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Patch of Land

Patch of Land

Detailed Patch of Land Review 2020: crowdfunding real estate investment with Patch of Land

Our Patch of Land Review - Updated 30th June 2020

Established in early 2013, Patch of Land was one of the first crowdfunded real estate platforms and raised more than $24 million in venture capital to fuel their growth.

Patch of Land is configured as a "P2P lending platform" (also referred to as "P2RE" – as in "Peer-to-Real-Estate") underlining the matchmaking role of borrowers and investors. Although they do have some commercial ventures, their average loan size is around $500,000 and most of their loans are for rehabilitating individual residential properties ( i.e. fix-and-flip). Borrowers apply for loans directly to Patch of Land and, if accepted, the loan is "pre-funded" by Patch of Land. This ensures that the borrower will launch the project directly without having to be fully funded.

Types of investments Patch of Land offers

Patch of Land only provides investments in real estate debt. Much of their loans are for housing renovation (fix-and-flips), while they do have several multi-family and commercial projects. A lot of the loans given include 12-month terms, but they also have 18-month terms or 24-month terms. Loans are interest-only, which ensures that investors collect interest rates on a monthly basis for the term of the loan and only collect the principal back at the completion of the period (or if the borrower pays off the loan early).

If you have signed in and checked your accreditation status, you can check the specifics of each prospective company, including historical information on the borrowers (which includes, usefully, prior Patch of Land projects), finances and project budget, property records, including an estimate if available.

What do you get when investing with Patch of Land?

One of the advantages of real estate investing (especially debt investing) is that the investment is backed by a tangible asset that can be sold off to reclaim investor capital if anything goes wrong. However, as with other crowdfunded real estate investing sites, the money is, technically speaking, not necessarily backed by the underlying properties. Instead, you collect what Patch of Land refers to as a "Borrower-Dependent Payment Note" that binds you to a particular share of the principal and interest payments received from the borrower on the mortgage.

Patch of Land fee structure

Patch of Land charges borrowers around 0-3 percent of the loan volume for administration, maintenance and compliance expenses. Moreover, if the loan defaults, there are potential late charges fees, default rates, extensions, workouts, and other extra monies received during the workout process.

Potential returns and cashflow

While Patch of Land advertises returns of "up to 12 percent," there were only two open investments at the time of writing, both offering an 8 percent return (and an 80 percent LTV, which is relatively high). While some loans are sometimes offered at 12 percent, most are in the 9-10 percent range.

Investors will collect interest payments on a monthly basis for the duration of the loan and their principal will be refunded at the completion of the loan period (or early if the borrower refinances or repays the loan).

Pros

  • Investments are pre-funded
  • Mixing of residential and commercial opportunities
  • More than 500 loans funded to date
  • Simple to see previous borrower ventures

Cons

  • Access exclusively to accredited investors
  • Small amount of available investments
  • Loan-to-value (LTV) percentages as high as 80%.
  • Breadth of concessions to Patch of Land

Regulatory framework and due diligence expectations

Patch of Land provides investments only to approved buyers under SEC Reg D. They are not licensed brokers or financial advisors. Their loans derive from a wholly-owned subsidiary (Patch of Land Lending, LLC).

Their proposed due diligence process for loans comprises five key categories (Project, Legal, Market, Management and Finance) and they also stress the algorithmic aspect of their underwriting process. Patch of Land has developed innovative technologies to provide a deep algorithmic understanding of the real estate that secures every loan. They are able to evaluate a large number of individual data points in order to construct a risk profile for each property and to cross-check the data provided by independent assessments or price opinions. These details allow their underwriters to perform a more detailed review of each project and to maximize the reliability of their due diligence without compromising quality.

Patch of Land main features and highlights

Bottom line
Patch of Land loans are "pre-funded," which means that Patch of Land finances the loan with its own money, and only recovers it from creditors. That might mean that, as an investor, you would start collecting payments earlier than if the loan had to wait to be completely funded by borrowers.
Fees: Between 0-3%
Min Deposit: $5000
Target returns: Up to 12%
Sectors:
  • Commercial Real Estate
  • Residential Real Estate

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