Groundfloor Crowdfunding Review – Invest in Real Estate Debt
Diversifying an investment portfolio is important in order to boost your return on investment (ROI). Real estate crowdfunding can be a worthwhile venture that allows you to diversify and receive a passive income stream. This Groundfloor Investing Review provides all the information you’ll need to evaluate the platform.
Groundfloor is qualified by the Securities and Exchange Commission (SEC) to offer real estate debt investments. Unlike most private real estate investments, Groundfloor serves accredited and non-accredited investors.
The Groundfloor crowdfunding platform brings together borrowers seeking short-term real estate project financing and investors looking for cash flow through short-term real estate debt.
Contents
- Groundfloor Crowdfunding Review – Invest in Real Estate Debt
- What is Groundfloor?
- Who Can Invest in Groundfloor?
- How Does Groundfloor Work?
- Stairs by Groundfloor App
- What Makes Groundfloor Investing Different?
- What are the Pros and Cons of Investing in Groundfloor?
- How Do I Start Investing in Groundfloor?
- How Does Groundfloor Automatic Investing Work?
- What Returns Can You Expect from Groundfloor Investing?
- What Are the Risks of Investing in Groundfloor?
- What Are the Different Types of Groundfloor Loans?
- What are Groundfloor’s Fees?
- How Can You Contact Groundfloor?
- Which Are the Best Groundfloor Alternatives?
- Conclusion
- FAQs
- Related
This article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link.
Currently, our Groundfloor investing review research reveals that the company has more than 213,000 registered users who have invested more than $964 million since inception. Their historical returns stand at 10% on average, with less than a 1% loss ratio since 2013.
Our comprehensive Groundfloor review will help you decide if the investment is worth a trial.
What is Groundfloor?
Groundfloor is a unique financial platform that allows all investors to participate in real estate crowdfunding through investing in real estate loans. This Groundfloor review focuses on the opportunities for investors.
The platform gives accredited and non-accredited investors access to real estate investment debt, on a fractional basis. You can preview and fund loans for new construction properties, residential real estate projects (like fix and flip properties), and buy-and-hold properties.
Groundfloor was founded by Nick Bhargava and Brian Dally in 2013 in Atlanta Georgia. Despite its U.S. headquarters, Groundfloor is open to international investors – with a $5,000 minimum.
For U.S. investors, the online marketplace opens a door to short-term, high-yield returns in the real estate investment niche. The investment platform requires a $1,000 minimum, but users can invest $10 or more in individual offers. Unlike most crowdfunding sites, Groundfloor charges no fees, commissions or costs to investors. Instead, the company makes money from the borrowers.
Groudfloor gives borrowers greater access to flexible, fast, and cheap capital than a hard-money lender or traditional bank.
Who Can Invest in Groundfloor?
All investors can invest in Groundfloor: accredited or non-accredited, US or non-US. Groundfloor is one investment platform with doors open to all investors. As a result, the firm is among the most accessible alternative investment opportunities in the market worldwide.
Moreover, the platform’s structure offers many benefits over other non-traditional investment platforms. The most outstanding one is exposing small-scale investors to the real estate debt investment market. With a $1,000 minimum investment, you’re able to access Groundfloor debt offers comprised of short-term real estate notes with high-yield returns.
However, the high-yield nature of the investment returns comes with greater risk. Also, the investment liquidity is lower than you’ll find in the public stock and ETF markets. Groundfloor Notes investments are ideal if you don’t need immediate liquidity.
Groundfloor real estate investing doesn’t require prior knowledge of real estate investments and offers automated investing tools to assess your risk tolerance. For experienced investors, the platform is rich with the project information to aid in selecting an appropriate real estate debt investment
How Does Groundfloor Work?
Groundfloor works by bringing borrowers and lenders (investors) together. The firm works like an online brokerage, where you deposit money through a bank account transfer. The funds take 3-5 business days to arrive in your investor account and are held in your name, not the company’s name. Also, before it is invested, the cash is insured by the Federal Deposit Insurance Corporation (FDIC).
Borrowers apply for a short-term real estate loan (usually 6-18 months), which they use to buy or renovate residential real estate properties for commercial purposes. Many investors use the capital for house flipping; for example, buy a run-down home, improve it, and sell it at a profit.
Groundfloor loans borrowers directly and sells sections of the loans to investors. Your investment represents the debt obligation shares, and you can choose the properties you want to participate in and share in the profit (or loss). The platform has no investment fee for investors. The company makes money from borrowers and charges 2.0% to 4.5% of the principal loan amount and $495 application fees for borrowers.
If the project runs smoothly, an investor usually receives a proportionate monthly interest payment and a lump sum payment of the principal at the end of the investment period. Although, some loans will only pay the lump sum, not interest.
If the borrower defaults on the loan payment, the Groundfloor management team comes in for negotiations. If they don’t yield positive results, the team manages the foreclosure process, which can be costly and time-consuming.
After the foreclosure, it oversees the property’s rehabilitation and selling. If the team receives more net earnings than they owe you, you get back your principal plus interest. In some cases, you might receive a bonus from penalty fees.
On the other hand, if the proceeds from the defaulted borrower are insufficient, you might realize a loss on your investment. In the case of default, you won’t receive interest or principal payments during the negotiation and foreclosure periods.
Stairs by Groundfloor App
The stairs app is an automatic investment tool supported by non-traded secured debt notes, like the Groundfloor Notes. However, Stairs notes are different in two ways: They automatically repay and reinvest in 5 days intervals and distribute a lower interest rate ranging from 4-6% (subject to change). The interest rate depends on investor demand and market conditions.
The 2022-launched app is nearly identical to Concreit’s investing model: A pooled fund investment model where you buy shares in a multiple-loan fund. You can consider Groundfloor Stairs a higher-yield alternative to a saving account and an ideal emergency fund storage.
The ideal way to boost your portfolio growth is to invest regularly. If you automate your saving and investing with regular cash contributions, your money will grow and compound more rapidly. There are zero fees and minimum balances, and no withdrawal restrictions.
Groundfloor is a short-term securities platform supported by underlying collateral of single-family residential investment properties and, Stairs is an evolution of the platform’s Notes product suite. This is a new and innovative app which provides entry into private capital markets for everyday investors.
Currently, you can download the apps for Android at Google PLay and iPhone through the Apple App store.
Your Groundfloor credentials are viable for use with your Stairs sign up.
None of the Groundfloor products are insured by FDIC or SPIC.
What Makes Groundfloor Investing Different?
Investing in Groundfloor is different from other investments in two major ways: Relatively short holding periods and continuous investor updates on the status of your investments. Groundfloor investing is also distinct from other platforms due to available offers of non-accredited and accredited investors.
Groundfloor has shorter investment durations than many other private crowdfunding investment platforms. Investments repay approximately every 4 to 12 months.
Groundfloor benefits include:
- Receive your principal investment back faster
- Offers potential for high returns
- Takes advantage of market conditions
- Provides a hedge against inflation
- Diversifies your portfolio
Further, the platform ensures that its investors receive sufficient information about their investments’ health. That’s another unique feature of this lending and investing company.
What are the Pros and Cons of Investing in Groundfloor?
Pros
Open to non-accredited investors:
Unlike most crowdfunding platforms, which serve accredited investors only, Groundfloor provides retail investors with the opportunity to invest in real estate loans. This real estate debt investing platform is an easy and affordable way to access strong rates of return, cash flow and diversification from real estate.
No investor fees:
The real estate crowdfunding site doesn’t charge the investor any management fees. Instead, they make their money from borrowers.
Investing automation:
You can set up two types of automation with Groundfloor: Recurrent transfers from your bank account to your investment account and automated investments in their loans. For instance, you can set a $20 automatic investment in all grades B, C, and D whenever available.
Solid historical returns:
Since its commencement in 2013, Groundfloor has delivered an average return of approximately 10%. Even when there is a decline in home prices (like in the second half of 2022), the firm closed the year with 9.83% returns on average.
Reasonable minimum investment:
The platform allows you to begin investing with a $1,000 deposit into your account with a $10 per offer minimum. IT’s recommended that you can spread the investment across various loans.
Enhanced Diversification:
Groundfloor allows easy diversification without requiring much money. You can mitigate default risk by investing in several loans.
International investor participation:
Non-US citizens can invest in Groundfloor, with a minimum of $5,000. Most crowdfunding sites in the country lack this feature. Groundfloor offers a broader scope of real estate investors a chance to participate in U.S. real estate debt.
Short-term investment options:
Groundfloor offers quick turnaround investments. Within approximately 6-18 months, you can have your money back with interest. However, there may be a delay when the borrower fails to pay on time. This means that with regular investing, every few months, you will get a portion of your principal back.
Transparency:
The company publishes monthly, quarterly, and yearly reports on loan performance. That way, investors are updated on their investments’ health status.
Cons
Less liquidity and timeline assurance:
Your funds are committed once you invest in a loan. Hence, you can’t pull it out before the borrower repays the loan. There is a possibility that the loan recipient might not make repayments on time. The fact that Groundfloor loans are ‘short-term’ doesn’t mean they’re ‘liquid.’ For instance, you may invest in a three-month loan, but there’s a chance that the borrower fails to meet that timeline.
Lack of precise control over automated investing:
Automated investing is one of the attractive features of Groundfloor. Unfortunately, the screening instrument is blunt: The amount you invest in each loan depends on the risk grade. There is a need for more precise requirements and filters for automated investments.
Default Risk:
Groundfloor real estate debt investments are subject to the risk of default by the borrower. As a result, you may experience a loss.
How Do I Start Investing in Groundfloor?
To start investing in Groundfloor is simple and quick. Follow the steps below:
Step 1: Create a Groundfloor Account
Sign up for free by supplying the necessary information, including name, phone number, address, email address, Social Security number, and any identification documentation required. The minimum investment is $1000, and there are no investor fees.
Step 2: Transfer Funds to Your Account
Link your bank account to your Groundfloor account to transfer funds. Your money should arrive within the account within 3 to 5 business days.
Step 3: Browse the Available Projects
Go through the active projects, choose the one you’d like to invest in, and make your first deposit. Upon clicking on each loan, you’ll find details such as:
- Investment period (6-18 months)
- Groundfloor-assigned loan grade
- Interest rate (7.5% to 15.5%)
- Loan-to-value ratio
- Borrower’s profile
- Repayment terms
You can customize your portfolio with different-grade loans or choose the automated investing option.
Step 4: Get paid
There are two ways in which you receive your payment. You receive monthly interest payments and the principal is returned at the end of the investment duration. You can re-invest or withdraw the funds.
How Does Groundfloor Automatic Investing Work?
Groundfloor automatic investing feature works as outlined below:
- Create an automatic funds transfer plan, usually once a month.
- Build your portfolio by including each loan grade’s amount.
- Once a loan is available, the pre-set amount for the loan grade is automatically invested. The feature runs daily.
- The repayments are also re-invested automatically. The system allows loan cancellation within 48 hours if you don’t like the auto-choice.
Automatic investing allows regular investing, with less time commitment.
What Returns Can You Expect from Groundfloor Investing?
Returns are not guaranteed. You can expect 7.5% through 15.5% returns from your Groundfloor investing. The platform provides access to short-term, high-yield investments with returns that correlate with the loan’s risk grade. Riskier loans offer higher returns, but also have greater default risk.
Groundfloor’s historical returns stand at 10%.
What Are the Risks of Investing in Groundfloor?
The greatest risk of investing in Groundfloor is default by the borrowers. That occurs when the property improvement becomes more costly or complicated than expected, causing a delay or termination of the project.
When the borrower fails to repay the loan the company’s asset management team sells the underlying real estate to recover as much money as possible. You will receive your proportion of interest and principal payments, whenever they occur.
What Are the Different Types of Groundfloor Loans?
Groundfloor borrowers have different loans to choose from, including the following:
- Purchase and Renovation – FLIPS
- Refinance-Cash Out
- Refinance-Rehab
- New Construction
1. Purchase and Renovation – FLIPS
The borrower gets a loan to buy a property, improve it and sell it at a profit. The individual may make cosmetic updates like installing new flooring and painting. Some properties may require more extensive renovations, such as updating electrical and plumbing systems or adding rooms.
After the property is renovated and sold, the loan will be paid off.
2. Refinance-Cash Out
An investor borrows more than the current mortgage, so that the initial mortgage is paid off, and there are additional funds available to the homeowner. The borrower can use the excess funds to finance renovations, debt payments or invest in other projects.
3. Refinance-Rehab
The project allows an investor to fund an existing property’s mortgage with the loan geared towards rehabilitating or renovating the property. Interest rates for this project are lower, have a more extended repayment period, and have more flexible timelines.
4. New Construction
New construction loans are used to build a new property from the beginning to completion. These are the most extensive projects. New construction requires substantial design, planning and construction work. These projects typically require the involvement of contractors, architects and engineers. A borrower can build a residential or commercial property which might be a single or multiple units.
What are Groundfloor’s Fees?
Groundfloor charges no fees to individual investors. Also, there are no commissions or investor costs tied to the investments. The feature makes this platform unique from other crowdfunding platforms in the real estate market.
Instead, the platform draws its revenue from borrowers. When Groundfloor extends a loan, it charges the borrower various flat fees, percentage-based fees, and closing costs. Also, the borrower pays interest charges on loan.
Moreover, the company distributes the loan interest paid by the borrower to the investor holding the debt shares.
Borrowers pay Groundfloor 2% to 4.5% of the loan and a $495 application fee.
How Can You Contact Groundfloor?
You can contact Groundfloor 9:00 am to 5:00 pm EST, weekdays by phone or email.
Which Are the Best Groundfloor Alternatives?
Below are 3 top competitors of Groundfloor:
Groundfloor Vs. Fundrise
The main difference between Groundfloor and Fundrise is their specialization and minimums. Although Fundrise also has offers for both accredited investors and non-accredited investors, the Fundrise minimum investment amounts typically start at $10,000.
Groundfloor offers investors a variety of types of real estate debt in which to invest.
Fundrise is akin to a private investment marketplace, with various types of offers, including private debt offers. Additionally Fundrise investors can access real estate equity investments of various types and small business or venture capital investments and two funds, one with diversified private investments and the other is a real estate fund.
Also, groundfloor offers investors 7.5-15.5% monthly interest on their investment, while Fundrise inventors receive quarterly dividend payments. Fundrise investors might also receive capital appreciation.
Unlike Groundfloor, which has no investor fees, Fundrise charges its investors management fees per offer. Their fees range from $0.00 up to 2.00% or more. All fees are listed on the platform and can be viewed before investing.
Groundfloor Vs. PeerStreet
The main difference between Groundfloor and PeerStreet is the investor type and fee structure. Groundfloor is open to accredited and non-accredited investors and requires a $1,000.. PeerStreet is available to accredited investors only and has a minimum requirement of $1,000 as well.
Groundfloor has no management fees, while PeerStreet charges between 0.25% and 1.00% per loan. Fees and expected returns, net of fees, are clearly stated on the PeerStreet platform. Groundfloor’s website is also user friendly with transparent access to information.
Both platforms offer short term debt investing. Peerstreet states that the term of investments range between one and 36 months. Groundfloor has an offer with monthly payouts as well as other investments with terms ranging up to approximately 4 years. Both platforms offer auto-investing where the platform automatically invests in loans, according to your parameters.
Groundfloor Vs. CrowdStreet
There are many differences between Groundfloor and CrowdStreet including the minimum investment requirements, accreditation status, and types of investments. Groundfloor has a minimum of $1,000, while the Crowdstreet’s minimum is $25,000 for most deals. Both platforms served accredited investors, yet only Groundfloor provides non-accredited debt offers. CrowdStreet offers more investment options than Groundfloor including both debt and equity real estate.
Also, while Groundfloor specializes in short-term real estate loans, CrowdStreet focuses on commercial real estate deals and funds. Clearly, CrowdStreet caters to wealthier investors with greater assets.
Conclusion
Groundfloor is a real estate crowdfunding platform offering short-term, high-yield investments for accredited and non-accredited investors. The company issues loans to borrowers, including fix-and-flip properties, building a new property, and other types of real estate debt.
The platform works with two types of investors: The borrowers to whom it lends and the investors who fund the loans for the specific projects. Once the borrower secures the loan, the interest payments go to the investor, while the firm benefits from the fees charged to the loan recipient.
Groundfloor has no investor fees, and a comparatively low $1,000 minimum. You can access private real estate deals. Additionally, the platform allows you to diversify your portfolio with various individual projects, thus mitigating your risk.
In addition to accepting non-accredited investors (which only a few platforms do), Groundfloor is the only site that lets them invest in private real estate deals instead of REITs.
Our Groundfloor review is comprehensive enough to help you make an informed decision on whether to consider investing in the platform.
FAQs
Groundfloor can be a good investment. Its debt-based structure offers a reliable source of investment income. Also, the platform’s short-term emphasis means your funds won’t be locked up for long. Even so, you must diversify your Groundfloor portfolio appropriately to minimize the default risks.
Yes, a significant number of investors have made money with Groundfloor. To date, the company has lent more than $1 billion and has 200,000+ investors. The average annual returns since inception are 10%, with a less than 1% loss ratio since 2013. That’s the ratio of principal lost to the principal invested.
It’s important to perform your own due diligence when investing in private investments (and public company investments, too). You’ll find a variety of reviews across their aps on Google play and iOS. On Trustpilot, Groundfloor has a 4.1 out of 5.0 score derived from 354 ratings. It’s wise for investors to review all of the investment documents, examine reviews and decide if Groundfloor is appropriate for you. Groundfloor is a solid real estate debt crowdfunding platform with $41.8 million in equity capital. The company is 30% customer owned. Just realize that there is always a risk of loss when investing.
You can make between 7.5-15.5% interest on your principal depending on the specific loan’s risk grade. Groundfloor gives you access to short-term, high-yield investments. HIgher risk loans have the potential for greater returns, but are also riskier, with higher default risk. Returns from any investment are not guaranteed.
The better option between Fundrise and Groundfloor depends on your financial goals and your available capital. If you’re seeking real estate equity investing, then you’ll choose Fundrise. But if you want shorter term debt investments and more frequent cash flow payouts, then you’ll choose Groundfloor. Non-accredited investors and those who lack $10,000 will pick Groundfloor.
You can make money with Groundfloor in two ways. Borrowers can make money by using their loans to improve or build a property and then rent or resell it, at a profit. Investors can fund a project and receive interest payments along with the return of their original capital. The company makes loans to borrowers and then sells pieces of the loans to investors who gain profit or loss.
Related
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- How Can Investors Receive Compounding Returns?
- Real Estate Crowdfunding – Diversify Your Portfolio
- PeerStreet vs Groundfloor
- 15 Accredited Investor Opportunities
- Fundrise vs Diversyfund vs Groundfloor
- A Penny Doubled Every Day For 30 Days Or $1 Million – Which Would You Choose?
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