In today’s economic climate, there’s a notion to use an app for everything. This includes rides, vacation rentals, and even work space. But did you know that you can also use an app to match with investors to help fund their real estate projects? With Patch of Land, this dream comes to life.
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What Is Patch of Land?
Patch of Land is a real estate crowdfunding platform. Using a peer-to-peer online marketplace, it matches investors with borrowers seeking funding for real estate projects.
Note: Unlike other crowdfunding platforms, the company does not offer investors opportunities to take equity positions in real estate projects.
The fintech company simply acts as a hard-money lender to real estate developers. Using computerized algorithms, it assigns risks to real estate projects and may even fund borrowers who don’t qualify for other loans.
Patch of Land pre-funds mostly residential projects, particularly single family fix and flip deals. Then it sells shares in the loans to experienced investors seeking short-term, high-yield income.
Patch of Land History
Patch of Land was founded in 2013 after the Jumpstart Our Business Startups (JOBS) Act was passed. The new law allowed the real estate crowdfunding industry to get underway.
Since then many new real estate crowdfunding platforms have started. Patch of Land was one of the first and has survived the shakeout since.
As of the third quarter of 2018, which is the most recent information available, the company says it has:
- Originated more than $725 million in loans
- Funded properties worth $1.16 billion
- Returned $185 million in funds to investors
- Funded 1,571 loans
- 66.90% average loan-to-value
- Averaged $457,000 on a typical loan
- Averaged an annual percentage rate of return to investors of 10.56%
Patch of Land primarily loans money on residential projects including both single-family and multi-family. Commercial properties comprise a smaller share of its real estate investing portfolio.
The deal breakdown is:
- Single-family residential: 75%
- Multi-family residential: 15%
- Commercial properties: 10%
Patch of Land funds deals nearly nationwide. The real estate lending company operates in all but three states – Arizona, Nevada, and South Dakota.
Patch of Land Contact Information
Patch of Land is based in the Los Angeles suburb of Sherman Oaks. The company also has a New York City office.
Here’s how to get in touch with Patch of Land:
Patch of Land
15000 Ventura Blvd, Suite 300
Sherman Oaks, CA 91403
Borrowers and real estate professionals looking for more information can email to: firstname.lastname@example.org. Real estate investors can reach Patch of Land by email at: email@example.com.
How Patch of Land Works
A real estate developer seeking funding registers online at the lending marketplace and submits a loan application. New users can look at past projects to see how it works and whether their proposal is likely to get funded. Borrowers then track their application status online.
Investors who register will see the various investment opportunities available. This includes project details, loan interest rates, and figures for loan-to-value and after-repair-value. Investors also get access to due diligence documents.
After selecting an investment, users make their through the site. Using the site, they can track their portfolio’s performance. The site has a low $1,000 minimum investment. However, investors must be accredited, so the service is not tailored for the new or inexperienced.
Investors receive returns on their investments as borrowers pay back the interest-only loans. When the term of the loan is up, investors get their principal back. The loans are typically 12 months long. In some cases the terms may be up to 36 months.
Patch of Land only offers lending opportunities. The company does not offer investors opportunities to take equity positions in real estate projects. Patch of Land pre-funds the deals. Borrowers receive funds to start working on their projects at closing. Investors begin receiving payouts as borrowers repay their loans.
They’ll typically receive the principal back in a balloon payment at the end of the loan period. Patch of Land collects fees of 1% to 2% of the interest payments. Investors pay no annual or transaction fees. Additional fees are charged for appraisals, closing costs, and other expenses.
Patch of Land Cons
Patch of Land has some unique features. But there are some drawbacks and risks to its approach for investors. One is that only accredited investors can invest. This is a common restriction for firms that are offering investments in unregistered securities.
Accredited investors have higher incomes, greater net worth, more investing experience, and higher sophistication than most investors. A typical accredited investor is a wealthy individual, bank, investment firm, or insurance company.
Patch of Land’s fees are also higher than investors will pay for some similar investments. The Vanguard Real Estate ETF, for example, is a passively managed fund. It tracks an index of shares in publicly traded real estate investment trusts (REITs).
The Vanguard Real Estate ETF fees come to only 0.12% of assets. This means Patch of Land investors must earn higher returns to equal the ETF return.
Also, unlike a hard-money lender, the investors in Patch of Land loans are not secured by the property. The investors are entitled to a share of the principal and interest payments on the loan, but don’t have other collateral.
Although Patch of Land has funded several hundred projects since 2013, at any given time there are investments open for investors. This may make it difficult for an investor to find a suitable project.
Investors also take on significant risk. Because Patch of Land funds loans itself, it does its own due diligence on borrowers. However, some investors have complained that too many loans have gotten behind on payments or gone into default.
Patch of Land Competitors
Patch of Land is one of the first and longest-running real estate crowdfunding platforms. There are numerous others, each with its own twist on real estate crowdfunding.
Here are some noteworthy competitors:
This real estate crowdfunding platform focuses on commercial real estate. It also invests only in cash-flowing properties that are already leased or have leases in hand. That’s unlike the rehab deals that are typical of competitors.
Sharestates requires a minimum investment of $5,000 rather than the $1,000 minimum for Patch of Land. For borrowers, it offers loans of $100,000 to $10 million with rates as low as 6%.
This crowdfunding platform directly connects investors and real estate operators. Patch of Land is more like a hedge fund, collecting fees from investors for due diligence and servicing loans.
RealCrowd also requires real estate company principals to have at 10 years of experience and $50 million in transactions. And, it doesn’t do house-flips, only commercial and multifamily properties.
This real estate crowdfunder one-ups Patch of Land’s appeal to small investors with a $500 minimum investment. It also appeals to new investors, with a 90-day satisfaction guarantee to buy an investment back at the original amount.
Patch of Land Wrapup
Patch of Land is worth a look for accredited investors seeking opportunities to lend money on residential real estate rehab fix and flip projects. The company’s approach of pre-funding deals before offering them to investors offers a level of comfort and risk management.
Investors can invest in individual projects on this crowdfunding platform. That is different from REITs, where professional managers select investments and investors own only a share of the entire portfolio.
From the borrower perspective, the company says its computerized algorithms can quickly and accurately calculate risk profiles for individual projects. This allows them to underwrite projects that banks and traditional lenders overlook.
Overall, Patch of Land offers real estate operators a chance to fund projects when other funding sources turn them down. And it gives investors another way to put money into real estate investments with an attractive rate of return.