At a glance
- Features: Real estate crowdfunding investment opportunities, IRA options
- Fees: None (except third-party IRA fees)
- Product Types: Debt investments; and traditional IRA, Roth IRA, SEP IRA, Simple IRA, and Rollover IRA
- Advantages: Available to nonaccredited investors, no fees, hands-on investing, low-risk investment with a 10%+ return, and a low minimum investment of just $10
- Disadvantages: No equity ownership in properties, no mobile app, and relatively complicated setup for automated investing
Are you ready for a new kind of real estate investing platform?
Groundfloor is a peer-to-peer lending platform that facilitates high-yield, short-term real estate crowdfunding by retail investors. Rather than own an equity stake in a company or property, Groundfloor investors contribute to a loan and earn money as borrowers repay the loan with interest.
CEO Brian Dally and Executive VP of Regulatory Affairs Nick Bhargava co-founded the Atlanta-based company in 2013. Groundfloor was the first real estate crowdfunding company to achieve qualification by the U.S. Securities and Exchange Commission (SEC).
For individual investors, Groundfloor’s model is simple: Choose loans to fund, invest your money, and earn back your investment plus interest ranging from about 5% to more than 20%.
Borrowers who want to purchase or build real estate to flip take out short-term loans with Groundfloor instead of through a traditional bank or lender. Flippers sell or refinance the property and repay the loan, and investors earn money through the interest accrued on their investment.
When you think of real estate investing, you might imagine a real estate investment trust (REIT), where investors own fractional shares of property that’s owned and managed by the trust. With a REIT, you typically earn money in three to five years when the property is sold.
Groundfloor instead works with a type of security called a Limited Recourse Obligation (LRO). It funds loans to borrowers and sells the loans as securities to investors. Groundfloor holds the first lien position on the loan the way a bank or mortgage lender would, so it recovers funds — and your investment — in case of a foreclosure.
Because of that collateral — the property — debt investments come with less risk and volatility than stock market investments. Groundfloor reports its investors consistently see returns of 10% or more within six to nine months on average.
Build Your Own Portfolio
Many apps that aim to “democratize” investing do so at the expense of autonomy. They build portfolios for you, and you have little control over or visibility into what your money supports.
With Groundfloor, you choose which real estate projects to invest in and how much to invest in each.
You’ll see information about the project, including the amount of the loan, interest rate, term length, and how much money the borrower already has tied up in the project — what Groundfloor calls their “skin in the game.” This information helps you assess the potential risk and reward of your investment.
You can also invest in Groundfloor notes that fund the firm’s lending capital, or loans that haven’t yet become LRO investments on the platform. These lower-risk, lower-yield securities give you a way to diversify your Groundfloor portfolio.
Groundfloor introduced its Investment Wizard in early 2020 for investors who want more guidance choosing investments.
Through the wizard, you set how much you want to invest and choose a conservative, moderate, or dynamic investment strategy. The wizard shows you projects that fit the strategy and recommends an amount to allocate to each, which you can adjust however you want.
You can customize your strategy any way you want to adjust the criteria of projects that show up in the wizard. However, the more you want to customize, the more you’ll have to know about the amount of risk and reward each characteristic of a loan contributes.
One of the biggest benefits of investing through a tech company is usually automated investments. You get hands-free service without the high prices you’d pay to have someone do the work for you.
Groundfloor offers this feature for all investors — it just requires a little legwork up front.
You have to choose how much to invest in a loan based on the risk-based “loan grade” Groundfloor has assigned after doing its due diligence on the borrower, and then the platform will allocate your funds as new loans are available.
No Investment Fees
Groundfloor makes its money from borrowers through origination fees and closing costs. All of the interest paid on the loans goes back to investors.
However, you may pay third-party fees associated with IRA investments serviced by the company’s IRA custodian Forge Trust. As of February 2021, Groundfloor is covering those fees for any new IRA investments and will give investors a 90-day notice before you begin paying them again.
Protection in Case of Default or Foreclosure
Groundfloor, as a lender, has the first lien right on properties purchased with its loans. That means it can collect on the sale or take ownership of the property in case of a foreclosure — and repay investors.
However, the company says it prefers to resolve a defaulted loan rather than resort to foreclosure whenever it can. That tends to be a better outcome for both investors and borrowers. It could mean taking longer to get your money back, but it also means a greater return because interest continues to accrue while the loan is in default.
Monthly or Deferred Payment Loans
Borrowers may have either monthly or deferred-payment loans.
On monthly loans, borrowers make monthly interest payments, and investors in those loans receive a monthly payment. For deferred loans, investors receive their payment in a lump sum when the borrower repays the loan at the end of its term.
Your investment accrues interest from the date you make the initial investment through the date the borrower repays the loan. When you choose a project to invest in, you’ll see a maturity date for the loan, which indicates the full term of the loan. That gives you an idea of how much interest could accrue — but a borrower could always repay the loan early and pay less interest or go into default and accrue more interest.
To add another asset class to your retirement plan, you can set up an individual retirement account through Groundfloor, including:
These accounts, serviced by Forge Trust, let you combine the flexibility of Groundfloor’s real estate investment platform with the tax benefits of retirement savings.
Groundfloor’s crowdfunded loans offer a unique investment option for the general public, including many people who were previously unable to access this asset class. Advantages of the platform include:
- Investment Diversification. Crowdfunding loans adds a new asset class to your overall investment portfolio, providing more options for growth and spreading out your risk.
- Low-Risk Investments. Real estate investment and debt investment are both lower-risk options than stock market investment. Plus, you’ll see just how much a borrower has already contributed to a project to further determine their commitment to completion and repayment.
- Earn a 10%+ Return. Groundfloor’s periodic analyses continue to show portfolios earning an annualized return of about 10.5% — including its most recent, mid-pandemic analysis in November 2020. In comparison, stock market investments can typically expect an average long-term return of about 7% per year adjusted for inflation.
- Support Entrepreneurs and Small Businesses. Investments through Groundfloor fund loans for fix-and-flip real estate investors. Unlike REITs, which tend to support large-property purchases for financial companies, crowdsourced loans directly support the individual or small business purchasing and selling the property.
- Build Your Own Portfolio. You’ll have complete control over the allocation of all your funds in your Groundfloor account.
- Low Minimum Investment. With just a $10 minimum investment, the platform is accessible to just about any investor, including unaccredited investors and anyone with just a few bucks to start investing.
- No Investment Fees. You won’t pay any fees to Groundfloor for facilitating and managing your investment (except for an IRA).
The model of crowdfunding real estate investments is an attractive, modern option for investors, but Groundfloor’s platform has some archaic limitations compared with other investment technology companies. Disadvantages of the platform include:
- No Equity Ownership. You have no ownership of the property a borrower purchases with a Groundfloor loan. That means you don’t get any added benefit if the property sells for more than expected. Your return is limited to the interest on the loan, which stays the same even if the owner is able to significantly increase the value of the property.
- No Mobile App. You can only access your Groundfloor account and information about the platform through its website at groundfloor.us. The company doesn’t offer a mobile app for any device, although you can access your account through a mobile device in the Web browser.
- Limited Automatic Investing. Automatic Investing is only available to accredited investors. This platform is only a good option for investors who are interested in being hands-on with manual investments and in-the-weeds investment decisions.
- Not Available in Nebraska. Groundfloor is qualified by the SEC to work with investors in all 50 states, but it doesn’t allow investments from Nebraska residents because of state legislation there.
Real estate moguls and high-dollar investors have long known that real estate is a solid investment option. Until recently, however, the rewards of this market were restricted to individuals or institutional investors with hundreds of thousands of dollars to invest, or people willing and able to take on debt.
Real estate crowdfunding platforms like Groundfloor open the market to retail investors — people like you and me — to diversify our nest eggs and reap the benefits of this sound investment strategy.
While Groundfloor benefits from being an early player in this market, its platform could use an upgrade to improve user experience and compete with modern investment apps.
If you prefer an investment option with a higher potential reward (and risk), check out other real estate crowdfunding platforms that make REIT investments available for nonaccredited investors, such as Fundrise, RealtyMogul, Streitwise, Diversyfund, and Rich Uncles.
Groundfloor was the first of its kind, offering real estate crowdfunding for retail investors. Its model opened a new asset class to nonaccredited investors, providing a new option for investment diversification.
However, the platform includes relatively few features and no mobile app, putting it at a disadvantage in the modern investment market. Investors can sign up and manage their investments through the company’s website. Support and direction are thin, so the platform is best suited for investors who want to get their hands dirty, take control, and understand the types of projects their money is invested in.
The platform gives you access to investment diversification, returns of 10% or more, low risk, the ability to support entrepreneurs and small businesses through crowdfunded loans, a low $10 minimum investment, no investment fees, and complete control over your portfolio. However, it doesn’t offer a mobile app, and no equity ownership means you can’t benefit from significant property appreciation.