Groundfloor’s website says, “We can nail down over 10% returns for you.“
That’s not an exaggeration, that’s exactly what it says.
How realistic is that?
Well, if you’ve ever seen one of those property flipper shows on TV, you already know how profitable that type of real estate investing can be.
If you’ve been biting at the bit to get involved in that action, but lack the capital necessary, Groundfloor provides a way for you to profit from the process.
They make it easy, too, so please read on.
What Is Groundfloor?
Groundfloor is a real estate crowdfunding platform, but one with a bit of the different twist. Instead of investing in large commercial real estate projects, they focus on providing renovation loans to property flippers for single family and small multifamily properties.
If you’ve ever seen HGTV’s Flip or Flop or Desert Flippers, you already have a general idea of the basic concept behind Groundfloor. Except that Groundfloor doesn’t do the actual renovations. Instead, they provide short term financing to people who by the properties and renovate them.
Investors then buy shares of the renovation loans, and earn high returns on their money, with far less risk.
Groundfloor was founded in 2013, and is based in Atlanta, Georgia. The company serves as an online marketplace, bringing together investors and real estate entrepreneurs. Since its founding, the company has arranged 79 loans, that have repaid investors $20 million.
The deals themselves are different from how most real estate crowdfunding platforms work. There is no equity funding provided. Instead, Groundfloor arranges short term financing to enable real estate entrepreneurs to engage in renovations and ultimately, the flips. For this reason, investors’ money is tied up for far less time than is the case with other real estate crowdfunding platforms.
Groundfloor has a Better Business Bureau (BBB) rating of A- (on a scale of A+ to F), where it’s been accredited since August, 2015.
Groundfloor Awards & Mentions
Groundfloor has won quite a few awards and received mentions in a variety of hot tech company lists.
- Ranked in the top 10% (#402) on Inc. Magazine’s 2020 Inc. 5000 List
- Ranked #102 in Deloitte’s Technology Fast 500 2020.
- HousingWire Tech 100 Award
- Fintech Breakthrough Award for Best Crowdfunding Platform
- Benzinga Global Fintech Awards Finalist
- Atlanta Business Chronicle Pacesetter Award
- Technology Association of Georgia Top 10 Most Innovative Companies
- Technology Association of Georgia’s Fintech ADVANCE Award
- Atlanta Inno’s 50 on Fire Award
- TiE Atlanta Entrepreneur of the Year Award
- Golden Bridge Award for Startup of the Year
How Groundfloor Works
Investment returns of 10% are only the average. Much like other peer-to-peer (P2P) lending platforms, Groundfloor also has different interest rates charged, based on different loan risk grades. Here’s how they explain the rates they charge:
When GROUNDFLOOR underwrites a loan, our proprietary grading algorithm assigns one of seven letter grades from A to G to each project. The letter grade generally reflects the overall risk of the loan. For example, Grade A loans generally have lower expected returns, lower expected loan losses, and corresponding lower interest payments. Whereas on the other end of the spectrum, Grade G loans have higher expected returns, higher potential loan losses, but correspondingly higher interest rates. With GROUNDFLOOR, you create a custom portfolio of real estate investments based on your own investment criteria and risk tolerances.
The interest rates have floors that can range anywhere from 5% for the best grades, to 15% for the worst. Obviously, to hit or exceed the 10% average, you’ll have to invest in a mix of risk grades.
Rate floors are the minimum amount GROUNDFLOOR will offer borrowers for any given letter grade.
Grading and respective interest rate floors are as follows:
When you invest in Groundfloor loans, regardless of the risk grade, you’re investing only for the short term. Most loans have a term of between six and 12 months. This is radically different from most real estate crowdfunding platforms that require you to remain in an investment for several years.
Loan parameters are as follows:
- Rates from 5% to 15%, as shown above.
- Individual loans from $75,000 to $2 million.
- Loans can be up to 70% of “after repair value” (ARV) or up to 90% of loan-to-cost (LTC)
- Must be non-owner-occupied properties only.
- Must be one to four-unit properties (no apartment buildings).
Since each loan is an investment on an individual property, the underlying real estate itself acts as security for the loan. In most cases, the loan you invest in will represent a senior lien on the property. This is an advantage that’s unavailable with P2P loans, which are typically unsecured personal loans.
Once you sign up with Groundfloor, you can browse the investments offered:
As you can see from the screenshot above, each investment opportunity includes its respective risk grade, as well as the interest rate being paid on the loan.
“LROs”. Loan investments are referred to as limited recourse obligations, or LROs. Each LRO, which is a slice of a loan, are available with a minimum investment of $10. You can spread a $500 investment across up to 50 different properties, adding diversification to your real estate loan portfolio. The only caveat being that there may not be more than 10-20 loans available at any given time.
Like other real estate crowdfunding platforms, Groundfloor subjects all loans to a strict vetting process. After pre-qualification and project due diligence investigations, only 5% of loan applications submitted are approved for investments.
After you sign up you can browse the different loans and view the detail pages where the complete details about the loan are shown. You can view the projected after repair values for the structure, total project costs borrower information and more.
Groundfloor does their due diligence, so by the time the loan is listed on the platform, you know it’s been given the once over. Even so, it’s important to take your own look at the loans and figure out if you think the loan is worth the risk. How much skin does the borrower have in the game? What’s the loan to after renovation value ratio? Does the borrower have a history on Groundfloor – have they had loans before and have they repaid?
If a loan offered on the platform fails to fully fund within 45 days, it will be removed from the site. Any funds you’ve committed to the loan will then be refunded to you.
The Groundfloor investor platform – referred to as the Smart Platform – allows you track the progress of your investments, and even to get updates on the renovation work as it takes place.
Both the return of your investment principal and accumulated earnings are paid to you when the loan is paid off by the real estate entrepreneur.
Groundfloor Investor Requirements
Groundfloor accepts both accredited investors and non-accredited investors.
This is another departure from typical real estate crowdfunding platforms, since many do require investors to be accredited.
Groundfloor recently released a new tool to make investing with Groundfloor much easier. It’s called “Automatic Investing”.
Here’s how it works. When loans are first released into the Groundfloor marketplace, if you have setup automatic investing in your account settings, you’ll get first crack at new loans when they’re first released. Groundfloor auto-investments (AI) will help investors to invest before loans sell out, and make it easier to diversify.
In the auto-investing setup screen you’ll just choose the amount you’d like to invest in each loan of each different grade. When a loan goes live, Groundfloor auto-investments will automatically purchase investments in any loans currently on the platform that are within the parameters that you have set, but in which you don’t currently have an investment.
So if you tell it to invest a max of $10 per loan for Grade A loans, it will find all new Grade A loans released that you haven’t invested in and invest $10 in that new loan.
Auto investing will work best when you have regular auto funds transfers enabled in your account. If you don’t have that setup you run the risk of running out of funds and missing out on investments.
The auto investing feature is a great new addition to the platform because it will ensure that you are able to invest in new loans, without having to worry about going on the platform and manually investing. You just set it up and you’ll be ready to invest as new loans hit.
Groundfloor Features And Benefits
Minimum initial investment. LROs are purchased with minimum denominations of $10.
Fees. There are no fees paid by investors, either to use the Groundfloor platform, or in connection with investments in LROs.
Accounts available. Taxable investment accounts, plus traditional, rollover, Roth, SEP and SIMPLE IRAs, as well as solo 401(k) accounts.
Availability. Open to investors in all 50 states (since January, 2018).
Dividend distributions. There are no dividend distributions. Both income and invested principal are returned as each loan is repaid. This is unlike the way most real estate crowdfunding platforms function, in that Groundfloor does not provide monthly dividends.
Limited liquidity. Even though loan investments are short term in nature, you will need to remain invested until the loan is paid out. No liquidity is available if you want to withdraw from an investment early.
Customer service. Available by phone or email, Monday through Friday, from 9:00 am to 5:00 pm, Eastern Time.
Platform security. To keep all information safe, Groundfloor uses encryption with an AES 256-bit symmetric key.
How To Sign Up With Groundfloor
To invest with Groundfloor you need to be at least 18 years old, and supply the usual information required for any investment platform (name, address, email address, phone number, Social Security number and any documentation required to prove your identity).
Next, you’ll browse the platform to determine the projects you want to invest in.
Once you’ve opened your Groundfloor account, you must create a funding account to begin purchasing LROs. The funding account is non-interest bearing, and is a service by Wells Fargo Bank. The account is covered by FDIC insurance, which covers depositor’s for up to $250,000. Funds can be transferred into the funding account by electronic transfer from your linked bank account. Invested funds can also be withdrawn from your funding account, but only to your linked bank account.
Once your account is funded, you can begin investing in individual projects.
Refer Your Friends, Get $10 Bonuses
Another nice thing about Groundfloor is their referral program. After you’ve signed up, if you like the service you can refer your friends and family to join you.
When the person you’ve referred transfers money into their account, you’ll each earn a $10 bonus.
A lot of referral offers have a limit to how many bonuses you can earn, but this is one is nice because there is “no limit to the amount you can earn”. Just share your referral link from your dashboard and when they sign up using that link you’ll be in business.
Groundfloor Pros & Cons
- Investment returns average 10% per year.
- Loan terms are short – generally only six to 12 months.
- The minimum investment is just $10.
- There are no fees charged to investors.
- You do not need to be an accredited investor.
- Investments are secured by the underlying real estate.
- No liquidity – you must maintain your investment until it pays out. (Check out their new Stairs app if you want more liquidity)
- There are no monthly income payments – all funds are distributed when loans are fully repaid.
- Groundfloor does not provide investment advice – you’ll be acting on your own information.
- There is risk of loss of some of your investment principal.
Should You Invest With Groundfloor?
If you’ve been bitten by the real estate flipping bug, but don’t want to get involved in all the technicalities, complications and costs that are involved, Groundfloor is the next best thing. You can get involved strictly as a lender to flipping projects, earn a healthy return on your money, and do it with limited funds and limited risk.
In addition to earning high returns on your investment, Groundfloor enables you to diversify your investment portfolio to include real estate. That can be particularly important , both as a long term investment strategy, as well as a form of diversification away from an all-paper asset portfolio. Meanwhile, you can diversify across many different loans with just a small amount of money, further reducing your investment risk.
An investment allocation in real estate, particularly in short-term projects like flipping, can enable you to earn high returns, even when other financial assets are not performing well.
If you’d like more information, or if you’d like to open an investment account, visit the Groundfloor website here:
- Stairs by Groundfloor App Review (Groundfloor’s new investing app)
- Ultimate Guide To Real Estate Crowdfunding
|0.30% - 0.50%/year
|3% up front fee, 2% annual management fee.
|Intake fee of between 0.5% and 1.0%. 1% annual management fee.
|0.5% service charge + 10% of all profits
|0.25% - 1.0% setup fee
|0-2% setup fee
|Patch of Land
|0-3% of loan total
|Intake fee of between 1-3%. 1.5-2% annual management fee.
- 10% average returns
- Loan terms are short – 6-12 months
- Minimum investment just $10
- No fees charged to investors
- No need to be accredited investor
- Investments are not liquid
- No monthly income payments
- Groundfloor does not provide investment advice
- Risk of loss of your investment principal