry-level price point, and are closer to urban cores than the new home projects being built on previously undeveloped land. In other words, the houses we finance are going on the market and meeting significant untapped demand—and they sell quickly because of it.

How does Backflip make money?

Currently, Backflip makes money through our loan products. There are no membership fees or other barriers for entrepreneurs to try our technologies and community.

Instead, when they have used our tools to analyze their opportunities and are ready to purchase a home, we offer them a personalized, best-in-class loan.

You recently raised $15M in Series A funding. What learnings can you share about the fundraising process?

Our Series A raise was both exciting and educational.

The key insight was that residential real estate is severely unbalanced; there is a three million unit housing shortage, and the U.S. housing stock is also ageing, with about 50% of units over 40 years old.

While there has been a slight uptick in new constructions, it won’t come close to meeting pent-up demand for housing—this is especially true for less expensive 'entry-level' homes. That’s where our Backflip members come in, by renewing existing units to meet the demand.

As our investors see it, that picture points to a significant TAM (Total Addressable Market) today for Backflip, while the pent-up demand and ageing housing stock are attractive macro tailwinds for the business going forward.

How does Backflip use Artificial Intelligence to source and analyze investment opportunities?

We have three primary products that assist Backflip members’ value-add investing: Analyzer, My Leads, and Loans.

Analyzer is a powerful investment calculator where Backflip members can pull the latest MLS comps, edit based on their investment strategy, and assess a deal's potential profit and ROI. Our algorithmic approach allows Backflip members to leverage AI and ML while personalizing the experience for their specific needs and strategies.

Meanwhile, My Leads is an AI-powered technology that scrapes and sorts incoming opportunities from members’ deal flow pipelines. My Leads empowers you to find the perfect property by automating the detection, analysis, and filtering of potential deals that fit inside your personalized buy box, saving hours of manual work and ensuring no lucrative opportunity is missed.

Backflip says its loans are purpose-built for real estate investors. What exactly does that mean for both lenders and borrowers?

Backflip’s loans are designed to be nimble. They offer a burst of up-front funding to purchase a property, followed by regular instalments as the rehab/renovation process moves forward. They’re short-term, bridging the crucial period where our members need to post a lot of capital to ensure their project’s success. Furthermore, they’re dynamically sized and priced according to the specifics of the borrower, asset and business plan.

Our loans are also highly predictable, which means that capital markets view the debt we originate as an attractive investment vehicle.

What are you currently working on?

We’re always working on making our products and experiences better for real estate entrepreneurs. We are continuing to look at new products as well, both on the technology side and in terms of what we are bringing to the capital markets.

To name some recent developments, we recently closed an expanded warehouse facility, so we will be able to scale our loan products further, and we launched a redesign of our app in April.

How do you see the home buying/selling experience changing in the coming years, and how will you stay ahead of the curve?

We envision an influx of artificial intelligence and big data technological advances that will break down many of the barriers in the residential real estate space.

Not only will buying and selling become much more straightforward, but so too will sourcing and analyzing opportunities to maximize profitability.

Some of those tools are already available to large corporate buyers. We are committed to ensuring that individual real estate entrepreneurs can access this tech, and we have invested in this future accordingly.

What isn’t the industry talking about that it should spend more time talking about?

The industry should be talking more about how grossly underbuilt entry-level homes are. In the U.S., more than 400,000 entry-level homes were being built per year in the late 1970s, falling to 55,000 units per year in the 2010s.

While demand for such homes hasn’t tapered off, builders are increasingly focused on the higher-priced segments of the market. In context, the average sales price in the U.S. of a new single-family home in 1998 was $181,900; in 2023 that figure was $514,000.

In short, the bottom, affordable, portion of the market is getting left behind. Smaller homes that were built in the 70s and 80s are showing their age and are at risk of falling out of the housing supply if they are not refurbished.

That’s where Backflip comes in.