January 22, 2019

GroundFloor Review

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Have you always thought about investing in fix and flip homes but never had enough capital? You may just have enough now with companies like GroundFloor making it possible.

GroundFloor is a real estate crowdfunding platform. GroundFloor provides the access to invest in fix and flip homes by offering crowdfunded loans to real estate developers.

The funds come from people like you, the investor. Once GroundFloor has enough funds to close the loan, your investment becomes reality.

You don't have to put all of your funds in one loan either - you can diversify your portfolio by investing in a variety of loans, even those in different markets.

Just how does GroundFloor compare to other real estate crowdfunding websites? Keep reading to find out more about it.

How Does GroundFloor Work?

Once you sign up for an account with GroundFloor, you can start browsing the available investments. You'll see the important details, including the loan's term, rate, and loan to after-repaired value. These details can help you decide which loans you want to invest your money in, whether it's one loan or a series of loans.

Once you choose an investment(s), you fund your account. Once the funds clear, you can begin investing. After you choose your investments, you can track their progress on your dashboard. You'll see not only the status of the loan, but also the status of the repairs/renovations being done on the home.

Once the borrower completes the renovations on the home, they list it and sell it. Once the home sells and you receive your money (principal plus interest), you can either withdraw the funds or reinvest them into another loan.

Who Should Use GroundFloor?

  • Any non-accredited investor who has an interest in real estate: Only a few platforms allow non-accredited investors. The ones that do typically offer access to REITs (Real Estate Investment Trusts), not actual real estate like GroundFloor offers, so it's a good opportunity to get into real estate investing.

  • Investors who have an interest in fix and flip real estate but don't have the time or capital to do it themselves: GroundFloor gives you the best of both worlds. If you don't have the capital to buy and fix up a home yourself, you can do so vicariously by investing in loans through GroundFloor that help borrowers fix and flip homes.

  • Investors looking for short-term investments: Because borrowers use the funds to buy, fix, and sell homes, you only have to tie up your money for a short amount of time. This may benefit many borrowers who don't have the few years to tie up their funds that many other real estate investments require.

Reasons We Like GroundFloor

  • You don't have to be an accredited investor. If you look around at many other real estate crowdfunding sites, you can't invest unless you are accredited. This means that you have at least a $1 million net worth and make at least $200,000 per year. You don't have to worry about those credentials, though, because non-accredited investors can invest with GroundFloor.

  • You can invest with as little as $10. Obviously a $10 investment won't get you very far, but it gives you an idea of how little you can start with when investing. The more investors that invest just $10, the more investors GroundFloor will need to fund a loan. Just knowing that you don't need a large sum of money to invest, though, shows you that anyone can start investing if they want.

  • GroundFloor only approves 5% of the loans that come to them. GroundFloor accepts loan applications from any potential investor. Once they put the loans through their screening process, however, only around 5% actually make it through. This can help lower the risk of default on the loans that they do take.

  • You can diversify your investment across many loans. You are in control of choosing the loans for your portfolio. GroundFloor offers loans graded A - G, with A loans offering the lowest rate of return and G loans offering the highest rate of return (usually between 6.5% and 25.5%).

  • GroundFloor's loans are usually senior loans. Senior loans, or first lien loans, have priority should the borrower default on the loan. This means you have a higher chance of getting your investment back even if the borrower does default. Any liens below the senior lien are not high priority when funds are disbursed.

  • GroundFloor executives have a lot of experience in real estate. If you look closely at many of the real estate crowdfunding platforms, they started as technology companies that jumped on the bandwagon of real estate crowdfunding. GroundFloor is the exact opposite. Their executives have a combined experience of 100 years in the mortgage and real estate industry.

  • GroundFloor prefunds many of the loans they offer. If you look at other crowdfunding sites, you'll find that they don't fund the loans until they have enough investors funding the loan. GroundFloor does the exact opposite. They prefund "most" of their loans. This is because they have that much confidence in the performance of the loans based on their screening process.

  • GroundFloor takes security serious. When you are dealing with investments and transferring money, you need a site that employs top-notch security. GroundFloor uses bank-rate security and encryption to ensure the safety of your information.

  • You can invest in fix and flip real estate investments passively. By investing in the loan or LRC, you take part in the excitement of fix and flip properties, but you don't actually have to own the home or do the work.

  • GroundFloor requires borrowers to carry adequate property insurance. This protects your investment should disaster strike. For example, if the house burnt to the ground, you'd be left with nothing if the borrower didn't have proper insurance coverage.

    Knowing that you have some type of protection can give you peace of mind if you decide to invest.

Reasons You May Want to Look Elsewhere

  • Your investment isn't liquid. GroundFloor's loans have terms that range between 6 and 12 months. It's not long term, but long enough if you need your funds immediately.

    If you know you have a short-term need for the funds you want to invest, you'll want to consider a slightly more liquid investment so that you have access to the funds when you need them.

  • Each loan must be completely funded within 45 days or the loan gets canceled. If you don't fund the entire loan, which most don't since it's the point of crowdfunding, there must be enough funds within 45 days.

    This could mean that your funds sit idle (not earning interest) for up to 45 days. If the loan doesn't go through, you get your money back and you don't have an investment.

  • There isn't enough research or data to determine if this model is successful. Because GroundFloor is one of the first to offer investments this way, there isn't much proof that it works. As we discussed above, usually only accredited investors can use real estate crowdfunding platforms.

    The fact that the funds can come from anyone who wants to invest adds a level of insecurity to the process.

How It Compares

  • Fundrise: Fundrise is also a viable option for non-accredited investors with at least $500 to invest. Fundrise pools funds for eREITs. Your money buys a diversified portfolio of real estate investments.

    You earn dividends when the property appreciates, interest payments are collected, or the property is sold. Fundrise offers four different portfolios to choose from based on the risk and reward you desire.

  • PeerStreet: You must be an accredited investor to invest with PeerStreet. Like GroundFloor, you invest in the property's debt or mortgage.

    You do earn interest each month, which you can reinvest or withdraw. You'll need a minimum of $1,000 to start investing with PeerStreet.

  • Lending Club: Lending Club connects borrowers and investors in their marketplace to help borrowers get funds. Borrowers can use the funds for any purpose, including auto loan refinancing, business loans, or personal loans.

    Lending Club is a peer-to-peer marketplace that doesn't require accredited investors and has a minimum investment requirement of $1,000, but you can spread it out over multiple notes.

Bottom Line

If you've always wanted to invest in real estate and you aren't an accredited investor, this could be your chance. As long as you understand GroundFlow's grading process and understand the risks you take, it could be a great way to diversify your portfolio.

Disclaimer: Opinions expressed here are author's alone. Please support CreditDonkey on our mission to help you make savvy decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

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