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ClosePatch of Land Review
Patch of Land is a peer-to-peer real estate marketplace for hard money lenders looking for short term investments with high yields.
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Patch of Land (PoL) is a crowdfunding platform that provides marketplace opportunities for real estate developers looking for funds to be matched with accredited investors.
The profile of borrowers who seek investment capital on Patch of Land consists of those who desire consistent and timely sources of funding to enable them to rehabilitate and flip properties.
The investors, on the other hand, look to finance short-term, albeit high-yielding asset-collateralized investments.
While Patch of Land is a profit-seeking enterprise, central to its mission is still its founding philosophy of social responsibility through growing communities.
According to Neil Wolfson, the President, and CEO of SF Capital Group, “The real estate lending marketplace is quickly transforming the way investors and developers interact, and Patch of Land is at the forefront of this change.”
Fast Facts
- Account Minimum: $5,000
- Loan Minimum Amount: $100,000
- Fees: 0% – 3% of loan amount
- Investment Type: Real Estate Debt
- Investment Length: 1-36 months
Ratings
- Fees: 8/10
- Ease of Use: 7/10
- Diversification: 8/10
- Due Diligence: 9/10
- Customer Service: 9/10
- Investment Portfolio: 9/10
- Overall: 8.5/10
What is Patch of Land?
Patch of Land is one of the earliest crowdfunding services to have emerged in the real estate industry, and it quickly established itself as an innovative pioneer.
It has taken advantage of existing technology to facilitate a marketplace that brings together real estate operators looking for capital with accredited investors willing to invest in development properties.
Patch of Land was co-founded by Brian and Jason Fritton in 2013 after the SEC implemented Title II of the JOBS Act in 2013.
Jason Fritton is the CEO and executive chairman. The ambition behind Patch of Land was to change real estate financing into a data-driven, technology-enabled market that is easily accessible to investors and borrowers.
While Patch of Land has been lauded for its transparency, for instance, in releasing its total transaction volume. However, the company doesn’t divulge any detailed information about the state of its balance sheet and funding.
It raised $23.6 million in venture capital funding in 2015 from SF Capital and Prosper.
In the aftermath of the funding, Neil Wolfson, the President and CEO of SF Capital Group, joined Patch of Land’s Board of Directors.
Patch of Land Overview and Summary
- Transparency of deals with crowdsourcing projects
- $100,000 minimum loan amount
- No annual nor transaction fees for investors or borrowers. Of the interest made by the platform’s borrowers, Patch of Land takes between 1% and 2% of it
- Diversity of investment properties in commercial and residential real estate
- First lien positions for investors on the underlying property
- Patch of Land puts their money where their mouth is by having skin-in-the-game through pre-funding all projects it has greenlighted.
- Borrowers with bad credit get a shot if they can demonstrate the viability of the project.
Pros
- High degree of transparency, including visibility of borrower’s past projects
- Have issued over 500 loans to date
- ROI as high as 8% to %12
- Minimal management fee of 0% to 2% charged by Patch of Land
- Carefully vetted deals
- Bankruptcy remote protection
Cons
- Minimum investor amount is high at $5,000 per loan
- Not available to certain states in the United States like Minnesota, South Dakota, Nevada, and Arizona
- Only accredited investors have access to the platform
- High Loan-to-Value (LTV) as much as 80%
- Few open investments
Patch of Land’s Ethos of Social Responsibility
Patch of Land was launched in 2013 when Chicago was still reeling from the effects of the financial and housing crisis of 2008.
While its headquarters and satellite offices are located in Los Angeles and New York City respectively, it was founded to serve local communities in Chicago by funding the renovation of older properties. The CEO and Co-Founder, Jason Fritton felt inspired to help Chicago’s neighbourhoods that were devastated by the real estate crash that occurred a couple of prior years.
The company has strived to integrate these “social and governance policies” in the places where it has sought to do business.
Patch of Land has taken this mantle to places like Newark, New Jersey to help rehabilitate some of the neighborhoods still suffering the effects of the city’s riots that occurred in the 1960s.
Prior to crowdfunding platforms that Patch of Land helped inaugurate in the field, real estate investors and developers had a hard time scaling their business due to capital constraints. Access to capital was a hindrance because most of these projects are difficult to get funded by banks or traditional financial institutions because the real estate field tends to be over-regulated.
Patch of Land offers a lending marketplace that attempts to provide a win-win scenario for both accredited and institutional investors.
Patch of Land Loans
Most of Patch of Land’s loans are for “fix and flip” projects, which rehabilitate individual residential properties. The average loan amount is in the range of $500,000, with maximum ceilings up to ten million dollars.
Its offerings encompass both commercial and residential properties and the loan repayment spans between one to 36 months.
The platform’s competitive edge rests on its ability to provide low-minimum real estate investment opportunities, which are nonetheless transparent. It also applies to how it executes its loans.
When borrowers are approved, the loans are pre-funded, which means that the borrower can start the project immediately without waiting idly by to be fully-funded by investors.
🏦 Interested in a small business loan? See our in-depth Fundera review to see all the loans you’re eligible for.
Who is the Ideal Customer for Patch of Land
Patch of Land is ideal for people with modest means who want to create passive income but don’t necessarily want to manage properties of their own.
It operates in the mold of peer-to-peer platforms like PeerStreet, which we have also reviewed here, which further illuminates how crowdfunding works in the real estate market.
The company makes the bold claim on its site that customers are in a position to earn as much as 12% returns on their investment within a year.
Patch of Land Compared
$5,000
N/A
0-3%
(of loan amount)
0.5%
(set up fee)
9% – 18%
11% – 12%
1-36 months
N/A
High-yield, short-term debt investments
Budget conscious investors looking to break into rental property ownership
N/A
$5,000
0.5%
(set up fee)
0.5% – 1%
11% – 12%
14% – 20% (Equity)
10% – 14% (Preferred Equity)
N/A
1-5 years depends on investment types
Budget conscious investors looking to break into rental property ownership
Accredited investors looking for high-quality, long-term deals
Minimum investment
$5,000
N/A
$5,000
Fees
0-3%
(of loan amount)
0.5%
(set up fee)
0.5% – 1%
Advertised returns
9% – 18%
11% – 12%
14% – 20% (Equity)
10% – 14% (Preferred Equity)
Investment length
1-36 months
N/A
1-5 years depends on investment types
Best for
High-yield, short-term debt investments
Budget conscious investors looking to break into rental property ownership
Accredited investors looking for high-quality, long-term deals
Restricted to accredited investors?
Patch of Land Fees
No annual fees involved. However, borrowers are charged late payment and default fees.
The last publicly available reports published by Patch of Land stop in the third quarter of 2018. Surprisingly, the absence of fees is not extremely common in the world of real estate crowdfunding. A review of CrowdStreet, for example, shows no fees for investors whatsoever.
On their website, Patch of Land says they have funded 1,571 loans, totalling more than $725,000,000 with the average loan size of $457,000.
| Fee | Amount | When Due | Purpose of Fee |
|---|---|---|---|
| Application Fee | $200 but which is waived for repeat borrowers | When the Letter of Intent (LOI) is signed and returned | This covers the initial due diligence such as obtaining credit card reports and other background check information from necessary sources. |
| Appraisal deposit | Contingent on the location of the property, and the type of property. For residential properties, it is $599 | Same as above | To evaluate and confirm a fair market value of the property in its current state. Rehab properties are evaluated on after-repair value |
| Underwriting fee | $600 | At closing | Assess the risk of the loan and credit worthiness of borrower |
| Servicing fee | $0 (however, a steep $500 fee if ACH Authorization isn’t provided) | At closing | |
| Attorney and document preparation fee | $500 flat fee for document preparation; except for New York, where a $1,500 is charged Attorney fees vary as needed, and by state as well. | At closing | Outside counsel are hiring for compliance, drafting documents, representation at closing and so on. |
| Draw reimbursement fee | $300 for residential property per draw or 0.5%, whichever is higher. Commercial fees vary by state. | At the time of reimbursement | Internal management and 3rd party inspection |
💡 How does Patch of Land’s fees stack up against the competition? Find out in our top real estate crowdfunding sites report.
What We Like About Patch of Land
One of the reasons why we like Patch of Land is obvious to any interested observer of the real estate crowdfunding marketplace: the platform has built a well-earned reputation for its historical transparency.
Apart from incorporating a legal structure that has been lauded as one of the most evolved and transparent in the industry, unlike other competitors, it openly releases accurate figures of its total transaction volume.
The transparency Patch of Land incorporates in its portfolio enhances the decision-making of investors because of the thorough detail involved in vetting deals beforehand. This allows prospect investors to research properties thoroughly and review the borrower’s history of projects before deciding whether to part with their money.
We also admire Patch of Land’s savvy, well-thought-out business model and its smooth implementation which is a huge competitive advantage difficult to replicate.
The platform wisely favors real estate projects that have demonstrable cash flow abilities, along with the developers that show the ability to increase that revenue. It also hedges against risk by offering mainly short-term loans which are safer than their longer-term counterparts.
We also admire how Patch of Land was able to take a concept that was hyper local and scale it into a national marketplace.
Through prefunding, Patch of Land shows confidence in their business by demonstrating they believe enough in their own product to invest their own money.
🏘 Looking for a different way to break into real estate investing? Take a look out our comprehensive Roofstock review. The platform functions as an advanced rental property marketplace.
Patch of Land and the Aftermath of the COVID-19 Pandemic
The COVID-19 pandemic has impacted virtually every industry and disrupted capital markets around the world. The real estate industry was no exception.
The pandemic placed pressure on new loan originations thereby compelling operators in the property business to make changes to their loan programs.
One of the actions Patch of Land took to ameliorate the impact of the pandemic on its operations was to cease the providing Long-Term Rental program. The platform didn’t specify when this program would be resumed.
Likewise, the leverage and rates on Patch of Land’s Short-Term program were also changed but they are requesting interested parties to contact them directly for these new rates.
As it currently stands, Patch of Land is only offering 9-month and 12-month bridge, fix and flip programs.
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How Does Patch of Land Work?
Patch of Land works in conjunction with hard money lending investors and real estate developers to provide available loans sources for the marketplace platform. The borrowers who need the loans submit requests, which are subsequently subjected to due diligence processes either by the platform or third-party operators.
The following are the current guidelines for submission:
- $100,000 loan minimum
- Loan to Value (LTV) must be less than 75%
- Requires a minimum down payment of 20% of the loan amount
- The After Repair Value (ARV) has to be less than 65%
- Duration of the loan has to be between 1 – 12 months, after which there can be a six month extension
- Patch of Land finances 100% of the construction cost
Apart from these guidelines for debt purchase or refinance investments, Patch of Land also asks for personal guarantees.
However, these guidelines aren’t set in stone and may be negotiable based on the magnitude or strength of the project. According to their website, Patch of Land is open to consider allowing a higher ARV or LTV if the property can be bought at a price substantially below its prevailing market value if the developer provides additional security guarantees.
The appraisal of the loan normally takes about four to five days to complete, after which it is forwarded to an underwriter for review to ensure all due diligence is satisfied.
In total, it takes about 10 business days for a loan to close; although some close as early as five business days depending on how soon the developer submits all the required documents.
Investors have a good bargain from the perspective of being able to obtain an insider’s view of what a prospective borrower’s history looks like, from seeing the borrowers due diligence documents, their proposal for the real estate loan, the interest rate being charges, ARV/LTV, and other information that might be pertinent to their decision to lend.
This transparency is crucial as it enables investors to make an informed decision as to which pre-screened projects meet their investment profiles diversification requirements in terms of term, yield, geography location, and loan or project type.
This insight enables them to decide if the borrower’s project and profile is a good fit for their investment portfolio.
The company offers a diverse range of funding for properties ranging from single-family residentials, to multifamily, and mixed-use projects.
🏡 Interested in real estate investing platforms that focus on debt? See our PeerStreet review.
Is Patch of Land a Good Investment?
Understanding how to invest one’s hard-earned money involves being able to identify good investment opportunities.
Patch of Land provides opportunities for investment through borrower payment dependent notes (BPDN). BPDN is an avenue to provide interest to investors in a property although they don’t own any title or equity in it.
Its loans take the form of short-term loans necessary to rehab, refinance, and bridge loan projects.
With a minimum of $5,000 investment, you can select which properties you want to invest in, and subsequently receive monthly payouts in the form of annualized returns on the investment.
These returns are usually in the range of 9% to 18%, all depending on the risk and ROI.
What is the Average Return on Patch of Land?
To provide an estimate of the kind of returns to expect from Patch of Land, we have taken two values that represent the average lower and upper bounds loan amounts and projected their returns over five years.
| Loans Amount | 1-Year ROI @8% | 1-Year ROI @12% | 3-Year ROI @8% | 3-Year ROI @12% | 5-Year ROI @8% | 5-Year ROI @12% |
|---|---|---|---|---|---|---|
| $150,000 | $12,000 | $18,000 | $36,000 | $54,000 | $600,000 | $900,000 |
| $1,000,000 | $80,000 | $120,000 | $240,000 | $360,000 | $400,000 | $600,000 |
How Does Patch of Land Make Money?
Due to its stringent due diligence practices, Patch of Land’s project usually starts to earn interest almost at once. This interest is used to repay investors on either a monthly or quarterly basis.
Patch of Land makes money from account fees, which is usually between 0 – 3% of the loan amount.
How is Patch of Land Different From a REIT?
REIT stands for real estate investment trusts. These are companies that finance or own income-generating real estate assets across a range of properties as diverse as residential apartments, warehouses, hotels, and even malls.
REITs are mandated to meet certain requirements before they can qualify for the privilege.
While REITs can either remain private or be publicly traded on publicly traded on the stock exchange, they are all legally required to pay 90% of their taxable income to their investors: this is the main point of differentiation between REITs and Patch of Land.
Although real estate peer-to-peer crowdfunding platforms like Patch of Land may be in a position to offer their customers private access to markets and higher returns than traditional REITs, REITs nevertheless have a strong history of paying dividends.
REITs are suited for more conservative investors who desire steady dividend income and seek to have long-term security in the form of long-term capital appreciation.
Patch of Land, like most crowdfunding platforms, is better than REITs in allowing average, even small time investors to benefit from the disproportionately, not-so-average returns the real estate market can yield.
Patch of Land also provides an easier investing experience to users by allowing them to start investing more quickly and easily. However, publicly traded REITs offer more liquidity.
Which is Better: Patch of Land or Fundrise?
In our estimation, Patch of Land has a number of unique benefits when compared to Fundrise.
While there are several attributes that appear to favor Fundrise over Patch of Land, however, these features may not necessarily serve the long term viability and health of the investor’s portfolio.
First, let’s highlight some of the Fundrise’s favorable features, such as requiring a minimum deposit of only $500 for investors. This is a positive development because the low barrier makes it easier for newcomers to build a real estate portfolio without having to break the bank.
Fundrise’s minimum deposit equally has the advantage of being lower than those charged by privately owned REITs.
Apart from eliminating the huge capital requirement hurdle that hitherto prevented prospective real estate investors access to privately held assets, Fundrise also provides more leeway compared to Patch of Land.
Unlike Patch of Land, for instance, Fundrise has options for non-accredited investors, like its eREIT, which further expands the scope of investors who can participate in the largesse.
However, Fundrise has been caught with its hand in the proverbial cookie jar. It has been accused of inflating its transaction volume so that its product appears more attractive than it actually is.
In stark distinction, Patch of Land has maintained a degree of openness with its investment report not seen among similar organizations.
In addition, it has more stringent capital requirements, thorough due diligence and transparency provide investors with better performing portfolios.
In Conclusion: Is Patch of Land Right for You?
Going through the traditional banking system has historically proven to be difficult for investors seeking to fix and flip properties due to regulatory bottlenecks.
Innovative companies like Patch of Land have stepped in to fill this need with the aid of technology and business models investing in real estate attractive.
Patch of Land makes it worthwhile to invest your money in short-term debt with generous returns.
Patch of Land FAQs
-
How Safe is Patch of Land?
Like any investment, there is an inherent element of failure. Likewise, borrowers of Patch of Land can default on their loans due to downturns in the market or construction mismanagement.
However, there are in-buit margins that help to protect against catastrophic loss.
While an investor can lose some of the principal invested in the deal, Patch of Land’s requirement of a pre-repair loan value as high as 80%, including an ARV of 65% goes a long way to provide enough buffer to protect against total loss.
-
What Does it Mean to Be an Accredited Investor?
An accredited investor has special status under financial regulation laws that allow them to deal with securities that aren’t usually registered with financial authorities.
Looking for real estate investment opportunities for accredited investors? See our EquityMultiple review. -
Am I Eligible to Invest on Patch of Land?
Patch of Land only allows accredited investors to invest in its platform.
To qualify as an accredited investor in the United States, the following are some of the abbreviated rules enumerated by SEC in Rule 501 of Regulation D.
We have stipulated these criteria previously in our review of PeerStreet and have reproduced them here:
- In each of the prior two years, as an individual, you must have earned a yearly income that is greater than $200,000. If a spouse is involved, then a combined $300,000 is required.
- Or alternatively, the individual has a net worth of over $1 million, whether by themselves or together with a spouse.
Other eligible categories for accredited investor include the following:
- An entity that has all its equity owners as accredited investors
- A trust, not formed with the intention of purchasing the “subject securities,” worth more than $5 million. This trusts loan investments has to be directed by a “sophisticated person,” who is an individual that possess extensive experience and knowledge in financial business matters.
-
What Does it Mean to “Reinvest Small Balances”?
This is an optional feature available in some financial instruments and investment vehicles that allow funds in your account to be invested, usually automatically, in small increments of $100.
The idea behind this is to reinvest some of your interest payments by taking advantage of compound returns.
Patch of Land automatic investment tool is called AutoInvest. It allows investors to configure the preselected investment criteria that is subsequently used to access satisfying investment opportunities.
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How Can I Diversify My Portfolio of Real Estate Loans Using Patch of Land?
Patch of Land allows investors to diversify their real estate portfolio with different property offerings such as commercial, and residential varieties like mixed-use, single-family, to multifamily.
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Does Patch of Land Make Loans to Borrowers?
Technically, the investors in the project make “loans” to borrowers, but Patch of Land somewhat acts as a direct lender by prefunding and underwriting the loan for the project so that developers can commence their projects without delay.
Patch of Land acts as a secondary market for loans sourced from existing lenders who are then matched with borrowers seeking financing options.
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Are My Funds on Patch of Land Insured by the FDIC?
Yes, your cash funds deposited in Patch of Land are insured by FDIC for up to $250,000.
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What are Debt Investments?
Debt investments are backed by assets (usually fixed), such as real estate property. They allow you to invest in a loan, say, to rehabilitate a housing bungalow whereby the investor subsequently receives a fixed interest off of the loan.
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How Long Does it Take for Patch of Land to Fully Fund an Investment Offering?
In some, it takes as quick as several minutes while others might take several weeks.
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What is the Total Cost of Listing a Project of Patch of Land?
It doesn’t cost anything to post or list projects on Patch of Land.
Patch of Land and the Competition
See how Patch of Land compares to the top real estate investing platforms by reading one of the reviews below.
All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on tokenist.com. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.
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