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Patch Homes announces $5mm Series A round to grow fractional home equity platform

There are a number of home equity startups in the marketplace today.

A few years ago I wrote about an alternative product to HELOCs or home equity loans, called Point. And earlier this year, I wrote about a startup, called Landed, that is helping “essential professionals,” such as teachers, with their down payments. They’ll contribute up to 10% of the value of a home in exchange for a share in any future gains, or losses.

Today, another startup in the space — Patch Homes — announced a $5mm Series A round. From what I can tell, it appears to be similar to Point in that it involves the fractional sale of home equity. Though, to be clear, the model is distinct from the fractional homeownership that is popular in many high demand vacation destinations. Here’s a bit more on how the product works (source):

The Patch model enables homeowners to “tap into” their home equity by selling 20–40% to Patch’s affiliate, Patch Capital, which shares in both the upside and downside. The homeowner remains in control of her or his home for the life of the relationship and exits via a sale or refinances in 7–10 years.

While this product is not for all homeowners, it provides a new and important financing option. The Fed estimates that home equity ownership in the US is $15 Trillion. It makes no sense that the only financing options are additional debt or a complete sale of the property. Patch gives homeowners the option to de-lever their personal balance sheet or otherwise raise cash. Clients have used Patch proceeds for numerous reasons, the most popular of which are to pay off debt, increase liquid savings and finance home improvements.

I am not surprised to see this gaining momentum. The biggest benefit is that it gives you partial liquidity (i.e. cash up to $250,000), without having to sell your property or take on additional debt service payments. It’s equity, not debt. Fred Wilson, an investor in the company, calls it fractionalizing home equity.

2 Comments

  1. Jakob P.

    Hm… I’m not convinced. If the homeowner has to buy the equity share back after 7-10 years, that’s a giant expense they have to diligently save up for in addition to the actual mortgage. The property may appreciate by less than the mortgage interest rate, but mortgage is locked in at the original purchase price (interest payments go down over time) while equity share appreciates. So how is this any better for the homeowner? I guess as long as they’re prepared to sell after 7-10 years, then it reduces both potential gains and losses. But there’s a good chance they won’t be able to buy out the Patch investment because hey, ended up not saving much, or if they do then Patch makes more money than their bank would have made with a mortgage.

    Maybe I’m overly cynical, but in all this real estate fintech innovation I see a theme of giving people access to capital with a high probability of leaving most risks with the homeowner while taking a larger share of the rewards. And all of that just to be able to say “I own a home” while you’re getting shafted of a good part of the benefits that come with ownership.

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  2. Scott Baker

    It’s like a fractional version of a community land trust (CLT) where the community keeps the entire amount and gain/loss of the homes, and the buyer just buys into the community for the time he/she lives there. The buy-in is basically just a fee to join the community, not a payment for the house/condo.
    This is a semi-Georgist idea. Full Georgism would collect the entire rent of the land for community benefit (or government, if done large enough), while letting the developer make money through untaxed building (improvements). Since the profit motive on land is stripped out, the price of land will come down, which will lower building costs and make land prices more stable as well.
    Fairhope, Alabama and Arden, Delaware are examples of Georgist communities that have been around about 100 years.

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