This article was originally published in Think Realty Magazine in the American Association of Private Lenders’ (AAPL)-sponsored “Investor Review” insert in the July/August 2017 issue.
Patch of Land is a marketplace lender that originates residential and commercial real estate loans by leveraging proprietary technology to support its innovative crowdfunding platform. In addition to offering mortgages on non-owned occupied residential and commercial properties, the company allows individual investors the opportunity to achieve attractive yields by purchasing fractional ownership of their loans with as little as a $5,000 investment.
Historically, real estate lending in the U.S. has been a slow, inefficient and difficult process with limited opportunities for owners of non-owner-occupied properties to tap into the debt market to grow their real estate portfolios. That began to change in the wake of the housing crisis as specialty lenders emerged to meet the needs of real estate investors who sought opportunities to invest in and rebuild the nation’s real estate market post-crash.
Patch of Land, which began providing loans in 2013, is different from traditional banks and nonbank mortgage lenders in that it uses an advanced online platform and proprietary technology to facilitate its underwriting and lending process. Its online platform provides efficiencies, speed, 24/7 access, transparency and lower costs than traditional “hard money” lenders that typically operate with a limited geographic reach and have yet to adopt state-of-the-art technology.
The company was co-founded by Jason Fritton, a successful e-commerce entrepreneur, and his brother, Brian Fritton, an award-winning technology guru. The two had a passion for wanting to help repair communities devastated by the housing crash. Jason Fritton was an early supporter of crowdfunding capital formation exemptions that would later become a part of the JOBS Act, a 2012 law that gave way to innovative real estate finance organizations. His brother had a vision for how technology could change the real estate market and together, the brothers formed what would become Patch of Land.
To be sure, the real estate crowdfunding sector where Patch of Land operates has become competitive in recent years as startups emerge to meet the needs of an evolving real estate investment marketplace. These online portals often have different target customers and operate using different business models.
Patch of Land’s business model is to fully fund real estate loans before offering them to investors on its proprietary crowdfunding platform. About 75% of its loans are for single-family residential property with the balance consisting of multifamily and commercial properties. Patch of Land underwrites and funds their loans, so they are able to offer borrowers a quick decision on loan applications and are typically able to fund a loan in as little as seven days.
Here’s a quick look at what the Patch of Land has achieved through Q1 2017:
• 505 loans, with an average loan size of $521,287
• $311.9 million in originations through Patch of Land (or referred to strategic partners)
• $264.8 million in loans funded through Patch of Land’s lending entity
• $76.4 million earned by investors with a realized rate of return of 11.2%
• A weighted average Day 1 loan-to-value of 66.2%
• Able to lend over 44 states with loans now funded in 39 states and the District of Columbia
Patch of Land is committed to efficiently serving the needs of residential and commercial real estate developers seeking financing and institutional and individual investors who understand the value of investing in asset-backed loans.