How it Works: Real Estate Crowdfunding at Patch of Land

patch of land la jolla

While everyone else was playing Pokemon Go last month, I was doing something more appropriate for someone my age, crowdfunding a house flip in La Jolla. Amazingly, I was able to view the property and public records (Google Streetview, Bing, Zillow, Redfin, Trulia); check out the construction-cost estimates; review the revised floor plan; and check out the actual appraisal for the as-built value against four comps in detail, all from the comfort of my home.

Ever since a brief stint in the early 1990s at a mortgage bank, I’ve known there was great demand, and tidy profits, in financing major home rehabs. I never thought I’d have the guts to flip a house myself, and I still don’t, but I can do the next best thing: loan money to real estate rehabbers through crowdfunding sites such as Realty Mogul, Patch of Land, RealtyShares and the like.

For my first try, I chose Patch of Land because they are a Finovate alum (see note 1), but mostly because their email showcasing a new rehab investment opportunity in La Jolla, California (where I honeymooned) caught my attention (see investment page above). The developer bought a 3-bedroom, 3-bath house in May for $1.3 million and is putting $500,000 into a major remodel, creating a 4-bedroom, 2-bath (which the appraiser objected to by the way). The work has already begun, but Patch of Land was still looking to fund the final 10% of the loan. The startup prefunds the projects with its own money, then resells them to investors. This particular house will pay 10.5% interest for the 11 months remaining on the original 1-year term; however, it is likely to be paid off early if all goes well and the house is sold before the end of the 12-month period.

The real estate crowdfunding industry is already bigger than I expected. I haven’t found reliable stats for 2015, but the market was estimated at $1 billion in funding in 2014. Patch of Land has done $150 million since inception, and Realty Mogul, more than $200 million. According to (an undated post) in the Real-Estate Crowdfunding Review, more than 100 such sites exist. They rated eight as all-stars, including two Finovate alums: Realty Mogul ($200 million in cumulative originations) and Patch of Land ($100 million in originations as of March 2016), along with Acquire Real Estate, LendingHome, Peer Street ($75 million in originations), Real Crowd, Realty Shares ($130 million through Feb 2016) and Roofstock.

Bottom line: If you are looking for alternative investments to recommend to clients, consider working with a major crowdfunder to white-label or co-brand the service.

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Note: If anyone wants to talk real estate crowdfunding, or anything else, at Finovate NYC in two weeks, drop me a line (jim@finovate.com).

Tuesday Tactics: Attracting Young Customers via the Parents

futureadvisor_collegesavings

This is a continuation of Friday’s post about using apartment rent-and-chore-tracking app HomeSlice to attract younger customers. The app is a classic Trojan Horse tactic, though not a nefarious one. The thing is, once you get customers digitally locked-in to your platform, they may never leave. And while this works on any age group, the younger set is more attractive in many ways, because they are not already set in their financial ways, and they have massive revenue potential if you are able to hold onto them through the next few decades.

Today, automated investment management platform, aka a robo-adviser, FutureAdvisor launched its own youth play, but targeted it to the parents of the kids it hopes to serve for the next 70 years. The service, dubbed FutureAdvisor College Savings, aims to get funds earmarked for college into its managed savings plan. The startup is forgoing its usual 0.5% wrap fee and is offering the account at zero cost. An impressive graph (inset) charts the savings growth in its plan (optimistically predicted at a 7.1% annual return) vs. a bank savings account (pessimistically pegged at 0.5%) over 2o years. Even though the spread is likely to be less dramatic than the indicated 6.6%, the benefits are large.

Bottom line: For most financial institutions, the parents are probably the easier path to landing the under-21 crowd. So financial services companies should consider similar offerings whether it be student-loan management, regular savings accounts, starter credit, apartment loans, first-car loans, and so on (for more ideas, see previous posts).