The Groundfloor platform for real estate investing offers a financing option for non-accredited and accredited investors looking to invest in fix-and-flip loans. Keep reading our Groundfloor review to find out more about the service.
The company provides a platform for alternative investment and offers loans to people like house flippers and real estate investors who are looking to flip a property for a profit.
There are both pros and cons that come with using a platform to finance a property investment.
This Groundfloor review will discuss the selling points and the disadvantages of using the platform.
Groundfloor Review: Overview
Groundfloor offers real estate loans to investors looking to finance real estate investments like ground-up construction projects or renovations.
The platform helps facilitate short-term, high-yield loans that real estate secures.
The type of loan which Groundfloor offers is what is known as a hard money loan.
The loan is backed by a physical property that is intended to be sold for a profit.
Groundfloor is an interesting investment option for real estate entrepreneurs, house flippers, and those looking to fund a new build, renovation, or residential real estate investment.
What Is Real Estate Crowdfunding?
Simply put, real estate crowdfunding platforms are a way to finance loans from a pool of investors who all put in money to provide funding for a loan.
The loan is typically broken up and “sold” to different investors who then take a share of the profits on the property the loan is backed upon.
Sometimes this type of crowdfunding is referred to as peer-to-peer lending.
A borrower will generally join a real estate crowdfunding platform to secure finance for a property project such as a new build, renovation, or real estate flip.
A real estate investor will then put up money as an investment to cover the loan to profit from short-term returns that can sometimes be achieved with this type of investment.
Groundfloor Review: How Does Groundfloor Work?
Groundfloor works by offering real estate investors a hard money loan which is then qualified by the U.S. Securities & Exchange Commission and transformed into investment security that investors can invest into.
Once the underlying property is renovated and sold on the market (or refinanced), investors are repaid their initial investment, plus any interest earned.
The borrower pays anywhere from 2% to 4.5% of the principal of the loan.
The funds are all pre-screened and funded before being offered for crowdfunding.
The process begins with a borrower who wants to complete a real estate project, such as a house flip or building a new home.
Then, the borrower will apply to a specific project with all required documents, and Groundfloor will review the documents and decide whether to offer a loan or not.
If a loan is offered, the borrowing team will work to custom design the loan to meet the borrower’s needs.
The loan is then assessed a risk grade and underwritten, then assigned an interest rate.
Groundfloor assesses the risk of each loan using a proprietary grading algorithm qualified by the SEC that takes into account:
- The valuation and strength of the project
- The experience and risk profile of the borrower
The Groundfloor team combines over 100 years of collective real estate experience with this algorithm to underwrite and assign a risk grade to the loan, ranging from Grade A to Grade G.
Grade A loans on the platform are considered to be the least risky and offer a lower rate of return.
Grade G loans are loans with the highest risk, but they also offer the highest potential returns.
It is important to note that when grading each loan, the creditworthiness of the borrower may not matter.
This can be a downside since house flipping tends to be a risky investment strategy.
Groundfloor has an extremely low loss ratio, however, and is typically in a first-lien position to mitigate risks for investors.
Still, investors should use their due diligence to assess whether or not a loan fits within their investment strategy.
An investor is responsible for checking all information provided by Groundfloor against all investment opportunities available on the platform’s website.
Real estate developers can access a loan application online to find financing for their projects.
The process is simple, and borrowers can start a loan application and save it to complete at a later time.
The platform boasts that it can close loans in as little as three weeks.
How Do Groundfloor Investors Make Money?
When a loan is funded fully, the loan will close, and the borrower draws funds on a schedule while completing the renovation or build.
The property or project is then put up for sale, a sale happens (or sometimes refinancing occurs) and closing takes place.
When the property closes a sale, the borrower then repays Groundfloor, and then the platform repays investors with one lump sum of the principal invested along with interest into investors’ accounts.
It is important to understand that with Groundfloor, investors do not own the loan notes themselves — instead, they own what is known as a Limited Recourse Obligation (LRO).
As with most limited recourse obligations, Groundfloor is legally obligated to pay investors based on how each loan performs.
However, it also limits investors to only being guaranteed the funds repaid on the underlying real estate loan.
This means if the loan is not repaid, then investors don’t profit.
What Types of Loans Does Groundfloor Offer?
The platform offers hard money loans backed by real estate, which range in interest rates from 2%–4.5%.
The loans then get placed on the platform for funding so individual investors can put their money to work earning interest.
These types of loans can often provide high returns but are also very risk averse as well.
New Program for Real Estate Investments
To meet a demand for more real estate investment capital, Groundfloor rolled out a new program called The Loan100 Program that lends capital to experienced real estate entrepreneurs.
The program is only available to highly experienced borrowers.
It allows for a loan to value of up to 100% for renovation projects or property rehabs.
Groundfloor Review: Is Groundfloor Legit?
Groundfloor is legit, and the company operates under Regulation A+ Tier 2.
Accredited and Non-Accredited Investors Welcome
This means that it offers loans to non-accredited investors as well as accredited investors.
Groundfloor is based on a business model of both high volume and high liquidity.
Currently, the hard money lender provides around 60 to 70 loans each month.
Groundfloor is Transparent
The Securities and Exchange Commission only requires Groundfloor to release financial statements annually, but the company releases this information two times each year.
The company also regularly publishes detailed analyses of portfolio performance as well as monthly overviews of loan repayments and asset management activities on its blog to provide further transparency for investors in real-time.
What if a Groundfloor Loan Defaults?
Groundfloor does not set a goal of never having a default but instead aims to maximize net returns to investors.
The CEO of Groundfloor stated that the goal of the real estate investing platform is:
“not to never have a default, but to maximize net returns by proactively pushing default to quickly liquidate and return investor funds or put together a workout plan when default seems likely.”
In some cases, a default benefits investors because it allows Groundfloor to take action, which can speed up the repayment or increase the return.
There have been a few investor complaints about the platform.
And some investors are not happy with the level of transparency Groundfloor provides.
This is likely because these deal offerings give fewer details than those on other crowdfunded real estate platforms.
What if a Property Goes into Foreclosure?
When it comes to defaulting and the foreclosure process, Groundfloor attempts to negotiate with the borrower.
If negotiations fail, the lender will then go forth with foreclosure, which can often be costly.
Sometimes it can take months if the property is in a non-judicial state — or even years if the property is in a judicial state, for a foreclosure to go through.
After the foreclosure ends, Groundfloor goes about overseeing the rehab, renovation, and sale of the property.
You should also be aware that Groundfloor loans, like with many hard money lenders, typically result in a higher rate of default than traditional loans.
Around 2% of projects offered by Groundfloor ended up in foreclosure.
At the time of writing this, the national foreclosure rate was only at .6%.
However, the platform reports that historically investors have received 84% of their investment back if a loan goes through the foreclosure process and becomes an REO.
What is Groundfloor’s Bankruptcy Policy?
Unfortunately for investors, Groundfloor does not offer bankruptcy protection, which some other real estate debt investment platforms offer.
In a bankruptcy, if Groundfloor stops performing its duties, there is no company to handle the proceedings.
This leaves the investor money in limbo while court proceedings take place.
This is bad news for investors.
Groundfloor’s leadership consists of a skilled team of professionals with diverse backgrounds which span investment finance, real estate, and technology.
The team boasts skills in each of their respective fields, with CEO Brian Dally, who has both a Harvard MBA and a law degree.
The staff at the real estate crowdfunding platform have extensive experience and knowledge in the construction and home renovation industry.
These staff members review and assess renovation plans and the budget on all loans and real estate projects.
Groundfloor Review: How Much Does Groundfloor Cost?
There are a few costs that come with Groundfloor, depending on whether you are investing or are a property flipper.
What Is the Minimum Groundfloor Investment?
There is a $10 minimum investment with Groundfloor.
By allowing investors to invest with as little as $10, the platform is opening up the market to non-accredited investors who want to invest in real estate.
Additionally, this low minimum means it’s easy to spread your investment risk among a multitude of projects with a limited risk of loss per loan.
Real estate investments that provide higher returns are often on projects that property flippers manage.
What Fees Does Groundfloor Charge?
Groundfloor does not charge investors any fees.
Instead, it charges the borrower anywhere from 2%–4.5% in interest.
Groundfloor offers a minimum investment of as little as $10 and does not charge any investor fees, making it a good low-cost platform for debt investments.
Investors who choose to use Groundfloor for loan investments do not have to pay any fees, nor do they have to pay any fees to be an accredited investor.
This makes the real estate crowdfunding platform a good choice for novice investors who want to start investing in real estate loans.
Other than the interest rates charged to borrowers, the company is one of the only real estate investment platforms that does not charge investor fees.
Groundfloor Review: Pros and Cons
There are both pros and cons when it comes to using the real estate crowdfunding platform as either an investor or a borrower.
- Low minimum investment of $10, which is much lower than the typical minimum investment required in the real estate crowdfunding industry
- The platform is open to non-accredited investors looking to include the real estate asset class in their investment portfolio
- Auto investing feature that allows you to reinvest the principal and interest payments you receive on your note investments.
- An easily accessible vehicle to improve personal finance by investing in an alternative asset
- Setting up a Groundfloor account is easy
- Traditional mortgage loans on properties provide investors with the opportunity for monthly cash flow
- Fast deal flow
- No fees for investors
- The investor stays in control
- Open to self-directed IRA investments
- Loan updates every 30 days
- A higher loan default rate when compared to industry trends
- Risk of property foreclosure
- Focused on residential real estate (less diversity)
- No option for investing in equity
- Requires a sign up to browse investment opportunities
Groundfloor Review: Is Groundfloor Right for Me?
If You Are a House Flipper
If you flip houses or want to invest in a flip project, you can get a loan for a rehab project or renovation from a selection of real estate crowdfunding platforms.
However, Groundfloor focuses on one part of the real estate debt investments sector- fix and flip real estate projects.
Groundfloor may be right for you if you are looking to renovate a home or have an investment or rehab project.
If you are an investor, be aware that hard money loans are high risk.
If you are okay with the risk and still want to invest, then investing in a short-term high-yield loan, like those available on Groundfloor, might be a good option for you.
As it takes non-accredited investors, the Groundfloor investment platform opens up the debt investment market and can be an excellent place to start if you aren’t accredited.
If You Would Like to Invest in Real Estate
If investing in real estate is something you would like to dabble in, then Groundfloor offers a good option with its $ 10 minimum investment.
Individual investors can take part in real estate investments easily and at a low cost with the investment platform.
Only you can decide if Groundfloor is right for you.
This depends on your risk tolerance, investment strategy, and other factors, like if you want a short-term loan.
How to Invest with Groundfloor
The niche marketing concept for the Groundfloor platform is that anyone can invest and create custom portfolios of private real estate debt, without needing to commit to investing in a fund such as an eREIT.
If you have as little as 10 dollars, you can become an investor on Groundfloor regardless of your income or net worth.
Another good way to use the platform is to set up a self-directed IRA to benefit from the high returns that are possible with real estate investing.
Doing your due diligence and researching available loans on the platform may help you grow your portfolio.
Groundfloor also allows real estate investors to find financing through other means than traditional loans, self-financing, partners, or other non-traditional loans.
It’s also important to note that Groundfloor investments are typically geared toward the short term.
After renovations on a property are complete — the company sells the property or refinances the loan into a traditional mortgage.
Average Returns from Groundfloor
The average returns on loans from Groundfloor are around 10% annually.
This is according to reports from the platform.
Groundfloor Reviews by Investors
There have been a few complaints from investors about the platform. The Better Business Bureau has 4 complaints against Groundfloor, but it still has a rating of an A+.
The main complaints tend to be around the lines of transparency and details provided for investments in the marketplace.
This is especially true when it comes to things like the creditworthiness of the borrower.
Other reviews across multiple websites rank the real estate crowdfunding website anywhere from between 3 stars and 4.5 stars.
Despite the risk associated with the types of loans Groundfloor offers, reviewers tend to rate the real estate investing company fairly well.
Final Review: Is Groundfloor Worth It?
For those who want to diversify their portfolio with short-term high-yield investments, Groundfloor can be a good fit.
The platform provides investors the interest on loans, which borrowers need to repay in addition to the principal of the loan.
There are cons, pros, and considerations that you should take into account when deciding whether or not to invest with ground-floor.
However, there are many investors that have seen success, so we recommend that you take a look at the platform if you’re interested in a low-cost entry point into real estate investing.