At a Glance
|Minimum Account Requirements||$10|
|Investment Options||You can pick a real estate loan project to invest in from a wide array of options that are risk-diverse, or purchase notes with varying interest rates and maturities.|
|Redemption Options||At the end of a project, your loan interest and capital gains are deposited into your account. Notes are redeemed when they reach maturity.|
|Transparency ||Groundfloor lists all SEC filings on their site.|
What is Groundfloor?
Groundfloor is one of today’s premier real estate crowdfunding services. In a nutshell, crowdfunding real estate services pool money from many investors to purchase, rent, etc., properties and assign equity (or ownership) in those properties based on the proportion of invested capital. In return for fees, the service manages everything, so you don’t have to worry about renting, tenants, leases, whatever –enjoy the gains.
Groundfloor is a rare real estate service open to accredited and non-accredited investors – anyone can get started in private real estate investing.
Their business model is somewhat complex but successful:
- A private real estate investor applies for a loan from Groundfloor to develop a real estate project.
- Groundfloor grades the loan’s risk level from A (least risky, lowest interest rate) to G (riskiest, highest interest rate).
- You (an accredited or non-accredited investor) browse Groundfloor’s loans and find out about the loan details and the project. You decide which loans (real estate projects) to invest in and how much.
- Once enough investors fund the loan, the private real estate investor gets the loan money and completes the project. At the end of the project, the loan is repaid, and you get the loan interest and capital gains back.
Groundfloor borrowers have repaid over 800 loans, so there is a track record of success and safety.
How Groundfloor Started
Groundfloor was founded in 2014 and is the first real estate crowdfunding company to get SEC qualification, which means it’s a trusted firm. It was founded in North Carolina by Brian Dally and Nick Bhargava and was initially financed through angel investors and seed funding before Series A brought the total investment to $7.5M. Every year Groundfloor originates more loans, and over 800 have been repaid, so the business model is tested and proven.
Groundfloor Investment Options
You pick and choose the project or loan you want to fund. Groundfloor provides exhaustive research on both loan and property projects. For example, we looked at one that was completed in January 2021:
- Loan amount: $88,960
- Rate: 13%
- Term: 12 years (although the developer paid it off in three).
- Property: single-family home in Indiana
- End-of-loan property valuation: $144,000
You’ll notice something rare with this example – private equity and crowdfunded real estate usually focus on massive projects like commercial retail buildings that take years to complete. Groundfloor’s diverse offerings mean you can invest in a short-term, much less expensive undertaking.
You can invest in a project loan with a minimum $10 account funding, although it will take more to see appreciable gains.
In addition to the standard crowdfunding real estate loans, Groundfloor offers:
These notes give you greater control over the timing of your investment. Instead of contributing money directly to a project loan, these notes are built against a pool of Groundfloor loans and have varying maturities (expiration/payback) dates. Interest rates vary but generally exceed certificates of deposit or equivalent-term bonds.
With the app, investors can check their portfolios at any time. You can view account balance and transfer funds in and out with the app, although you have to use the full website to invest in a project.
Even though it hasn’t been around long, Groundfloor investors earn an average of 12% return on their investment. This is a great way to diversify against a turbulent stock market and take advantage of a healthy real estate environment.
Strengths and Weaknesses
The strengths are obvious – as a nonaccredited investor, you can access the lucrative private equity real estate market for a low initial investment while also picking precisely what you want to invest in. No fees and short expirations mean you can preserve your capital gains and collect them quickly.
The biggest weakness is one inherent in loan origination. The borrower could always go bankrupt and be unable to repay part or all of the loan. Groundfloor manages this by extensive due diligence into the borrower and project before assigning a risk rating. It is up to the investor to determine what level of risk/reward tradeoff he is comfortable with.
You also can’t buy or sell your stake – you do have to wait it out until the project is completed and capital plus interest is returned. But, since you can choose your maturity, there is at least predictability in income.
Groundfloor Finance Review Final Thoughts
Groundfloor is a safe way to invest in real estate and generate interest income. Even though your investment isn’t very liquid, you can predict the maturity schedule and tailor your selection to your liquidity needs. Their high returns are a huge selling point, especially as the stock market tanks. Groundfloor is a fantastic opportunity to get into the booming real estate market for an average, non-accredited investor.
Click here to start your real estate journey.