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.

Back in 2008, I toured the then new Mondrian Hotel Residences in Miami. At the time, the condo units were starting at around $700 per square foot. They came furnished (design by Marcel Wanders). And you had the option of putting it in the hotel pool so that you could earn revenue on it when you weren't using it. I can't remember what sort of ROI was being quoted at the time.

After reading this WSJ article today on fractional second home ownership, I decided to pull some listings in the Mondrian to see how values have fared over the last 11 years (even though the business models are different). Here is one: a 694 square foot 1 bedroom on the market for $295,000 (or about $425 psf). The HOA fee is $1,260 per month and, according to Zillow, the last recorded sale was on September 25, 2007. It sold for $630,400 (or about $908 psf).

Most people probably like the idea of owning a second home that makes money when they're not using it and that requires absolutely no work or effort. But frankly, I have yet to come across a highly successful condo-hotel project (where the units come and go from a hotel pool) and I have yet to see any data supporting fractional ownership (or private residence clubs) as a solid long-term investment.

If you disagree, feel free to prove me wrong in the comment section below.