Note: Post may contain affiliate links.

Patch of Land Review of Real Estate Crowdfunding Platforms

Patch of Land is a debt investment real estate crowdfunding site but is it the best option for your money?

I’ve been an active real estate crowdfunding investor on several platforms and am always looking for new sites to find quality deals. Investing on multiple platforms doesn’t cost anything extra and you get access to more deals.

I came across Patch of Land in a search for crowdfunding platforms and decided to check it out. This Patch of Land review comes from information on the website as well as several other websites and interviews with two Patch of Land investors.

What I found was the typical crowdfunding platform basics but also a few things specific to the platform, some good and some bad.

One specific part of the company’s business model became a deal-breaker for me and was just one of the Patch of Land complaints I heard while interviewing investors. That doesn’t mean it might not be the right real estate crowdfunding platform for you but you’ll have to make your own decision.

Check out these other reviews of real estate crowdfunding and platforms:

What is Patch of Land?

Like most real estate crowdfunding platforms, Patch of Land works off the 2012 passage of the JOBS Act which enables brokers and companies to advertise investments directly to investors.

Real estate developers and flippers apply to have their project funded by Patch of Land. Patch of Land conducts due diligence in the property and then makes a loan to the developer. The platform then advertises the deal on its website and sells pieces of its own loan to investors.

This is an important point to which we’ll talk more later. Unlike other debt crowdfunding sites like PeerStreet, you are not investing directly in the property on Patch of Land but in the note originated by the platform.

Patch of Land only offers debt investments, compared to RealtyShares which offers both debt and equity investments. More than three-quarters (77%) of Patch of Land investments are in single-family residential properties, followed by multi-family (12%) and commercial properties (11%).

The website has originated $366 million in loans through June 2017 with $93 million in funds returned to investors. The average loan size is $487,700 on Patch of Land.

patch of land investments available

Real Estate Investments on Patch of Land

Patch of Land Fees and Minimum Investment

Patch of Land doesn’t list a minimum account amount but does have a minimum of $5,000 for each loan. Notes range from 30-days to 36-month maturities though the average loan term is between six- and eight-months.

This very short-term time horizon was a problem for me. Investments on other real estate crowdfunding are short as well but generally for at least one to three years. Investing on an average time horizon of just seven months means constantly trying to roll your investments over into new loans.

Patch of Land fees are among the highest I’ve seen, as high as 3% plus all fees associated with loan defaults and collections. This last part was the deal-breaker for me, something I’ll talk more about in the next section.

Patch of Land Complaints

I interviewed two Patch of investors for the review and sourced some information from other real estate investing forums. The information here is the opinion of the investors I interviewed and may not reflect your own experience on the platform.

One Patch of Land investor complained about what he saw as rising defaults on notes and the difficulty in getting any of his investment back after court costs. Defaults are going to be a problem with any kind of debt investment but there does seem to be a few issues investors don’t realize about real estate crowdfunding.

Some states; most notably NY, PA and NJ have foreclosure rules that favor property owners over investors. It can take years to take possession of a property or even arbitrate a case. By the time investors get the property, it may be in such a condition that a sale barely covers court costs.

Another investor complained that Patch of Land sold his investment to an institutional investor. The platform had sold some of the debt to investors but then included it in a package deal to a big money institutional player. The individual investors had their money returned but were out the investment and the time they took on the deal.

My biggest complaint is with Patch of Land fees and how investors are unknowingly paying more than their share. Fees of up to 3% are already very high but the platform is also hiding one important point in its fee agreement.

Investments on Patch of Land are not debt directly in the property itself but a share of the debt that the platform has already funded. Patch of Land pre-funds the investments it shows on the website, making the debt investment itself and then selling pieces of its own investment to investors on the platform.

patch of land complaintsNot only does Patch of Land charge its management fee but it also puts investors on the hook for any third-party and legal costs around defaults. The platform talks up its ‘skin in the game’ but isn’t taking any risk in the investment it makes because it passes all fees through to other investors.

Not only is Patch of Land passing through all the fees on its investment but may also be making money on the interest rate it charges developers. The rate it offers investors on the loan isn’t necessarily the rate it charged the developer on the original loan.

Real Estate Crowdfunding Sites like Patch of Land

After talking with Patch of Land investors and looking deeper into its fee structure, I can’t say that I’ll be investing on the platform. Interest rates offered on loans, generally between 9% and 12%, do seem slightly higher than on other debt investing platforms but the fees are also much higher.

I prefer three other real estate crowd platforms with which I’ve invested and reviewed.

RealtyShares is my preferred platform and offers both equity and debt investments in real estate projects. RealtyShares has been expanding aggressively and generally has more investments available than any other platform. Fees on equity investments are only 1% and the platform shares collection costs on debt investments with investors.

Click to Browse Investments for Free on RealtyShares

PeerStreet is my preferred platform for debt investments. Investments are generally for longer time periods, up to two-years, and the platform charges a fee of 0.25% to 1% for investing. PeerStreet also has automated investing, a criteria-based system that will keep your money invested as it comes in, and is an easy way to put your portfolio on auto-pilot.

You’ll have to make your own decision whether to become a Patch of Land investor or not. The platform offers solid returns on its debt investments but the fee structure may significantly chip away at returns. I’ve tried to be as thorough as possible in this Patch of Land review but let me know if I’ve missed anything.

Comments

  1. I agree completely with your patch of land review. I am an investor and have multiple investments where the capital is held up along with the interest. One investment was supposed to return capital in May 2017 but the capital has not been returned yet. Foreclosure has not started and interest has not been paid from Feb 2017. On top of thwt their support has abdolutely no information and is clueless. I am giving negative feedback on patch of land.

    • I’ve heard this a lot from Patch of Land investors. There’s no perfect real estate crowdfunding platforms but there are a few that don’t protect investors as much as they could. I haven’t had any problems yet with RealtyShares or PeerStreet.

Speak Your Mind

*