Groundfloor is a real estate investing platform that offers crowdfunding projects. You can search real estate opportunities like residential, new construction, and buy-and-hold properties.
What makes Groundfloor particularly unique is that they focus on renovation loans for property flippers of single-family and small multifamily properties.
Groundfloor is based in Atlanta, Georgia, and was founded in 2013. The Groundfloor platform is an online marketplace that brings together investors and real estate entrepreneurs.
Can it help you find top investment opportunities? That’s what we’re here to find out in this complete Groundfloor review. So, let’s get started!
Groundfloor Real Estate Debt Investments
Each investment proposal is reviewed by the Groundfloor team and chooses which debt investments to offer on its platform. The collective real estate experience of its team is impressive so you can feel more comfortable about what makes its platform.
A loan package that includes pictures of the property, detailed numbers, and more must be submitted by each potential borrower.
When a real estate investment is added to its investment platform, the SEC qualifies the loan as a Limited Recourse Obligation (LRO). This means that the loan is an investment security.
Investors can place funds towards the loan. The typical term for a loan is 6-12 months. The idea is to not tie up an investor’s money for too long, considering its focus is on flips.
The money is not liquid while it is being loaned out. Therefore, you can’t cash it out or sell it to another investor.
You’ll receive a repayment of your investment, plus a set interest payment once the principal is returned. You can withdraw the cash to your bank account or invest in other available real estate opportunities.
Groundfloor at a Glance
Below is what you should know about using Groundfloor’s platform for real estate debt investments:
- Trading Fees – None
- Account Minimum – $10 ($5,000 minimum transfer for non-US residents)
- Account types available – Individual and self-directed IRAs
- Features – Debt real estate investing
- Investment options – Single-family residential real estate, multi-unit residential real estate, condos, townhomes, and planned unit developments
- Distributions – Monthly or deferred until the loan is repaid
Who is Groundfloor best for?
Real estate investors and developers as well as other investors that want to fund their real estate projects will list their projects on Groundfloor for review. Other investors can decide if they wish to lend money towards their project.
Groundfloor essentially allows investors to act as a bank. This is the main difference between Groundfloor and other real estate platforms.
Money is directly given to the borrower. The investment represents a share of that debt obligation.
You can invest on Groundfloor’s platform for as little as $10 and choose your projects.
Groundfloor is best for investors that wish to diversify their investment portfolio without the risk that’s generally associated with a fix and flip investments. It’s also great for those who wish to make passive income.
How does Groundfloor Work?
It’s easy to start using Groundfloor by following these four steps:
- Sign up for an account and choose how much you’d like to invest. Choose as little as $10 to get started.
- Select your investments. Choose your investments by building a portfolio of real estate debt investments. Determine your own personal risk/reward profile and select the short-term investments of your choosing.
- Fund your investments. Use Groundfloor’s secure encryption to link your bank account. Transfer your money to fund your investments.
- Earn passive income. Groundfloor’s investments have yielded 10% or more in returns consistently. The average repayment period is 6 to 9 months.
Here is more on the key features of investing on Groundfloor’s platform below.
You can open up two types of accounts on these fix and flip loans. Open a taxable individual account or a self-directed individual retirement account (IRA).
Groundfloor falls into the category of alternative investments so if you want to invest your retirement funds, you must use a self-direct IRA. These retirement account options include a traditional IRA, Roth IRA, SEP IRA, simple IRA, and Rollover IRA.
Limited Recourse Obligation (LRO)
Using real estate crowdfunding platforms like Groundfloor doesn’t mean that you’re lending to the actual project. Groundfloor has already loaned out the money.
After that, the loan is converted to security. The U.S. Securities and Exchange Commission (SEC) registers the security.
Investors buy shares of this SEC-registered security which is called a Limited Recourse Obligation (LRO). Borrowers pay monthly interest payments or defer them until the full loan is paid off.
Real estate investing periods
Groundfloor offers short-term investments. Most loans are repaid between 6 to 1 month.
You will know the interest rate before investing. Since the loan periods are short, your money won’t be tied up for that long.
It is possible that you may lose money if the borrower doesn’t repay the loan.
The properties that are available for new loans are generally non-owner-occupied residential properties. Single-family, multi-family 1-4 unit, condos, townhomes, and planned unit developments (PUDs) are found on its investment platform.
Mobile homes, commercial real estate, and properties with more than 3.5 acres aren’t eligible.
Like other lending platforms, such as Kikoff, Groundfloor allows you to search and filter investment choices by grades, interest rates, and other important information. This enables you to find opportunities that match your investment strategy.
Each real estate investment is given a loan grade. The grade ranges from A to G and represents the overall risk of the loan.
Grade A loans generally have lower risk associated with them. But the interest rate is also lower. You can get higher interest rates from Grade G loans. The tradeoff is that the potential for a loan default is greater.
It’s best to consider your risk tolerance when evaluating which opportunities to add to your investment portfolio. Other criteria that you can filter by include:
- Borrower commitment – Indicates if the borrower is doing this real estate project on a full time or part-time basis
- Borrower experience – Based on a score between 1 and 5 that’s determined by how many years the borrowers have been involved with developing real estate
- Cushion – Another term for the equity; This is the difference between the ARV and loan amount.
- Interest rate – The interest rate you’ll receive on the loan
- Loan to ARV (after-repair value) – The expected value of the property after repairs are completed that’s expressed as a percentage of the loan
- Loan position – Short term loans on Groundfloor are typically in the first position; That means the loan repays them first
- Loan to ARV score – Based on a scale of 1 to 10; The score is reduced by one point for every 10% of ARV that’s borrowed
- Location – Scores are assigned based on where the property is located by Groundfloor; it is based on if the property is located in a judicial or nonjudicial foreclosure state since the rules affect its ability to foreclose on a nonpayment
- Quality of valuation report – The type of valuation report that’s used; There are four types which the certified independent appraisal being the highest quality
- Skin in the game – Ho much of the borrower’s own money is invested into the project
On the borrower side, the loan grade your investment is given will determine your interest rate. Generally speaking, the more risk lending money to your project entails, the higher the interest payment will be.
Groundfloor’s auto investing feature makes it much easier to manage your investment account. It works like this:
- Loans are released into the marketplace
- Users that have auto-invest set up, you’ll be able to review new loans when they’re released
- Choose the amount you’d like to invest in each loan of each different grade
- You’ll automatically purchase investments when a loan goes live which meets the parameters that you currently have an investment in
For example, let’s say you want to invest a maximum of $50 on Grade A loans. The feature will look for all Grade A loans that you aren’t invested in and fund loans that go live with $50.
If you wish to use this feature it’s best to set up your Groundfloor account with regular fund transfers so you have funds available for these investments.
Stairs Mobile App
Groundfloor launched its investment app last September. The mobile app is called Stairs and allows you to save and invest all on your device. You can earn 4-6% annually from interest on short-term real estate debt notes.
It only takes $1 to invest and there are no fees when you trade. There are also no penalties if you withdraw your investments. Other features available on Stairs include:
- Round ups – You can add an extra 1% in interest by rounding your purchases up to the next whole dollar. The difference between the original purchase price and final price is added to your account.
- Recurring transfers – By turning on the monthly recurring transfers features, you’ll earn an additional 1% in interest
- Automatic reinvesting – Your earned interest can get reinvested every 5 days
- Savings goals – Create savings goals to keep track of your money and investments
- Portfolio projections – Your portfolio is analyzed daily to help project your future balance
The app is available for both Apple and Android devices. It may take up to 3 business days for funds to appear as a deposit in your account.
Available to Non Accredited Investors
Groundfloor’s investing platform is available to both accredited and non accredited investors. Accredited investors are individuals who have an annual income of over $200,000 ($300,000 for joint) for the past two years or have a net worth that exceeds $1 million (either individually or jointly).
The average investor doesn’t meet these requirements. Many lucrative investments and real estate opportunities require meeting the accredited investor status. It’s good to see that Groundfloor is open to non accredited investors, providing more investors the chance to get into these types of investments.
Low Minimum Investment
You can invest with as little as $10 to start. This gives more investors the chance to get into Groundfloor’s investment opportunities without needing a sizable amount to start.
Unique Platform enables peer-to-peer real estate loans
Groundfloor allows you to make real estate loans to others. You are not actually an owner of the underlying real estate like how REITs and many other real estate platforms work.
Can Set up IRA Investments
You have the option of setting up a regular taxable account or an IRA to invest in Groundfloor.
Average Returns of over 10%
While you shouldn’t base successful investing decisions on performance, Groundfloor’s real estate portfolio has double-digit returns on average.
Shorter Investment Terms
Other asset classes in real estate typically have long investment periods. The terms for Groundfloor investments are usually around 6 to 18 months. You can also choose terms from 30 days, 90 days, or 12 months.
No Investor Fees
Groundfloor doesn’t charge management or investor fees.
Open to Investors Nationwide
Since January 2018, Groundfloor’s platform is available to investors in all 50 states.
Investments are secured
If borrowers fail to repay the loan, the investment is secured by the real estate itself. Hence, there is recourse to recoup your investment.
Diversification is Easy
Investment advice from financial professionals would steer you toward minimizing your risk through diversification. The minimum investment amount is low enough that you can create a diversified portfolio of Groundfloor loans with relative ease.
Platform is User-friendly
Using Groundfloor’s platform is very easy. You can get your account opened, funded, and invested with very little friction.
Groundfloor fully vets potential borrowers and only adds those who meet its requirements. This due diligence helps ensure that the focus is on ensuring that borrowers can make their principal and interest payments and the loan performance is favorable for investors.
Generate Passive Income
Once you invest in Groundfloor’s securities, you don’t have to do anything else to earn a return. There are no other management activities involved which enables you to passively generate income.
Implications of Limited Recourse Obligations
There are inherent risks associated with investing in LROs. You might have to keep your investment indefinitely in some cases.
Possibility of Default
Just like a traditional mortgage, there’s a chance that the borrower may default. This situation is completely out of your control. You must be prepared to take on the risk of losing your investment.
Business Model is New and Untested
Deals available on Groundfloor’s platform that are funded by non accredited investors are a new concept.
Performance History is Short
It’s difficult to gauge Groundfloor’s overall performance because it is been around for less than ten years. It was founded after the upward swing in the housing market than has experienced lower expected loan losses. Therefore we can’t tell how it will perform during a down market.
Cash Flow Issues
The total principal invested or interest payments won’t be available if you opt for the deferred-interest loan. So it could take six to nine months before you get any money back.
Investors aren’t lending
Investors money isn’t actually going towards funding a loan. They are buying a Limited Recourse Obligation (LRO) that’s a security that owns the loan. Groundfloor is simply making the security available to investors.
No Investment Advice
Groundfloor doesn’t offer any investment or personal finance education on its website. You will need to act on your own information if you choose to invest or find personal finance tools to help you make decisions.
Loans have High-Risk Factors
The default rate is significantly higher than those offered to accredited investors. Many of the loans found on Groundfloor’s platform are in judicial-only states and have high LTVs.
There is also no bankruptcy protection. Its proprietary loan grading algorithm doesn’t reflect the uncured default risk in many cases either.
FAQ: Groundfloor Review
What are the Groundfloor account costs and fees?
Groundfloor doesn’t charge its investors to use its platform. There are no management fees either. This is a great benefit for investors. It makes money from making loans to borrowers. That keeps the charges and fees to the investor to a minimum.
Does Groundfloor offer education resources?
There are no tools or resources that Groundfloor offers on its platform to learn more about investing. You’ll need to find the information on your own and use third-party sources to educate yourself.
It does offer some solid tools like its Investment Wizard. This simulation allows you to estimate how much your investments could grow on different investment strategies (“Conservative”, “Moderate”, and “Dynamic”)
Is Groundfloor easy to use?
It is really easy to sign up and use Groundfloor. Funding an investment account is also simple. Browing investments on its platform is also a pleasant experience. You can find options based on the risk grade and loan term. The investment details are laid out in a manner that is easy to follow. You will have no problems navigating its website.
It accepts both accredited and non-accredited investors. Accredited investors must go through a verification process to prove their status.
Does Groundfloor have good investment options?
Groundfloor offers primarily fix and flip loans. Its offerings are all over the country and have various rating, with most of them between an “A” and “C” rating. Terms can be as short as less than a year so investors don’t have to keep their money locked up for too long.
Does Groundfloor offer customer support?
Its website has an FAQ section to help answer general questions about using Groundfloor. There is also a chat feature on its website that you can ask questions about your account. Typical reply times are under 30 minutes.
Groundfloor Review: Bottom Line
If you’re willing to take on a little bit more risk for the possibility of a higher return, Groundfloor might be the right platform for you. You only need $10 to start investing which makes it accessible to nearly everyone. Keep in mind that you won’t have liquidity in the short term, so don’t invest more than you believe you need. Groundfloor is an especially great way for non-accredited investors to get into the real estate action, particularly fix and flip loans.