Groundfloor is open to non-accredited investors and private individuals looking for active real estate alternative investment. Groundfloor has great volume with more than 10 investments.
Individuals with small portfolios will also like the low $10 minimum and 0 investor fees. However, most of the loans are given to house flippers, and there is a risk of borrowers defaulting on their loans.
- Non-accredited investors: It is a good option for non-accredited investors who want to invest in an individual capacity.
- Private investors with small portfolios: Groundfloor charges a relatively small premium of $10, which private investors with small portfolios find attractive.
- Active-investors: Groundfloor is also ideal for investors who want to actively maintain and control their real estate portfolio.
- Charges the lowest minimums in the industry
- 0 investor fees
- Open to non-accredited investors
- Offers no bankruptcy protection
- High rate of an uncured default
- Many loans are for judicial-only states
Groundfloor Ratings at a Glance
Most people realize that investing in real estate to generate passive income is a good idea. However, relatively few investors do it. Ask them why, and you will likely hear a combination of “I’m not an accredited investor” or “I don’t have $25,000 to buy into a deal” or “I can’t lock money up for years.”
On the other side of the equation, if you were to ask real estate developers and home flippers what keeps them from closing more deals, you’ll get a combination of these responses: “The high vacancy rate means the bank won’t lend on it” or “The property is not fit for occupancy” or “The bank says I’m over-leveraged.”
That’s where Groundfloor comes in. This unique investment platform seeks to bridge the gap between investors and capital by crowdfunding high-yield, secured loans with small contributions from both accredited and non-accredited investors. Not only does Groundfloor welcome non-accredited investors, it's got buy-ins as low as $10. It even has a mobile app where investors can buy into deals for as low as $1.
So, to sum it up, Groundfloor offers investors a chance to fund loans with short turn-around times and high dividends. All of this begs the question, is it too good to be true?
How Does Groundfloor Work?
Groundfloor’s business model is similar to crowdfunding, except that instead of offering equity, Groundfloor acts as a lender to developers in need of short-term funding to complete renovation projects. Developers and builders who are having difficulty accessing capital — or want shorter terms than a traditional loan — can apply for a “fix-and-flip” loan from Groundfloor. Then Groundfloor’s team analyzes the subject property and works with the would-be borrower to make sure the property meets Groundfloor’s requirements and the borrower has a proper budget for the proposed loan.
During Groundfloor’s analysis process, each of its loans is given a “risk” grade from A to G, with “A” being the lowest risk and “G” being the highest risk. In general, the higher the risk associated with the loan, the higher the interest rate and potential pay-out to the investor. Once the application has been graded, Groundfloor puts it on the platform where investors can buy individual slices of the loan for as little as $10. Once the loan is paid off by the developer, Groundfloor issues distributions to its investors.
Groundfloor’s “fix-and-flip” loan business model has tremendous appeal for both investors and borrowers. First of all, most investors can’t even buy into secured offerings like real estate loans without accreditation. Secondly, the few such opportunities available to non-accredited investors have holding periods of several years. Groundfloor can turn around profits for investors in a matter of months. On the investor side, the opportunity to get access to funding without having to commit to a long-term loan is equally enticing.
Most investors are accustomed to paying fees and just accept them as a necessary evil of investing. They would, of course, like those fees to be as low as possible, but they expect to pay them. It should come as a relief to investors that Groundfloor has zero investor fees. That’s right. Zero. Groundfloor fees are paid by borrowers or assumed as a cost of doing business by Groundfloor. In either case, it doesn’t pass fees on to investors, which is a huge value add. It doesn’t get any better than zero. The 5 star rating is well earned here.
Groundfloor is astoundingly easy to use. Sign up is simple, and so is funding the investment account. As noted above, Groundfloor accepts both accredited and non-accredited investors; however, it uses a verification process for those claiming accredited status.
Browsing investments is an absolute breeze. Groundfloor offers a long list of properties to choose from all over the country. The risk grade of each investment and loan term is right up front for the investor to see. Those who are a little more risk averse can stick to the “A,” “B” and “C” rated loans, while the more aggressive investors may gravitate towards the “F” and “G” deals for higher returns.
In both cases, the platform does a great job of laying out the fundamentals of the investment, and when investors click on an offering they like, they are directed to a screen with full details of the project. All in all, it’s an incredibly user-friendly platform that both investors and borrowers will have no trouble navigating.
An investment platform that seeks to ingratiate itself to non-accredited investors needs to have a strong commitment to investor education. After all, if potential investors can’t get answers to simple questions like “How does this work?”, the likelihood of signing up and investing is basically zero. Groundfloor realizes this need, and its investor education platform is a strong one.
As with most platforms, a “Learn” tab appears at the top of the landing page. Scrolling the mouse over that tab reveals 3 sections: Frequently Asked Questions (FAQs), Support and Blog. Clicking on the blog will take users to the “Foundations” blog, which has over 100 different blog posts investors can choose from. Topics covered include the following:
- Company news and updates
- Facts, figures and analyses
- Groundfloor 101-basic breakdown of the site and how it works
- Borrower and project highlights
One of the best sections is the Groundfloor Investment Wizard, which is a great simulation that allows investors to estimate how their investments could grow based on a “conservative,” “moderate” and “dynamic” investment strategy. Needless to say the “dynamic” strategy is the one with the most potential risk and reward. However, the real jewel here is the opportunity for investors to get an idea of how they can grow their money with Groundfloor.
The FAQs section of the learning tab is equally well thought out. It’s particularly nice that this section opens with a search bar that allows potential investors to just type in their individual inquiry. This feature saves from having to scroll through dozens and dozens of answers unrelated to the question. Another strong point of the FAQs page is the way questions are grouped into several categories, which include:
- How to invest self-directed IRAs in Groundfloor
- Current lending guidelines
- Company information
- Investor breakdown on how Groundfloor works
- Account settings with basic information about setting up the Groundfloor account
Perhaps the only thing keeping this from being a 5-star section is the lack of video lessons. With that said, it’s hard to imagine a question an investor could have that’s not answered in the investor education section. In cases where that does happen, Groundfloor has a live chat option with an actual person and not a bot, which is also a huge plus for new investors.
Although funding fix-and-flip loans is Groundfloor’s main focus, it’s not the limit of its offerings. Groundfloor also sells shares in its own notes and shares in convertible debt notes. In October 2021, no availability in either category appears, but the fact that Groundfloor also has those kinds of offerings is refreshing.
When it comes to the core of its business model — fix-and-flip loans with low buy-ins — Groundfloor has an impressive array of offerings in markets all over the country. Most of them are rated between “A” and “C.” Somehave terms as short as 4 months, which gives investors room to grow wealth without locking their money up for extended periods of time. Add that to the fact that the minimum buy-in for these loans is only $10, and it becomes easy to give Groundfloor a 4.5 star rating for its offerings.
Having offerings with short hold periods and low buy-ins is all well and good, but it means nothing if they don’t grow wealth for investors. Groundfloor has a solid track record with an average 10.5% return on its investment offerings. Bear in mind that this is an average rate of return on all its loans, and past performance is no guarantee of future success. Every individual offering has a different risk grade and expected return, and risk of loss is always present. However, the solid return ratio speaks volumes about the quality of Groundfloor’s offerings.
Groundfloor regularly publishes a Diversification Analysis, a report showing the loss ratio and rate of return based on the number of different loans an investor has in their portfolio. Based on the data, diversification across multiple loans has historically resulted in greater overall returns and a lower loss ratio.
Groundfloor isn’t a typical on-line platform that marries you to a desktop computer. It’s got a dynamite mobile app called Stairs, which is available on both Android and Iphone. Investors can use the Stairs app to buy shares in what the company refers to as “non-traded debt notes” for as little as $1.
These investments have a targeted rate of return between 4% and 6%, and investors can pull their money out anytime without penalty. Groundfloor pitches Stairs as better than a savings account because of its rate of return and no withdrawal fees. Both the app itself and the business model are worthy of 5 stars.
Groundfloor offers low buy-ins, short hold periods and high yields for non-accredited investors on offerings that are secured by actual real estate. That just about says it all. When it comes to opening the world of real estate investing up to the everyday investor, Groundfloor knocks it out of the park. It’s a well designed platform with a rock-solid business model and a strong performance history. Any investor looking to dip their toes into real estate investing would be well advised to experiment in Groundfloor’s pool. It probably won’t be long before they dive in head first.
High potential, but not platform and processes not ready for serious investment. Issues include meaningless loan maturity dates - 85%+ have lengthy extensions, little transparency and information regarding loan status, and high rate of loan default.
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