Are you into real estate investing? Have you considered including this in your investment portfolio? Let’s take a look at an app that may persuade you to finally jump into this money-making opportunity in our Groundfloor review.
When looking for investments, there is a steady stream of platforms and apps that offer a wide variety of assets, products, and services for your needs.
If you are in your financial journey where passive investments will play a key role in your financial goals, then choosing where and what to invest in is very important to realize your plans.
Real estate investment is one of the portfolios investors place their money in nowadays. And this begs the question: where can you find a suitable, effective, and efficient partner for your real estate investment needs?
An app or service that can give you the best deals, offers, and utility for this type of investment strategy. Let’s take a look at an app that may help you with this.
What Is Groundfloor?
Groundfloor is a first of its kind platform that offers everyone the ability to add SEC-qualified real estate note investments to their portfolios on a fractional basis. Groundfloor was founded by Brian Dally and Nick Bhargava back in 2013 and has quickly gained popularity in the real estate investment industry.
The platform is open to both accredited and non-accredited investors and provides them with a way to build a fully customizable real estate debt portfolio for short-term, high-yield returns. This may be of interest for investors looking to add an extra stream of income in the form of interest repayments on their investments.
It is considered one of the best investment platforms for investors looking to make high returns on short-term real estate debt investments. Groundfloor has one of the lowest investment minimums in the industry, as you can start investing with only a minimum investment of $10.
But are the claims true and backed up by actual performance and utility? That is what we will share with you in this Groundfloor review.
How Does Groundfloor Work?
Before moving on with the review, let’s look at how Groundfloor works!
Groundfloor is an innovative new platform that enables everyone to invest in real estate loans on a fractional basis, starting with just $10. They provide hard money loans for individuals (referred to as “borrowers”) looking to complete residential real estate projects, including fix and flip properties, new construction properties, and buy-and-hold properties. Then, Groundfloor sells off pieces of those loans to investors who are paid interest on the money they loan to finance the project.
Investors can browse through Groundfloor’s marketplace of loans and choose which projects to invest in and how much to invest in each, enabling them to build a completely custom investment portfolio.
Groundfloor’s minimum investment size of just $10 per project makes it easy to get started and to diversify your portfolio, and the company does not currently charge investors any fees to participate.
To optimize repayment rates, Groundfloor pre-screens and funds the loans before they’re taken to their platform.
Groundfloor’s Analysis Process
At Groundfloor, the process starts with the borrower, who submits a loan application that is carefully reviewed by the Groundfloor team. If accepted and underwritten, the loan will be assigned a risk grade and a corresponding interest rate.
Then, the loan is submitted to the SEC and transformed into an investment security called a Limited Recourse Obligation (LRO), which is then placed on the Groundfloor platform for funding by investors.
Assessing Risk Grade
Each loan is given a risk grade from A to G during the Groundfloor analysis process, with A being the lowest risk and G being the highest. It just means that the higher the risk, the higher the interest rate.
Groundfloor’s team of experts combines over 100 years of collective real estate experience with a unique grading algorithm that has been qualified by the SEC to analyze the valuation and strength of the project requested as well as the risk profile and background of the borrower. This loan grading system helps determine the interest rate charged on the loan and helps investors gauge the level of risk on each project.
Loans That Groundfloor Offers
Groundfloor offers loans of $75K – $1M at rates as low as 5.5%, depending on the borrower and project. Loan terms can range from 6-12 months, and borrowers can receive up to 100% Loan-to-Cost and up to 75% Loan-to-ARV, depending on experience.
Groundfloor also offers a unique deferred payment option that gives borrowers the ability to defer all loan and interest payments to the end of the loan term.
Groundfloor charges borrowers 2% to 4.5% of the total loan amount to be on the platform.
The Loan100 Program
Groundfloor recently launched the Loan100 program to expand its product offerings for potential real estate investors. This new loan product is designed specifically for their most experienced borrowers.
Loan100 allows financing for up to 100% of total project costs, including purchase and renovation. Borrowers who have extensive and proven track records can borrow funds with 0% down when approved under this program.
Who Can Invest With Groundfloor?
The thing that makes Groundfloor stand out from its competitors, such as Fundrise and Roofstock, is that it has made investment opportunities available to any interested parties. Before this, investment opportunities were only presented to accredited individuals with millions in their name.
With Groundfloor, the average investor can also make investments in individual notes without any hidden charges or fees. Groundfloor also offers one of the lowest required rates of investment in the real estate investing and crowdfunding industry, with people being allowed to put in as little as $10.
This low investment minimum also allows investors the ability to easily diversify their portfolios as much or as little as they like.
Similarly, accredited investors are also welcomed to the platform and can invest with any amount they would like.
With this in mind, anyone with some cash to invest can get registered with Groundfloor and start making money passively.
Groundfloor Automatic Investing
A recent update to Groundfloor introduced the automatic investing feature. This tool automatically reinvests interest earned into new loans, ensuring available funds are continuously being put to work earning interest and contributing to overall returns.
The Groundfloor automatic investing feature works by automatically reallocating your funds after a completed project into newer projects along with your earnings from the last one. This allows you to participate in projects as soon as they go live; at the end of each day and with each new loan release, the automatic investing engine will run and invest available funds for you, without you having to manually login and invest.
To start with Groundfloor automatic investing, just access automatic investing through your account settings and set up an investment schedule based on the level of risk you are willing to take. This is done by allocating an amount in dollars for each risk level.
After creating the schedule, the tool will allocate the specified amount to available investment opportunities with your selected risk levels.
Is Groundfloor Legitimate Or Scam?
Groundfloor has been around since 2013 and has garnered more than 100,000 registered users to date. The platform has surpassed $570 million in investment sales and processed over $1 billion in transactions. Additionally, the company has won numerous awards for its rapid growth and innovation, including being honored on Inc. Magazine’s Inc. 5000 List and Deloitte’s Technology Fast 500 List.
Although the platform works more like a lending club than a brokerage, it is still very efficient and does exactly what it set out to do. But does that make Groundfloor the best place to invest?
That question is hard to answer as there are no legitimate websites that offer a 100% guaranteed return on investments, and the decision to invest with Groundfloor requires careful analysis.
It’s a good idea to take some time to become comfortable with Groundfloor’s model before you commit money. Luckily, the company’s $10 minimum investment allows you to try the platform out and get a feel for how it works first, without having to invest all of your funds.
What About Defaults at Groundfloor?
The loans Groundfloor makes to borrowers are known as hard money loans. A hard money loan is a loan backed by a “hard” asset — a tangible property that’s projected to produce a profit to repay the loan quickly.
It’s important to know that the nature of hard money lending can result in a higher chance of defaults compared with other residential loans. This year, 0.6% of properties nationwide have gone through foreclosure, compared to around2% of properties on Groundfloor. While that may seem like a significant discrepancy, it’s important to note that Groundfloor has historically recovered over 98% of investors’ principal even in default or other special situations.
Additionally, foreclosure laws in most states are typically more favorable toward lenders when it comes to investment properties compared to loans on a borrower’s residence.
Should I Invest In Groundfloor?
The key to successful investing on Groundfloor is diversification. Investors who have diversified their portfolios across a large number of loans can still realize high overall rates of return, even when losses occur.
In fact, Groundfloor’s analysis shows that a model portfolio consisting of an equal investment made into all 1,545 loans repaid as of July 2021 would’ve earned an annualized net return of 9.98%. That same portfolio would have experienced a loss ratio (the principal lost expressed as a ratio of total principal invested) of -0.69%.
If Groundfloor fits your risk appetite, it is a good addition to the diversification of your investment portfolio and can help your investment strategy grow.
Just remember that it is a good idea to invest in a diverse investment portfolio. Since Groundfloor only deals in a single asset class (residential real estate), you may also want to look into other options like index funds and peer-to-peer investing.
The Pros And Cons Of Groundfloor
Just like everything, there are many good things about the platform. This could be a very good opportunity. So let’s look at some of the pros and cons of using Groundfloor.
Pros Of Groundfloor:
- The minimum required investment is $10, making Groundfloor accessible to everyone.
- While we were trying Groundfloor out for ourselves, we noticed a lot of deals, which speaks for the trust people have and the activity on this platform.
- You can pick the investments you want your money to go to.
- For people who are not looking to take on huge risks, the platform offers various deals at different risk levels to provide everyone with an opportunity to invest.
- The investors have no fees to pay, making the whole process more seamless.
- The new automatic investment feature makes it easy to put your money to work and keep it working for you.
- Open to self-directed IRA investments.
Cons Of Groundfloor:
- The default rate of loans is a little higher when compared to the trends of the industry by the Federal Reserves.
- You only get a single update on your investment each month.
- If you are a borrower and cannot repay your loan, there is a risk of a foreclosure on your property.
- There are many loans with high LTVs.
Alternatives To Groundfloor
If you want other choices similar to Groundfloor, you may consider the following alternatives.
Fundrise is an online investment platform that lets you invest in private commercial and residential properties in low-cost and exceptional returns.
The company has two primary investments:
- Electronic Real Estate Investment Trusts (eREITs) – invest in income-generating real estate such as single-family homes, commercial real estate, house flipping, etc.
- eFunds – money from investors that aims to develop new homes, buy land and then sell it to people looking to buy their homes.
If you want to invest in Fundrise, you only need $10 for a Starter Portfolio setup plus a minimum investment of $1,000 to begin your investment journey with them. You also have to pay a 0.15% annual investment advisory fee and a 0.85% annual asset management fee.
Fundrise is excellent with investors with long-term thinking for the market. If you are in the real estate investment game for the long run, this app may be for you.
Roofstock is a platform that offers a marketplace for investors to buy and sell single-family rental properties. These types of investments can let you earn a monthly or regular income to add to your income stream.
Roofstock is very different from Groundfloor and Fundrise as these two offer REITs while Roofstock primarily invests in actual property.
Roofstock is best for those who want to earn in rentals with tenant-occupied properties. So if you want a regular passive income from your property, this may be the best place for you.
Crowdstreet is an online investment platform that invests in real estate projects by pairing individual investors with project developers. It allows you to do your own research and choose your own investment criteria. This helps you conduct due diligence before you enter into an investment. It’s a great way to mitigate risks and understand your potential income to consider in your financial plans.
Crowdstreet is free to register. However, you have to pay 0.50% to 2.5% for annual invested capital. This is a small amount to pay for the services that they bring and offer you.
Please take note that Crowdstreet is currently available only for accredited investors. For nonaccredited investors, Fundrise may be a fit for you.
Frequently Asked Questions – Groundfloor Review
Now that you know how Groundfloor works, here are some frequently asked questions to help you understand the app more.
How Much Is The Minimum Investment For Groundfloor?
The minimum investment for Groundfloor is $10. This is great as you can widen your investment portfolio with very limited investment risk.
Target returns range from 6.5% – 12%, with terms ranging from 6 to 12 months, so you need to consider how much you can invest in knowing what you can potentially earn in the long run.
Is Groundfloor free?
Groundfloor is free for investors. There are fees if you want to loan money from them:
- Loan principal – between 2%-4.5%
- Closing costs – $1,250
- Application fee – $250
Is It Safe To Invest In Groundfloor?
Groundfloor platform is safe and legit. But, it is still important that you know that every investment has its own risks. Do your own due diligence and choose the investment that best suits your investment criteria and financial situation.
Conclusion – Groundfloor Review
Groundfloor offers a great way for you to invest in the real estate market. It provides a wide variety of products and services that can help you reach your financial goals. But always remember that any investment has its own risks and challenges. So you need to know these first before you dive head-on onto your investment journey.
With the proper research, you can make an educated decision as to what path to take. What is important is that you do whatever you can to add to your income so you can attain the financial independence everyone is longing for in their lives.
Always remember, your financial journey is not a sprint but a marathon. So train and educate yourself so that you can prepare yourself better for the path ahead.
Invest now with Groundfloor!