Updated April 6, 2022

GROUNDFLOOR Review

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Groundfloor offers short-term real estate investments starting with just $10. With average returns over 10%, is it the right investment for you?

GROUNDFLOOR
Invest in Real Estate with $10

Overall Score

4.2

Minimum Deposit

5.0

Customer Service

4.0

Commissions and Fees

5.0

Ease of Use

4.0

Liquidity

3.0
5-point scale (the higher, the better)

Pros and Cons

  • No investor fees
  • High historical returns
  • $10 minimum
  • Risk of default
  • Debt investments only (no equity)

Bottom Line

Crowdfunding platform for passive investors looking for short-term real estate debt investments

Real estate crowdfunding is hot right now. But a big downside is that your money is often tied up for 5 years or more.

Not everyone wants their money locked up like that. If that sounds like you, Groundfloor may be your answer.

Most platforms invest in multi-year large commercial projects. But Groundfloor lets you lend money to borrowers for housing projects that last just 6-12 months.

Is it better than platforms like Fundrise and Diversyfund? Find out the pros, cons, and returns in this review.

What is Groundfloor?

Groundfloor is a real estate crowdfunding and lending platform for fix-and-flip residential projects. It's open to both investors and borrowers.

Investors provide loans to borrowers for fix-and-flip housing projects. Each loan has a fixed interest rate and projected term. Borrowers use the money to renovate the house and then sell it.

This investment model is attractive for both parties. Investors get relatively safe, real estate-backed returns. Borrowers get access to quick loans that meet their needs better than the big banks.

Groundfloor's stats to date show strong performance since its inception in 2013:[1]

Number of investors154,00+
Average returns to date10.5%
Total interest earned by investors$12,693,868
Total repayments made (2021)$166.7 million
Total loans originated / closed2,900+ / 2,400+
Average loan size$232,482

Is Groundfloor going public?
Groundfloor opened up ownership of the company with a 2019 Stock Offering (currently closed). The public owns over 27% of Groundfloor. But their securities aren't currently trading on any of the public exchanges.

What Makes Groundfloor Different

Groundfloor stands out from other real estate crowdfunding platforms. Here's why:

  • Debt instead of equity
    You're investing in loans, so you already know the interest rate and terms. This is different from equity, which means you own a piece of the property. Your returns don't depend on how much it goes up in value.

  • Short time frame
    Because other platforms depend on property appreciation, you usually need to wait at least 5 years. But Groundfloor's loans are short (typically a year or less). You can get a quick return on your investment.

  • Customization
    Other platforms like Fundrise offer funds. You don't get a say in your investment. With Groundfloor, you make your own direct investments and build your own portfolio.

Who Can Invest on Groundfloor

Groundfloor is open to all investors. There are no accreditation or wealth requirements.

Groundfloor may be right for you if:

  • You don't want a long multi-year investment
  • You only have a little bit of money to invest
  • You want to invest in debt instead of equity
  • You want monthly interest payments
  • You want the option of higher risk for more potential rewards

Groundfloor is open to investors in all 50 states except for Nebraska residents (due to state-specific legislation).[2]

Groundfloor also allows non-US investors to invest on the platform. The minimum for international investors is $5,000.[3] After creating an account, you have to contact Groundfloor to transfer in funds.

Groundfloor Pros and Cons

Pros

  • No investor fees
  • High historical returns ~10.5%
  • Short term investments (6-12 months)
  • Low minimum of $10
  • Ability to diversify across different risk levels
  • Open to all investors (don't need to be accredited)

Cons

  • Risk of default
  • Limited to debt investments (no equity)
  • Some borrowers have no experience flipping real estate
  • No diversification opportunities outside of residential real estate

How Groundfloor Works

Here's a quick look at how Groundfloor's loan process works:

  1. The borrower submits a loan application. Every loan goes through a stringent underwriting process. Then it's assigned a loan grade based on risk.

    Each project is given a loan grade from A - G. Grade A means the lowest risk and lowest returns. Grade G means the highest risk but also potentially highest returns.

    The loan grade Groundfloor assigns depends on many factors, like:[4]

    • Loan-to-value ratio
    • Location of house
    • Quality of valuation report
    • Borrower experience
    • How much skin-in-the-game the borrower has

  2. Groundfloor gives the borrower an initial payment (called pre-funding) so they can start the project.

  3. Groundfloor then converts the loans into securities with the SEC. Once qualified, the public can invest in them starting with just $10. You're actually investing in a Limited Recourse Obligation (LRO).

  4. During the project, Groundfloor carefully monitors the progress. They try resolve problems if anything goes off-track.

  5. When the project is complete, the house is put on the market. The borrower uses funds from the sale to pay back the loan in full. Groundfloor then distributes that to the investors.

How to Start Investing on Groundfloor

From an investor's point of view, here's what you need to know:

  1. Create an account:
    You can sign for free and view the available projects. There are no investor fees and the minimum investment is just $10.

  2. Fund your account:
    Link an external bank account to transfer funds. It takes about 3-5 business days for transfers to clear.

  3. Browse current projects:
    You will see a list of available investments like this:

    You can click into each one to see the details.

    Each listing includes all essential details of the loan:

    • Loan grade assigned by Groundfloor
    • Interest rate (5% to 25%)
    • Investment period (usually from 6 to 12 months)
    • Loan-to-value ratio
    • Repayment terms
    • Borrower's profile

    You can build a custom portfolio with loans of different grades. Or, you can choose Groundfloor's automated investing. We'll go over that in the next section.

  4. Receive payments:
    You get either monthly interest payments or deferred payment after project completion. When the borrower has repaid all the principal and outstanding interest, you'll get your investment back in a lump sum.

    You can choose to withdraw or reinvest in other loans.

Groundfloor referral bonus: Groundfloor's referral program gives both you and your friend a $10 bonus as soon as they transfer money into their account. There is no limit to the number of people you can refer.

Automated Investing

Groundfloor also offers an Automatic Investing feature. This is great if you don't want to choose your own loans. Here's how it works:

  1. Set up a recurring transfer schedule. The only option is once a month.

  2. Create your portfolio by entering how much you want to invest into each loan grade.

  3. Whenever new loans go live, your funds will automatically be invested according to what you set. Auto Investing runs every day.

  4. Your repayments will also be auto invested into new loans.

  5. If you don't like a loan the system selected, you can cancel it with 48 hours.

Automatic Investing is a great way to invest without thinking. All your excess cash is automatically put to work. You don't need to keep on logging in and actively select investments yourself.

Groundfloor App
Groundfloor doesn't currently offer an investing app. However, their web-based platform is compatible and easily viewable with mobile browsers.

What are Groundfloor's fees?

Groundfloor does not charge its investors any fees. This sets them apart from other real estate crowdfunding platforms.

They instead make all their money from the fees they charge their borrowers. Fees for borrowers are:[5]

  • 2% to 4.5% of the amount of the loan
  • $250 application fee
  • $1,250 closing costs

How Much Returns Can You Expect?

The average returns to date is 10.5%. Interest rates go from 5% to 25%.[6] Though browsing on the platform, the majority of loans are in the 6.5% - 12% range.

How much you can make depends on your own risk tolerance and the loans you select.

Are Loans Risky on Groundfloor?

Groundfloor has a stringent underwriting process to reduce risk for investors. It also works closely with borrowers to make sure their projects are on track.

All loans are backed by the actual property. They're full recourse loans with personal guarantees. In the event of default, Groundfloor has legal claim to the property plus the borrower's personal wealth. So the risk of losing all your principal is low.

In 2021, Groundfloor repaid loans on 513 properties. And only 11 loans were repaid with a loss of principal.[1]

The biggest risk is a default. If renovations are more difficult or costly than planned, this could delay or end the project. If a loan is not repaid on time, you continue to earn interest payments until the loan is fully paid off.[7]

In very rare cases, a foreclosure may be necessary as a last resort. Investors will get their share back from the sell.

Groundfloor currently has an A- rating with the Better Business Bureau (BBB). The BBB rating is based on customer complaints and how the business is likely to interact with its customers.[8]

Is Groundfloor a Good Investment?

Groundfloor is a solid addition to any diversified portfolio. They boast average returns of just above 10%. This is on par with other real estate investments.

It's a good investment if you want to invest in debt instead of equity. You don't need to wait for years for the property to appreciate in value. You can see a quick return.

There's no accreditation requirements and only $10 minimum. So it's also a good option for small investors.

But as with all investments, there is risk. But having the actual house as collateral will reduce your losses.

How do you contact Groundfloor customer support?
You can reach Groundfloor customer service Monday through Friday 9am-5pm EST by:

  • Phone: (404) 850-9223
  • Email: support@groundfloor.us

How to Reduce Risk

Investors can reduce risk by selecting higher-quality projects. For example, choose projects where the borrower has successfully paid off other Groundfloor loans. Also look for borrowers that have more skin in the game (by contributing more of their own money).

And of course, diversification is always key. Invest your money in multiple loans and loan grades to spread out the risk.

It's also a good idea to do some comparative research on other properties in the neighborhood. Make sure the forecasted valuation after repairs is not inflated.

Groundfloor login: Logging into the platform is easy with your email address doubling as your username.

Groundfloor Alternatives

Groundfloor is unique because they offer short-term debt investments backed by actual properties. Most other real estate platforms only offer long-term equity investments.

Review Groundfloor's main competitors below before choosing where to invest.

Groundfloor vs. Fundrise

Fundrise is perhaps the most popular real estate investing platform. Just like Groundfloor, the minimum to start is only $10 and it's open to everyone.

Your money is automatically invested into a diversified portfolio of real estate projects across the US. You get a mix of commercial and industrial, debt and equity projects. It's really a "set it and forget it" approach to real estate investing.

Their historical returns are similar to those of Groundfloor (both around 10%). But their investor fees (~1%) are higher.

Fundrise is meant to be a long term investment. But it does have an early redemption program (with a small fee), so there is some liquidity.

Groundfloor vs. DiversyFund

DiversyFund focuses on investing in multi-family residential properties and collecting rental income.

They create value by upgrading their properties so they can charge higher rent. The goal is to then sell the properties after 5 years, targeting an IRR between 10% and 20%.

Your share of the rental income is paid in monthly dividends. But they're automatically reinvested. And there's no option for early withdrawal. You'll have to be okay with a 5-year investment before getting any returns.

DiveryFund's projects are all equity projects. So your returns depend on the price when they're resold. This is unlike Groundfloor debt investments, where you know the interest rate and term. Returns aren't dependent on the value of the house.

Is DiversyFund a good investment?
DiversyFund is worth considering if you're okay with your money locked up for five years. And if you want equity ownership as opposed to a debt investment.

Groundfloor vs. PeerStreet

Of all the competition, PeerStreet is the most similar to Groundfloor. It lets you invest in short-term loans to borrowers for real estate projects.

But, Peerstreet is only for accredited investors. The minimum investment is $1,000. And there is an asset management fee of around 1%.

Most of the borrowers on PeerStreet are experienced real estate owners. They are seeking short-term financing to improve the quality and rentability of their properties.

At around 9%, the returns on PeerStreet are generally lower than the returns on Groundfloor. The risk is also lower. This is because PeerStreet borrowers are improving their existing properties as opposed to buying and flipping a house in disrepair.

Groundfloor FAQ

Who is the Groundfloor borrower?
Groundfloor borrowers are your typical real estate flipper. They want to buy properties in a state of disrepair, renovate, and then resell - hopefully at a profit.

They try to do all this as quickly as possible, generally within six to 12 months. Given the shorter time frame, a traditional mortgage can be too cumbersome. This is what makes Groundfloor a better option for raising funds.

Borrowers need a minimum credit score of 600. But previous flipping experience is not required. So be sure to look at borrower profiles before investing.

Is Groundfloor FDIC insured?
When you transfer funds to Groundfloor, the cash is held at partner bank and will be FDIC insured up to the federal limit. However, once they are invested into loans, they are no longer FDIC insured.

Is Groundfloor a REIT?
No, Groundfloor is not a REIT. You're not investing in a fund of real estate projects. Instead, you are investing in individual loans to borrowers.

Bottom line: Is Groundfloor legit?

Groundfloor is legit. They are one of a few crowdfunding platforms that offer real estate-backed debt instead of equity. The ~10% returns are on par with many equity real estate investments.

They offer all this with no investor fees, very low minimums, and no accreditation requirements.

But as with all investments, there is risk. The biggest risks are defaults (or even foreclosure). But having the actual house as collateral will reduce your losses.

Before making an investment, investors should do their own due diligence on the borrower's profile and history.

References

  1. ^ Groundfloor, 2021 Year in Review, Retrieved 3/21/22
  2. ^ Groundfloor. Do I have to be an accredited investor to invest with GROUNDFLOOR?, Retrieved 4/5/2022
  3. ^ Groundfloor. Does GROUNDFLOOR allow investments from non-US residents?, Retrieved 4/5/2022
  4. ^ Groundfloor. Groundfloor's Loan Grading Factors, Explained, Retrieved 4/5/2022
  5. ^ Groundfloor. Does GROUNDFLOOR charge me fees?, Retrieved 4/5/2022
  6. ^ Groundfloor. How much can I earn on my money?, Retrieved 4/5/2022
  7. ^ Groundfloor. What happens if a borrower defaults on a loan?, Retrieved 4/5/2022
  8. ^ Better Business Bureau. Groundfloor BBB Rating & Accreditation, Retrieved 4/3/2022
GROUNDFLOOR

Invest in Real Estate with $10

  • Short-Term High Yield Real Estate Debt Investment
  • Open to Non-Accredited Investors
  • No Investor Fees
Fundrise

Invest in Real Estate with $10+

Become real estate investor with as little as $10

Ally Invest Coupon Codes

Get Up to $3,000

Expires 6/30/2022

The minimum qualifying deposit to receive a cash bonus is $10,000. Accounts will be reviewed 60 days after account opening to determine the total qualifying deposit. Corresponding cash bonus will be credited to the account within 10 business days. Once the bonus is credited to the account, the bonus and qualifying deposit (minus any trading losses) is not available for withdrawal for 300 days. If the qualifying deposit is withdrawn, the bonus may be revoked.

Deposit or TransferCash Bonus
$10,000 - $24,999$100
$25,000 - $99,999$250
$100,000 - $249,999$300
$250,000 - $499,999$600
$500,000 - $999,999$1,200
$1,000,000 - $1,999,999$2,000
$2,000,000+$3,000

Betterment

Get up to 1 Year Managed Free

New Betterment customers only. Accounts must be funded within 45 days of signup. Terms apply.

Write to Andrew Fitzgerald at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

Note: This website 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. You do not have to use our links, but you help support CreditDonkey if you do.

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