Investors are able to view the borrower’s real estate project proposal, due diligence documents, ARV/LTV, interest rates and other pertinent information in order to determine whether or not the borrower’s project is a good fit for the investing portfolio.
However, Patch of Land has shown a bumpy track record and some issues with customer service. That's why our review is covering how this crowdfunding platform works, what the risks are, and how to decide if it's a good investment.
Pros & Cons
Is Patch of Land a Good Investment?
Despite its recent rebrand to Patch Lending, investing with this real estate crowdfunding company is still a risky investment. Many Investor Junkie readers report high default rates on properties and a lack of transparency and updates from PoL regarding these loans.
Furthermore, it seems difficult or nearly impossible to get your money back or out of the platform if properties go into foreclosure.
I called Patch of Land to ask about available investment opportunities and to learn more about the platform. I was promptly placed on hold to be redirected to another line and never ended up being connected.
Patch of Land Features
|Account Fees||0-3% of loan amount|
|Time Commitment||1 Months|
|Offering Types||Debt, Equity, Preferred Equity, Direct Ownership|
|Property Types||Commerical, Residential, Single Family, Foreign Investors|
|Regions Served||46 States; excluding MN, SD, NV and AZ|
Short-Term Debt Investments — PoL funds only short-term debt investments, which can be considered safer than equity positions in real estate because they're in the first position of repayment, should a property lose its value. Most projects are short-term transactional real estate debt for rehab, refinancing and bridge loans.
Pre-funded Loans — PoL pre-funds all deals. The borrower gets funds at closing and can get started with the project immediately. Investors start earning interest the day they invest.
IRA Accessibility — If you have a self-directed IRA, you can invest in Patch of Land deals. At this time, you cannot invest with IRA funds held with a regular broker.
Terms — Most deals are 12-month residential loans. Some commercial loans are for 18 months, and PoL is rolling out a mid-term loan product that has a 36-month duration.
Fees — There is no annual fee for investors or borrowers. PoL takes between 1% and 2% of the interest distributions made by borrowers. PoL does not charge transaction fees or campaign success fees like many crowdfunding platforms do. They work much more like a regular loan marketplace and charge fees for property appraisal, closing costs and origination points that are already factored into each deal listed on the platform.
Access for Non-U.S. Citizens — Most P2RE sites exclude non-U.S. citizens, but PoL is happy to allow investors from around the world as long as they have a U.S. bank account and are accredited by the definition of their country of origin.
Due Diligence and Underwriting Process — PoL implements traditional underwriting procedures, including arm's-length third-party appraisals that include a full walkthrough and value analysis, pulling comparable data and metrics to evaluate the local market, the performance of that particular asset class in that market, and the risk profile of the borrower.
AutoInvest (New) — PoL's new AutoInvest feature automatically enters participants into new investment opportunities that meet their pre-selected criteria for as little as $1,000.
What Is Patch of Land?Launched in 2013 and headquartered in Los Angeles (with a satellite office in New York City), Patch of Land uses technology and data to provide transparent and low-minimum real estate investing opportunities in both residential and commercial projects.
The company was started by two brothers, Jason Fritton, an e-commerce entrepreneur, and Brian Fritton, a software engineer, and system architect. In April 2016, the company brought on Paul Deitch from Oaktree Capital Management as chief executive officer. Deitch has over 25 years of financial services experience, including risk management, product development, finance, and compliance.
Stats as of July 2017 show that Patch of Land has funded 655 loans, delivering an average rate of return of 11.12% since inception. PoL is a BBB accredited business with an A+ rating.
However, as you'll find in our review, many investors report problems with this real estate crowdfunding platform like high default rates and poor customer service.
How Does Patch of Land Work?
Patch of Land uses traditional underwriting procedures, including arms-length third-party appraisals with a full walkthrough, an evaluation of the local market, the performance of that particular asset class in that market, and the risk profile of the borrower. PoL works with experienced developers and limits funding to manage risk. The guidelines for investment deals are:
- Minimum loan amount of $100,000
- An LTV (loan to value) up to 80%
- An ARV (after-rehab value) up to 70%
- Loan duration between one and 36 months
- No prepayment penalties
While each property and project varies, Patch of Land’s investments start to accrue interest immediately, which is paid back to investors monthly or quarterly, with a balloon payment of remaining principal and interest at loan maturity.
Most real estate crowdfunding platforms will host a project and wait for it to become fully funded before moving forward with the developer’s rehab work. This is a disadvantage because investors who’ve contributed funds to these potential projects are left waiting for the project to be fully funded while their money sits dormant in a nonperforming investment.
Patch of Land’s business model is to pre-fund all projects before offering them to investors. They go to the closing table with the funds to make the deal happen. They’re so confident in their underwriting criteria and process that they invest 100% in the projects they approve — and get the borrower the funds and approval to move forward that day.
Pricing & Fees
Patch of Land doesn't charge annual fees for investors or borrowers. To make money, it takes 1% to 2% of interest distributions from borrowers.
Patch of Land is different from many crowdfunding companies that focus on equity-based investments. But despite this different approach, its recent track record and poor customer service is concerning. For this reason, we suggest considering several Patch of Land alternatives that still let you add real estate to your portfolio.
|Account Fees||1%/year||0-3% of loan amount||1-1.25%/year asset management fee|
We like Fundrise since it lets you invest in real estate starting with only $10. It also has a variety of funds to help with diversification, and you get paid quarterly dividends. As for fees, Fundrise only charges 1% annually. Overall, it's our favorite way to invest in real estate with little money.
As for RealtyMogul, it's an excellent option for investing in commercial real estate and private deals. And it's open to non-accredited investors as well and has a $5,000 minimum investment amount.
These days, investing in real estate is easier than ever thanks to the rise of crowdfunding platforms. And companies like Patch of Land provide a more niche is focuses on first-position debt loans only (no equity deals) and pre-funding all deals.
However, despite taking a different approach than equity-based real estate crowdfunding companies, there are significant risks to investing with Patch of Land. Recent reviews of the company are largely negative, citing high default rates, a lack of reporting, and poor customer service.
For these reasons, we suggest exploring alternatives like Fundrise or even newer crowdfunding companies like Arrived Homes. The short-term nature of PoL's debt investing options is appealing. But until the company proves its rebrand has led to better performance and customer service, proceed with caution.