If you’re not an accredited investor but want to enter into the potentially profitable realm of real estate crowdfunding, you’re in luck. This in-depth Groundfloor review for 2021 explains how the platform works, its benefits and drawbacks, if it’s legitimate, and whether it could be a suitable match for you.
What is Groundfloor?
Groundfloor is a real estate investment platform focused on residential property loans for fix-and-flippers. Short-term debt is used by these borrowers to purchase a property, repair it, and then either refinance it as a rental or sell it for a profit.
Groundfloor is a real estate investment platform that provides hard-money loans for particular projects and then sells portions of those loans to investors who receive interest on the money they loaned to fund the project. A hard-money loan is a loan backed by a “hard” asset, such as real estate, that is expected to generate a return in order to repay the debt promptly.
These loans vary from regular mortgages, which are secured by the value of a property and guaranteed by the borrower’s capacity to repay the loan over 15 to 30 years in monthly payments. These are business loans, and the borrower intends to use the cash to increase the value of a property that they want to sell for a profit.
Groundfloor is a real estate investment platform that allows investors, both accredited and unaccredited, to finance these short-term, high-yield loans for as little as $10 per loan.
Groundfloor also provides a diversified notes product and a savings app called Stairs, both of which are backed by fix-and-flip loans.
How Does Groundfloor Work?
To begin, you must connect your checking or other specified account to your Groundfloor account and fund it. You send cash and then pick which project(s) to invest in after your Groundfloor account is funded. You may access additional details on each loan’s detail page after browsing the overview page of loans being financed on the platform. You pick when to invest, how much to invest, and where to invest.
Investors have up to 45 days to finance the loan once the offering is offered for financing. The loan is usually for six to twelve months, although it may be shorter or longer.
You’re really buying a Limited Recourse Obligation (LRO), which is a debt instrument issued by Groundfloor. The LRO you’re purchasing is for the project you’ve decided to support. The success of each LRO is decided by the success of the borrower’s loan.
You become a creditor to Groundfloor after you acquire an LRO. The LRO is repaid when the borrower repays the loan in which you invested.
Groundfloor is licensed to conduct business in California, Georgia, Illinois, Maryland, Massachusetts, Texas, Virginia, Washington, and Washington, D.C. by the Securities and Exchange Commission (SEC). The firm intends to grow to other states and, ultimately, to the whole country.
Most customers who want to borrow money from Groundfloor are turned down by their due diligence team, which is made up of professionals with real estate expertise. However, there are no assurances; if you invest in a loan and it defaults, you may lose your whole investment.
The money isn’t liquid while it’s in the loan. You won’t be able to sell it to another investor or cash it out. You’ll get interest on top of the loan after the principle is repaid. You’ll be able to either reinvest or withdraw the funds to your bank account.
Groundfloor has given $38 million to 318 projects thus far. Investors have got an average return of 10% thus far.
Groundfloor’s single largest benefit is the ability to invest in private real estate without being an authorized investor. To be clear, certain other sites, like Modiv Fundrise, enable non-accredited individuals to engage in private real estate via real estate investment trusts (REITs). For example, Fundrise manages a private REIT that provides investors with access to private real estate. Groundfloor is unique in that, rather than investing in a management company, it gives direct access to private real estate.
Groundfloor Features And Benefits
Accounts that are available: Traditional, rollover, Roth, SEP, and SIMPLE IRAs, as well as solo 401(k) accounts, are all taxable investment accounts.
Fees. Investors do not have to pay any fees to utilize the Groundfloor platform or to invest in LROs.
Customer Support. Monday through Friday, 9:00 a.m. to 5:00 p.m. Eastern Time, via phone or email.
Dividend distributions. There are no dividend payments. As each loan is repaid, both the income and the principle invested are returned. Groundfloor is different from other real estate crowdfunding sites in that it does not pay out monthly payments.
Platform security. Groundfloor encrypts all data with an AES 256-bit symmetric key to keep it secure.
Limited liquidity. Despite the fact that loan investments are short-term, you must stay committed until the debt is paid off. If you wish to get out of an investment early, there is no liquidity available.
Availability. Investors from all 50 states are welcome to participate (since January, 2018).
Minimum initial investment. LROs are available for purchase in $10 increments.
Groundfloor Review: Pros & Cons Of Groundfloor
When it comes to utilizing the real estate crowdfunding platform as an investor or a borrower, there are both advantages and disadvantages.
- This platform enables you to automatically reinvest the principle and interest payments on your note investments.
- The investor retains control of the situation.
- It’s simple to create a Groundfloor account.
- Traditional mortgage loans on properties allow investors to receive monthly cash flow.
- Investments in self-directed IRAs are permitted.
- A minimal minimum investment of $10 is needed, which is much less than the average minimum investment in the real estate crowdfunding business.
- Every 30 days, the loan status is updated.
- There are no costs for investors.
- A simple way to boost your personal finances by investing in a different asset.
- Deal flow is quick.
- Non-accredited investors who want to diversify their investment portfolio with real estate may use the site.
- A limited number of loans are available.
- Borrower’s personal guarantee is not required for delayed loans.
- To see investment information, you must first join up.
- Some investments are “delayed,” meaning they have no current cash flow (investors are paid in a lump-sum at the end)
Groundfloor Returns: What should you expect?
Diversification is the key to effective Groundfloor investment. Even if losses occur, investors who diversify their portfolios among a broad range of loans should expect to earn high overall rates of return.
According to Groundfloor’s calculations, a model portfolio consisting of an equal investment in 1,545 repaid loans as of July 2021 would have produced an annualized net return of 9.98 percent. According to the same diversification study, a model portfolio with equal investments in all 1,545 loans repaid to date would have had a loss ratio of -0.69%.
Groundfloor is managed by a talented group of experts with experiences ranging from investment banking to real estate to technology.
The staff includes expertise in each of their professions, led by CEO Brian Dally, who has a Harvard MBA as well as a law degree.
The real estate crowdfunding platform’s workforce has a wealth of expertise and understanding in the building and home restoration industries.
These employees examine and evaluate all refurbishment plans as well as the budget for all loans and real estate projects.
Who Can Profit from Groundfloor?
Groundfloor may be a good investment for you if you’re ready to take on a little more risk in exchange for a little more money. Groundfloor might be used in a well-diversified portfolio to replace high-yield bonds, but the assets aren’t as liquid. And the minimum investment for each project is just $10!
Groundfloor is a good option for investors that don’t require cash and are ready to take risks. It’s a low-key method to become involved in the fix-and-flip game. Many investors will be interested in this.
Borrowers that fulfill Groundfloor’s stringent requirements will be offered low-cost loans with attractive conditions for flippers. The majority of Groundfloor’s borrowers choose for the delayed payment option, which allows them to avoid making loan payments throughout the repair and flip process. As a borrower, you should think about this option.
What Makes Groudfloor So Great?
There are a slew of additional crowdfunding services that aggregate money from investors. You may have heard of Lending Club, for example.
A borrower may acquire a $10,000 loan at 12% interest to consolidate credit card bills in a typical transaction, and that loan is supported by hundreds of investors like you and me, who can buy into it one $25 note at a time.
The loans on the Groundfloor are similar, except they are secured by real estate. On their site, you can generally see samples of current offers, and you may sign up for an account (at no cost) to view loans that have already been financed as well as those that are now being funded.
Groundfloor Review: Final Thoughts
Groundfloor may be a good investment for you if you’re ready to take on a little more risk in exchange for a little more money. This platform is for investors that don’t want liquidity and are prepared to take risks. It’s a low-risk method to enter into real estate investing’s fix-and-flip game. However, before investing, make sure you’re aware of the hazards associated with crowdfunding sites and that you’ve done your homework.
FAQ About GroundFloor
Is Groundfloor Legit or Scam?
Groundfloor’s deal offers aren’t as extensive or clear as those on other crowdfunding platforms, and its business model has led to investor accusations that Groundfloor’s due diligence isn’t up to pace.
Your credit default rate suggests that more stringent due diligence could be able to compensate for the credit defaults. Of course, if you support Groundfloor’s large number of sales, there will be more deals that don’t go as planned.
What is the Minimum Groundfloor Investment?
The minimal investment is $10 and there is no cost to invest on the bottom level. Because of the low minimum, it’s simple to distribute your investment risk over a broad range of projects while maintaining a low risk of loss for each loan and avoiding unnecessary exposure to the Groundfloor platform.
Investing $10 will, of course, provide a little profit. According to management, the typical person invests $3,000 in the first month, $8,000 after a year, and $20,000 after three years.
What Types of Loans Does Groundfloor Offer?
The website provides real estate-backed hard money loans with interest rates ranging from 2% to 4.5 percent.
Individual investors may then put their money to work generating interest by placing the loans on the marketplace for financing.
These loans may provide substantial rewards, but they also carry a high level of risk.
Going mobile: Is there a Groundfloor app?
Groundfloor’s investment platform does not have a mobile app. It does, however, have a mobile-friendly website and is speeding up the creation of an app.
In addition, in late 2021, Groundfloor introduced Stairs, a new mobile savings app. It combines the convenience of a savings account with the real-world profits of investing in one package. Users may earn 4 percent to 6 percent yearly interest on their cash using Stairs.
Who is the Groundfloor Borrower?
The classic real estate flipper is the Groundfloor borrower. They intend to gather funds to purchase houses that are in need of repair, remodel them, and then resell them for a profit.
They attempt to do all of this as soon as possible, usually within six to twelve months. The origination expenses of a standard mortgage might be excessively high given the shorter time period of these projects.
Groundfloor is popular among real estate flippers because of this. The loan duration is shorter, and repayment is simpler with a single balloon payment rather than smaller monthly instalments.
The properties that the money is utilized for repay all of the loans. They’re personal guarantees on full recourse loans. The borrower has a legal claim to not just the property but also the borrower’s personal wealth if the loan is defaulted on.
For its debtors, Groundfloor has minimal quality standards, such as a credit score of 640. Remember that prior flipping expertise isn’t required, so have a look at the borrower profiles before you buy.
Who are Groundfloor’s Competitors?
Anyone acquainted with crowdfunding would recognize that there are several online real estate investing platforms available.
Groundfloor is unusual in that it offers real estate-backed short-term debt investments. The majority of their rivals exclusively provide real estate equity investments.
Before deciding where to invest, have a look at Groundfloor’s primary rivals.
Who Shouldn’t Use Groundfloor?
Groundfloor isn’t a good investment for someone who requires a lot of cash. Don’t utilize Groundfloor if you need money to pay for school, purchase a vehicle, or start a company. People who are already committed to a certain investing plan will not need investment services.
An investor who isn’t comfortable with genuine risk should avoid Groundfloor. Investing in Groundfloor entails more than just enduring market volatility. You must believe that marketplace lending is a decent approach to spend your hard-earned money.
Does Groundfloor Pay Monthly
Borrowers are not required to make payments once the loan closes until the debt is repaid. To be on the platform, Groundfloor charges borrowers 2% to 4.5 percent of the loan amount. Some loans (about 10% to 20% of total loans offered) also include a monthly interest payment.
How does Groundfloor Make Money?
Investors are not charged any fees by Groundfloor. While some real estate investment crowdfunding platforms charge a 1-2 percent “spread” between what the borrower pays and what the investor receives, Groundfloor charges borrowers an origination fee (typically around 4%), as well as a variety of other administration and processing fees, bringing their fees in line with similar platforms.