Why Patch of Land Chose Debt-Based Real Estate Crowdfunding

For those who are just beginning to learn about the power of crowdfunding, you might have discovered there are many different uses for this new phenomenon. The following blog post will serve to help give you a better understanding of why Patch of Land specifically chose debt-based real estate crowdfunding (REC) over other methods.

Initially, Patch of Land’s Co-Founder, Jason Fritton, wanted to renovate distressed properties throughout the city of Chicago. He believed this would help him earn a profit, as well as benefit the affected neighborhoods which were in dire need of revitalization. To do this, Jason wanted to pool resources together from a variety of colleagues and other investors interested in this idea. Unfortunately, at the time general solicitation was illegal and could not be done. Instead of giving up, Jason decided to fight these laws and began to lobby alongside US Congressmen McHenry and Dold, who were cosponsoring the crowdfunding exemptions through the JOBS Act. Ultimately President Obama passed the bill which allowed for general solicitation through crowdfunding.  At this point, Jason decided to help co-found Patch of Land, turning his dream into a reality.

Related Article: The Opportunity of the JOBS Act

Early on Patch of Land had the opportunity to choose between equity-based and debt-based crowdfunding. If you are unfamiliar with these terms, equity-based crowdfunding allows you to own a share of the company you’re investing in. These are typically long-term investments that take time to mature, compared to debt-based crowdfunding, which is essentially an investment in a short-term loan. Out of these two new structures, Patch of Land decided that debt-based crowdfunding made more sense for the mission they were trying to accomplish. Not only that, but it was also the largest, most lucrative, and secure market in our estimation. We prefer the relative security of a fixed term and a fixed return (yield), which is only possible through a loan; an equity deal has a projected rate of return, which equates to estimates that cannot be guaranteed over time, especially many years out. Therefore, Patch of Land chose debt-based crowdfunding as a means to bridge the old traditional ways of financing and the new online crowdfunding e-commerce world.

Related Article: The Difference Between Debt and Equity Investments

An additional reason why Patch of Land decided to pursue debt-based crowdfunding was to fill a void construction developers were facing when it came to obtaining funds for their real estate projects. While banks continue to turn borrowers down due to overregulation, Patch of Land serves as an alternative lending source to fund skilled developers with the capital they need to fix and flip proerties in different parts of the nation. By granting these loans, we spawn a chain reaction which helps grow communities, create jobs, and stimulate the economy, particularly the housing market which is starved for capital.

Related Article: How to Make Sense of Rehab Lending

Furthermore, Patch of Land saw an opportunity to create a platform where accredited investors could invest in real estate projects in different parts of the country. Normally, these kind of projects would only be known by a select few who were privy, or local. Now, through our web portal we are able to connect people over the Internet and bring these investment opportunities right to their keyboard or handheld device. Thus, spawning a new wave of national real estate investors on our site.

Patch of Land has led the way in the REC industry and will continue to remain on the front line of the battlefield as new laws are sure to follow in the upcoming years. Our goals is to innovate new technologies and expand upon the structures we currently have in place.  By doing so, together we can continue building wealth and growing communities throughout America, and eventually the world.