Groundfloor is a real estate investing platform that specializes in crowdfunding projects. The platform allows you to explore real estate opportunities including residential properties, new construction projects, and buy-and-hold investments.
What sets Groundfloor apart is its specific focus on renovation financing for property flippers working with single-family homes and small multifamily properties.
Founded in 2013 and headquartered in Atlanta, Georgia, Groundfloor operates as an online marketplace connecting investors with real estate entrepreneurs.
Can this platform help you discover high-quality investment opportunities? We’ll explore that question thoroughly in this comprehensive Groundfloor review.
Groundfloor Real Estate Debt Investments
The Groundfloor team thoroughly reviews each investment proposal before selecting which debt investments to feature on their platform. Their collective real estate expertise provides reassurance about the quality of opportunities they offer.
Potential borrowers must submit comprehensive loan packages that include property photos, detailed financial projections, and additional supporting documentation.
Once a real estate investment joins the platform, the SEC qualifies the loan as a Limited Recourse Obligation (LRO), establishing it as an investment security.
Investors can contribute funds toward these loans, which typically carry 6-12 month terms. This shorter timeframe prevents investors’ capital from being tied up for extended periods, aligning with the platform’s focus on flip projects.
Your money remains illiquid during the loan period, meaning you cannot cash out or transfer your investment to another investor.
Once the principal is returned, you’ll receive your initial investment plus predetermined interest payments. From there, you can either withdraw funds to your bank account or reinvest in other available opportunities.
Groundfloor at a Glance
Here’s what you need to know about Groundfloor’s real estate debt investment platform:
- 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 list their projects on Groundfloor for review, while other investors can evaluate whether to provide funding for these ventures.
This platform essentially enables investors to function as lenders, which distinguishes Groundfloor from traditional real estate investing platforms.
Your money goes directly to borrowers, with your investment representing a portion of that debt obligation.
The platform accommodates investors with as little as $10 while allowing them to handpick their preferred projects.
Groundfloor works best for investors seeking portfolio diversification without the typical risks associated with fix-and-flip investments. It’s also ideal for those looking to make passive income.
How does Groundfloor Work?
Getting started with Groundfloor is straightforward. Follow these four simple steps:
- Create an account and determine your investment amount. Start with as little as $10.
- Build your investment portfolio. Browse available real estate debt investments and select opportunities that match your personal risk/reward preferences.
- Fund your chosen investments. Connect your bank account through Groundfloor’s secure encryption and transfer funds.
- Generate passive income. Groundfloor investments have consistently delivered 10% or higher returns, with average repayment periods of 6-9 months.
Groundfloor Features
Explore the key features that make Groundfloor’s platform unique for real estate debt investing.
Account Types
The platform offers two account options for fix-and-flip loan investments: taxable individual accounts and self-directed individual retirement accounts (IRAs).
Since Groundfloor represents alternative investments, retirement fund investing requires a self-directed IRA. Available retirement options include traditional IRAs, Roth IRAs, SEP IRAs, simple IRAs, and Rollover IRAs.
Limited Recourse Obligation (LRO)
Real estate crowdfunding through Groundfloor doesn’t involve direct lending to projects. Instead, Groundfloor provides the initial funding.
The loan then converts into a security registered by the U.S. Securities and Exchange Commission (SEC).
Investors purchase shares of this SEC-registered security, known as a Limited Recourse Obligation (LRO). Borrowers either make monthly interest payments or defer them until full loan repayment.
Real estate investing periods
The platform specializes in short-term investments, with most loans repaid within 6-12 months.
Interest rates are disclosed upfront, and the brief loan periods prevent your capital from being locked up long-term.
However, you may lose money if borrowers fail to repay their loans.
Property Types
Available loans typically involve non-owner-occupied residential properties. The platform features single-family homes, 1-4 unit multi-family properties, condos, townhomes, and planned unit developments (PUDs).
Mobile homes, commercial properties, and sites exceeding 3.5 acres are not eligible for funding.
Loan Grades
Similar to other lending platforms like Kikoff, Groundfloor lets you search and filter investments by grades, interest rates, and key metrics. This helps you find opportunities aligned with your investment strategy.
Every real estate investment receives a loan grade ranging from A to G, representing the loan’s overall risk level.
Grade A loans typically carry lower risk but also offer reduced interest rates. Grade G loans provide higher interest rates while carrying greater default risk.
Consider your risk tolerance carefully when evaluating portfolio additions. Additional filtering criteria 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
From the borrower’s perspective, your loan grade determines the interest rate you’ll pay. Higher-risk projects typically command higher interest payments.
Automatic Investing
The auto-investing feature streamlines account management through this process:
- 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 instance, if you set a $50 maximum for Grade A loans, the system will automatically fund all qualifying Grade A loans with $50 when they become available.
To maximize this feature’s effectiveness, establish regular fund transfers to your Groundfloor account to ensure adequate investment capital.
Stairs Mobile App
Groundfloor launched Stairs, their investment app, last September. This mobile application combines saving and investing capabilities, offering 4-6% annual returns from short-term real estate debt notes.
With just $1 minimum investment and zero trading fees, the app includes no withdrawal penalties. Stairs offers several notable features:
- 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
Available for both Apple and Android devices, fund deposits typically appear in your account within 3 business days.
Groundfloor Pros
Available to Non Accredited Investors
Both accredited and non-accredited investors can access Groundfloor’s platform. Accredited status requires annual income exceeding $200,000 ($300,000 jointly) for two years or net worth above $1 million (individually or jointly).
Most investors don’t meet these strict requirements. Since many lucrative real estate opportunities demand accredited status, Groundfloor’s accessibility opens these investment types to a broader audience.
Low Minimum Investment
The $10 minimum investment requirement makes Groundfloor accessible to virtually any investor without requiring substantial startup capital.
Unique Platform enables peer-to-peer real estate loans
Unlike REITs and other real estate platforms that offer property ownership, Groundfloor enables direct real estate lending to other investors.
Can Set up IRA Investments
Investors can choose between regular taxable accounts or IRAs for their Groundfloor investments.
Average Returns of over 10%
While past performance shouldn’t dictate investment decisions, Groundfloor’s real estate portfolio has consistently delivered double-digit average returns.
Shorter Investment Terms
Unlike other real estate asset classes with lengthy investment periods, Groundfloor investments typically span 6-18 months. Term options include 30 days, 90 days, and 12 months.
No Investor Fees
The platform charges no management or investor fees.
Open to Investors Nationwide
As of January 2018, Groundfloor serves investors across all 50 states.
Investments are secured
When borrowers default, the underlying real estate secures your investment, providing recourse for recovery.
Diversification is Easy
Financial professionals emphasize diversification for risk reduction. Groundfloor’s low minimum investment enables easy creation of diversified loan portfolios.
Platform is User-friendly
Groundfloor’s platform offers exceptional ease of use, with streamlined account opening, funding, and investing processes.
Borrower Pre-screening
Thorough borrower vetting ensures only qualified applicants reach the platform. This due diligence focuses on borrowers’ ability to make payments and maintain favorable loan performance.
Generate Passive Income
After investing in Groundfloor securities, no additional management is required to earn returns, creating truly passive income generation.
Groundfloor Cons
Implications of Limited Recourse Obligations
LRO investments carry inherent risks, potentially requiring indefinite investment retention in certain scenarios.
Possibility of Default
Like traditional mortgages, borrower default remains a possibility beyond your control. You must accept the risk of potential investment loss.
Business Model is New and Untested
Non-accredited investor-funded deals represent a relatively new and unproven concept on Groundfloor’s platform.
Performance History is Short
Groundfloor’s sub-decade operating history makes overall performance assessment challenging. Founded during a housing market upswing with lower expected loan losses, its performance during market downturns remains unknown.
Cash Flow Issues
Deferred-interest loans delay access to principal and interest payments, potentially requiring 6-9 months before receiving any returns.
Investors aren’t lending
Rather than directly funding loans, investors purchase Limited Recourse Obligations (LROs) – securities that own the loans. Groundfloor simply facilitates security access.
No Investment Advice
The platform lacks investment or personal finance education resources. Investors must rely on their own research or seek external personal finance tools for decision-making guidance.
Loans have High-Risk Factors
Default rates significantly exceed those for accredited investor offerings. Many platform loans are located in judicial-only states with high loan-to-value ratios.
Additionally, there’s no bankruptcy protection, and the proprietary loan grading algorithm often fails to reflect uncured default risks accurately.
FAQ: Groundfloor Review
What are the Groundfloor account costs and fees?
Groundfloor operates fee-free for investors, charging no platform or management fees. This represents a significant investor benefit. The company generates revenue through borrower loans, keeping investor costs minimal.
Does Groundfloor offer education resources?
The platform provides limited educational tools or investing resources. You’ll need to seek information independently through third-party sources.
However, Groundfloor does offer useful tools like the Investment Wizard – a simulation that estimates investment growth across different strategies (“Conservative,” “Moderate,” and “Dynamic”).
Is Groundfloor easy to use?
Registration and platform usage are remarkably straightforward. Account funding is simple, and browsing investments provides an excellent user experience. You can filter options by risk grade and loan terms, with investment details presented clearly. Website navigation is intuitive and trouble-free.
The platform welcomes both accredited and non-accredited investors, though accredited investors must complete verification to confirm their status.
Does Groundfloor have good investment options?
The platform primarily features fix-and-flip loans nationwide with various ratings, most falling between “A” and “C” grades. Terms often span less than one year, preventing long-term capital lock-up.
Does Groundfloor offer customer support?
The website includes an FAQ section addressing general platform questions. A chat feature allows direct account inquiries, with typical response times under 30 minutes.
Groundfloor Review: Bottom Line
If you’re comfortable accepting moderate risk for potentially higher returns, Groundfloor could be an excellent platform choice. The $10 minimum investment makes it accessible to virtually any investor. Remember that your funds will lack short-term liquidity, so avoid investing more than you can afford to lock away. Groundfloor particularly benefits non-accredited investors seeking real estate exposure, especially in fix-and-flip lending opportunities.
