Benzinga Compares DiversyFund vs. Groundfloor

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Contributor, Benzinga
October 26, 2023

Almost since the beginning of recorded history, the acquisition of real estate has been a surefire way to build wealth. This was as true in ancient Rome as it is today. Unfortunately, throughout history, real estate has typically been available only at price points that are prohibitively high for most people. 

At least until now. Why? Because the advent of real estate investment trusts (REITs) and crowdfunding allow everyday people to invest in real estate without coming up with the massive amounts of money necessary to buy entire buildings or large tracts of land. 

Why Invest in a REIT?

Real estate investment trusts allow people to invest capital into large real estate portfolios in much the same way a stock allows them to invest capital into a large corporation. Like stocks, REITs are operated by publicly traded companies that appear on indexes like the New York Stock Exchange (NYSE).  However, with a REIT, investors are buying a slice of the assets in the REIT’s portfolio as opposed to a percentage of the equity in a particular company. 

REITs offer investors a significant number of advantages over purchasing real estate outright. First of all, investors can buy into REITs for significantly less money than it would cost to make a down payment on any piece of real property. 

Secondly, shares in a REIT are a lot easier to liquidate than an entire building. Shares of REITs can be sold within minutes, whereas an entire building could take months or even years to sell because finding qualified buyers for real estate can be difficult even in hot markets.

Lastly, and perhaps most importantly, REITs have access to wider, more diversified portfolios than any 1 investor could feasibly put together. What this means is that REITs typically do better market research than individual investors, and the diversification across a number of properties lowers the risk of a major loss on 1 property crippling the investor’s financial outlook.

Who Does a REIT Benefit?

For the reasons listed above, REITs can be extremely beneficial to both smaller investors and the principal property owners. REITs allow for increased capital flow and portfolio expansion to the REIT itself, which should translate into greater dividends for its investors. 

What Does a REIT Invest in?

REITs invest in a full range of income-producing real estate, from commercial to residential. The properties in REITs are typically spread across a wide geographic area to limit loss exposure in the event that 1 or more markets go south at the same time. Because REITs are focused on income-generating properties, the typical REIT investment into a residential property is usually a multifamily asset such as an apartment complex rather than a collection of single-family homes.  However, REITs also invest heavily in commercial projects such as shopping malls, medical centers and industrial complexes. 

Why not Just buy Real Estate?

The simple answer to this is that real estate is expensive — very expensive. This goes doubly so for an investment property because the mortgages for investment properties are not insured by any federal government programs. That means the maximum term for financing is 15 years, and there is no 1st-time buyer option that offers a 3% down payment like you might find for a residential home purchase. 

For most investors, the lack of capital for down payments combined with difficulty securing financing leaves income property beyond their means. The beauty of REITs is that they solve this problem because you can buy shares in a REIT for thousands of dollars instead of the tens or even hundreds of thousands it would cost to buy property flat out.

What is DiversyFund?

DiversyFund Inc. is a private REIT that has been set up to allow investors to buy shares for as little as $500. In addition to the low buy-in, DiversyFund doesn’t have a minimum net worth requirement for its clients, which many REITs do. This allows small investors to participate in the real estate market in such a way that has historically only been available to high net worth individuals. 

DiversyFund still buys and sells real estate like a traditional REIT, but with an added focus on being user-friendly for small investors. In addition to the low buy-in, DiversyFund offers a number of user-friendly additional benefits, including:

  • Webinars where investors can learn about REITs and how DiversyFund works
  • Huge FAQ page that answers many questions potential investors may have
  • Transparency — DiversyFund is publicly traded and subject to federal and state regulations regarding investment vehicles 

In addition, DiversyFund actually is easy to contact through email and encourages its investors (or potential investors) to reach out with questions. This is a marked departure from many investment firms, where the person you want to talk to or ask questions is usually unavailable.

While DiversyFund used to offer monthly dividends, the company no longer does. Instead, shareholders cannot sell their shares until DiversyFund closes the fund and begins selling the assets. The firm aims to allow investors to begin selling their shares in five years.

Why Invest in Real Estate Debt?

The high cost of real estate means an overwhelming majority of buyers need to borrow money to complete their purchase. One of the kick-on effects of this is that investing in the debt secured by real estate financing is almost as reliable as investing in real estate itself.  There are several reasons for this. 

First, most real estate financing is done over long terms, usually between 15 and 30 years, and with set interest rates that lock in profit for the lender or whoever owns the debt. Secondly, most property owners will defer almost any other expense in favor of servicing the debt created by their mortgage. This is true for both residential homeowners and commercial property owners. Lastly, even if the borrower defaults, the loan is secured by the property, which means lenders won’t be left holding the entire bag if the loan goes sour. 

This has created a cottage industry for banks and private lenders who profit off the interest generated by real estate loans. That’s why, in addition to traditional banks, there are hard money lenders and companies like Groundfloor who finance properties, sell notes and invest in real estate debt by purchasing loans. 

What is Groundfloor?

Groundfloor is a unique real estate investing option that is built on crowdfunding and offers a higher level of investor control. Unlike a REIT, where you invest in a particular property portfolio that’s been pre-selected by a fund manager, Groundfloor operates as a lender for a wide range of real estate investments around the country and provides the capital for that lending through investor funding. Then, Groundfloor allows individual investors like you to pick and choose which property (or properties) you want to invest in. 

Groundfloor offers a menu of options for investors to choose from and a buy-in as low as $10! Each individual investment opportunity on Groundfloor features its own profile and an individual prospectus with its own interest rate, loan term and loan to after-repaired-value (ARV) ratio. This puts the power completely in your hands. This makes Groundfloor a great source of funding for home flippers or people who like to recondition distressed assets for profit. 

Additionally, Groundfloor offers individual retirement accounts (IRA) to investors and even offers opportunities to become brokers.

Which Real Estate Investing Platform is Right for you?

As with all investments, beauty is in the eye of the beholder.  If you’re someone who likes to dig into the details of what you’re investing in, or have a higher level of control over where your money goes, Groundfloor may be the best option. On the other hand, if you prefer to leave the investment decisions to a seasoned fund manager, DiversyFund or another REIT might be the way to go. But perhaps the best part about DiversyFund and Groundfloor is that the buy-ins are so low, you can really invest in both.

Benzinga’s Best Real Estate Investments

DiversyFund and Groundfloor are just 2 of many real estate investment options available for investors. If you want to know more about the best real estate investment platforms to invest in, Benzinga has a great list to consider.

Conclusion

The beauty of modern investment vehicles like the DiversyFund REIT and the advent of crowdfunded real estate platforms like Groundfloor is that they shatter the financial barriers that have long separated regular people from making investments in real estate. Suddenly, you don’t have to put 20% down on a property or shell out tens of thousands of dollars on a rehab project to become a real estate investor.   

For not too much more than the cost of a cup of coffee ($10 minimum on Groundfloor) or a fancy leather jacket ($500 minimum on Diversyfund), you can be a real estate owner. Better still, you can do it without having to break your back managing properties and collecting rents.  

If you want more information about REITs or crowdfunded real estate opportunities, check out Benzinga where you will find a vast array of knowledge, investor advice and information — all designed to help you make the best decision about where to put your hard-earned investment dollars. 

Frequently Asked Questions

Q

Does DiversyFund pay Dividends?

A

DiversyFund no longer pays divideds. Instead, investors must hold onto their shares for at least five years or until DiversyFund closes the fund and begins selling its assets.

Q

Can you lose money on a REIT?

A

Yes. All investments come with a risk of loss. While REITs are not necessarily as volatile as traditional stocks, there are a number of factors that can cause individual investors to lose money on a REIT. For example, an increase in interest rates translates to more debt service and less profit for many REITs. Also, a downturn in economic conditions can lead to increased vacancies.

Q

What does REIT stand for?

A

REIT stands for Real Estate Investment Trust.

About Eric McConnell

Eric McConnell is a real estate writer with a years-long passion for the real estate industry and the desire to help everyday people learn more about real estate investing. He is a graduate of Pepperdine University, where he earned a BA in journalism. 

After graduating, Eric embarked on a career in real estate where he spent over a decade as an agent for multi-family and commercial properties in Los Angeles. In his career, he’s worked on almost every side of a real estate transaction. He has represented buyers, sellers, property owners and renters and served as manager for commercial and residential properties. 

In 2019, Eric started sharing his experience with the wider world as a writer. He got his start writing and editing real estate lessons for prospective licensees before joining Benzinga in 2021. Since then he has written a variety of real estate material ranging from investment platform reviews to covering and analyzing breaking news in the real estate industry. His work has been published by Yahoo News on numerous occasions. 

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