Groundfloor Review – Real Estate Investing Starting at $10
4:17 AMGroundfloor is a unique platform offering non-accredited investors the opportunity to invest in real estate, with the option to start with only $10.
Groundfloor
Pros
- Allows non-accredited investors to put up money in real estate
- An investment can be made with even a small amount of $10
- A stringent mechanism is in place for approving loans
- Your investment can be diversified across different projects
- The loans available on the platform are mostly senior category loans
Cons
- The company has been around for almost five years but never made a profit
- There’s a liquidity problem associated with investing in real estate
- There isn’t a performance measure to judge how well your investments are doing
- The model is one-of-a-kind and has not been tested in the market before
- There must be enough funds collected within 45 days, or the financing gets scrapped
Table of Contents
Investors, both professional and amateur, are always on the lookout for opportunities in the lucrative real estate market. However, the daunting task of finding the perfect property vetted and appraised by professionals always acts as a deterrent for investors in this space.
Groundfloor is a real estate crowdfunding platform that can give you a return of about 10% or more and lets you start with as little as $10 per loan. And there’s no need for hiring an attorney to review the mortgage process or for keeping tabs on the project.
Groundfloor deals in residential debt or hard money loans to offer returns. Keep on reading for a better understanding of how this works and a detailed review of Groundfloor.
What Is Groundfloor?
To understand the concept behind Groundfloor, we need to understand their specialization first: hard money loans. Hard money loans are short-term, high-interest-paying lending agreements backed by real estate.
House flippers who buy, refurbish, and then flip the homes for higher prices are the most common recipients. Obtaining a loan from a bank for flipping a house can be too long. The application might not even be considered.
So where does Groundfloor come in?
Briefly, Groundfloor is an online platform that pools small amounts from individual investors to lend more considerable sums of money for short-term lending of real estate projects. The developers of such projects prefer platforms such as Groundfloor because of ease of access to financing options at a relatively cheaper rate.
Related: The Best Online Personal Loan Rates and Offers
Groundfloor operates like a real-estate crowdfunding platform where ordinary investors come together to pool capital for a real estate project. You can also opt to diversify your investment portfolio with investments in different markets, states or risk grades.
As of early 2018, Groundfloor has funding options for projects available in 24 states with investors coming together from 50 states.
Investors have an option for choosing between different interest rate yields ranging from 6% to 14%, depending on the risk and duration of the loan. Groundfloor also offers a Grade G package on their site with potential return rates of up to 25%, but those come with a much higher risk.
How Does It Work?
The process begins with a borrower seeking financing to fund a real estate or refurbishing project. Groundfloor conducts the appraisal and vetting required on the borrower and the project.
After approval of the request, Groundfloor assigns each loan a specific grade denoting the risk and return which are different for every level. The grades are from A to G, with Grade A being the least risky but offering the lowest returns, and Grade G giving the best returns but being the riskiest.
There are multiple factors used by Groundfloor’s in-house appraisal team to classify each loan within a particular grade. The deciding factors for each interest rate are influenced by loan amount, the length of repayment, credit score, previous business experience with the company, and borrower guarantee among other factors.
Once the deal is approved by Groundfloor and assigned a grade, investors get a timeframe for financing the loan. After an agreement is funded, the recipient of the loan receives the cash in a pre-approved schedule to finish the project.
After the sale of the underlying property, the borrower pays back the principal amount with interest to Groundfloor which is deposited in the accounts of the investors. Borrowers can opt to make no payments till the sale which is a great benefit for borrowers.
Groundfloor provides financing from $25,000 to $2 million.
The Sign-Up Process
The sign-up process is relatively simple and requires basic information to verify the identity of the potential investor. The simplest way to fund an account on Groundfloor is to link it with a checking account. That is the most time-consuming task in the entire process and might take a few days at most.
Once the money is in your Groundfloor account, you can select from the different loans being offered on the summary page. This page contains a short description for each loan and more details regarding the project are available after clicking on each loan. You can decide the amount you want to invest. This can range from as little as $10 to the full amount available in your account.
The money you put up will not actually be invested until the full amount of the underlying loan has been financed. Usually, loans are funded within hours or days at most. Borrowers have up to 45 days before the money is returned back to the investor.
Key Features and Pricing
One of the platform’s most attractive features is that it charges no fees from the investors. Some of the real estate crowdfunding platforms do charge a fee in the form of a spread between the recipient of a loan and the lenders of the loan. Groundfloor only bills borrowers and charges for processing applications.
Groundfloor offers the chance for investors to grow their money through their platform without ever having to pick up a hammer, go through the legal process, visiting a site, and hiring a home appraiser.
The website is easy to use and offers a very user-friendly interface. Many investing sites often have a complicated design which makes navigation and choosing the right investment options quite a feat.
Another critical feature of the site is that, since its inception, it’s come a long way in adding more states to its portfolio. This has enabled borrowers from different states to access and apply for loans creating a diversified portfolio for investors. This way, investors get an environment of reduced risk where they can fund multiple loans at different locations.
The fact that Groundfloor works hard to protect its investments can be seen from the fact that only two loans have defaulted as of year-end 2017. Groundfloor has each loan reviewed by the Securities and Exchange Commission (SEC), so that gives the investor peace of mind that the whole operation is regulated.
One of the key takeaways from Groundfloor’s platform setup is that you can review detailed information on each type of loan. This report includes specific facts that help make your decision to invest an easier one. For example, it mentions if the borrower has used the platform before and the time they took in returning a previously borrowed loan.
Pros
Pros:
- Allows non-accredited investors to put up money in real estate: An accredited investor is someone whose net worth is at least a $1 million or is making $200,000 per year. Most real estate crowdfunding platforms only let accredited investors get in on the action. With Groundfloor, you have no fear of missing out on real estate investment.
- An investment can be made with even a small amount of $10: An investment of $10 is not ideal if you are looking to build wealth and make your money grow. However, you can invest with small amounts just to test the waters before going big.
- A stringent mechanism in place for approving loans: The company approves only 5% of the loan applications they get, which is a testament to their strict requirements for borrowers. The approval process is one of the main reasons the company has such a low default rate on approved loans.
- Your investment can be diversified across different projects: Groundfloor grades each investment on levels of risk and returns. This enables investors to construct their portfolio, based on their risk tolerance, region preference, or even a specific type of project.
- The loans available on the platform are mostly senior category loans: Senior loans are those which have the highest priority if a recipient declares bankruptcy or defaults. This offers Groundfloor investors a better chance of recovering their investment in an unlikely scenario.
- Experts in real estate investing: Many of the real estate crowdfunding platforms available today were originally tech companies that just dived into real estate because of market demand and lucrative returns. The top management at Groundfloor has an aggregate experience of 100 years in real estate and home borrowing financing.
- Groundfloor pre-funds most loans they put up on their platform: This means before an investment opportunity is presented before investors, Groundfloor funds most of these on their own due to the high level of confidence they have in their appraisal system. Most other platforms require investors to fund a loan before dishing it out.
- Top security to ensure the safety of transferred funds: Online investments are vulnerable to hackers and Groundfloor provides end-to-end encryption and top-of-the-line secure funding mechanisms to protect your funds.
- Allows investors to participate in real estate passively: This means that investors need not worry about choosing the right agent, securing a mortgage, and hiring a home appraiser to flip homes themselves. They participate in the activity without having to do the hard work associated with flipping homes and investing in real estate.
- Requires loan recipients to have proper insurance: This rule is in place to protect your funds if any unforeseen event occurs such as a fire or a natural disaster. Knowing that your investment is insured gives the investor extra incentive.
Cons
Cons:
- The company has been around for almost five years but never made a profit: There is a platform risk associated with investing in Groundfloor also called an inherent risk. You can never predict when they might have to wind up operations and fold, leaving your investment hanging.
- There’s a liquidity problem associated with investing in real estate: Groundfloor gives out loans mostly on a six- or twelve-month basis. During that period, your investment is tied up and cannot be sold off to another investor if you need the money.
- There isn’t a performance measure to judge how well your investments are doing: Since Groundfloor offers the choice of deferred payment to borrowers, you receive no funds until the project is completed or sold. Constant cash flow is a good indicator of performance. When it doesn’t exist, it is hard to leave your investment hanging and waiting for the return after a while.
- The model is one-of-a-kind and has not been tested in the market before: Since Groundfloor is the first company to offer real estate investment opportunities in the way they do, we can never know if the model is sustainable or not.
- There must be enough funds collected within 45 days, or the financing gets scrapped: Funding for a project is open for 45 days after which the money is returned to the investors if there are not enough funds. This means your money was sitting idle for that period earning no return.
Alternatives
Since Groundfloor is so unique, I think it’d be helpful to mention some close alternatives.
PeerStreet
PeerStreet is an online platform that brings together lenders and loan seekers in one place to create financing opportunities for real estate projects. The platform lets investors put up money for premium quality real estate development projects.
Only accredited investors can put up money through PeerStreet, and the minimum requirement is $1,000.
Read more: PeerStreet Review 2019 – Real Estate Crowdfunding Platform
LendingHome
LendingHome is a direct lender where the company uses its own money to finance loans. This means the loans on LendingHome are funded before the financing opportunity is offered to investors.
The platform offers a principal interest on the day you invest. The investor can see cash flows from the first day of investing. The platform is only available for accredited investors, and $50,000 is the minimum requirement to choose the retail investor platform.
Fundrise
Fundrise is a good option for non-accredited investors with a minimum requirement of $500 to start off with. The fund invests in Real Estate Investment Trusts (REITs), so your investment goes into a diversified pool of income-producing real estate projects.
The investors in this type of fund collect dividends when the property value increases and when different properties are sold.
Read more: Real Estate Crowdfunding with Fundrise
Who Is Groundfloor Ideal For?
Non-credited investors looking for opportunities to invest in real estate are the ideal users for Groundfloor. There are only a handful of real estate investment platforms that offer non-accredited investors the chance to invest, but they are mostly REITs. Groundfloor has actual property deals you can fund and not a diversified portfolio of projects.
Investors seeking a short-term (within a year) return on their money also qualify for the opportunity that Groundfloor offers. That is because most projects close within six to twelve months on Groundfloor as borrowers only have to buy, refurbish, and sell the property.
Many individuals want to invest in flipping homes but do not have the required resources, time, and attention to do so. Groundfloor offers these investors easy access and the ability to participate in these real estate projects.
Bottom Line
Groundfloor is a unique platform offering real estate investment opportunities to non-accredited investors. Their low requirement for starting also eases the barriers on entry for people looking to invest in real estate but do not have the required capital to do so.
If you qualify as an accredited investor, there might be other platforms better suited for your needs, but Groundfloor is sure to be a great place to start for small investors.
Topics: Investing • Real Estate Investing • ReviewsThe post Groundfloor Review – Real Estate Investing Starting at $10 appeared first on The Dough Roller.
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