Do you want to invest in real estate? Numerous crowdfunding platforms can help make your investment easier and more profitable. Let’s compare 2 of the most popular ones for real estate investing: Groundfloor vs. Fundrise.
There are many ways to invest, and as an investor, you would want to know the best platforms, especially if you want to enter the real estate market.
Real estate crowdfunding entails pooling small amounts of funds from many investors to finance a property project or investment that they could not normally buy by themselves. The past years have seen such real estate investments as an excellent option for investors who want a more accessible platform, some for a minimum of $10.
Platforms such as Groundfloor and Fundrise allow individuals to invest in real estate with a low initial investment. If you want to diversify your investment portfolio to include real estate but lack the funds needed for traditional property investment, check out these top platforms and find out which one is the more suitable for you.
What Is Groundfloor? (How It Works and Its Requirements)
Groundfloor is a real estate crowdfunding platform that allows investors to pool their money to finance projects for a short duration (6-12 months). Projects on the site are typically fix-and-flip loans, meaning that the company will use the money raised to purchase and renovate a property, which they will sell for a profit.
It is one of the most accessible and user-friendly platforms for small-scale investors. The site offers a straightforward and easy-to-use interface, which makes it ideal for first-time investors.
Groundfloor introduced several new services, including auto-investing, which lets users automatically reinvest cash payments in particular credit classes as new loans are added to the platform. As a result, the account’s balance is reduced, and overall returns are raised.
Whether you are interested in earning a return on investment or supporting local businesses, Groundfloor is worth checking out.
How Does Groundfloor Work?
A real estate investor can browse current loan offerings on the Groundfloor website and select the preferred opportunity. Once an investment is made, payments are made monthly and stabilized within 10-12 months. Then, the loan is repaid in full, including interest, and the investor receives their initial investment back.
Here’s a quick summary of how it works:
- The applicant applies for a loan. Each loan is subjected to a rigorous underwriting process. Then a risk-based loan grade is given.
Each project receives an A–G loan grade. Grade A refers to the lowest risk and returns, while Grade G denotes the most significant risk and potential reward.
- Groundfloor provides an upfront payment or pre-funding to enable the borrower to begin the project.
- Afterward, Groundfloor works with the SEC to turn the loans into securities. Once that’s done, anyone can invest in them with as little as $10.
- Groundfloor keeps a close eye on the development of the project. When something goes wrong, they try to fix it.
- The house is up for sale after the project is finished. The borrower repays the debt in full using the proceeds of the sale. The investors then receive that from Groundfloor.
Groundfloor – Fees
Groundfloor doesn’t impose any fees on its investors, which makes it different from other real estate crowdfunding platforms. It even waives all fees associated with individual retirement (IRA) accounts. If and when the company charges investor fees, the investor will be given a 90-day notice.
Groundfloor makes its money from the fees charged from its borrowers, who are real estate entrepreneurs. Borrowers’ fees are as follows:
- 2% to 4.5% of the amount of the loan
- a $250 application fee
- $1,250 in closing costs
- For deferred payment loans, the interest can be paid when the loan is repaid.
Groundfloor – Minimum Investment
You don’t have to be accredited to invest with Groundfloor. All it takes is $10!
Groundfloor – Returns
An investment with Groundfloor offers an average return of over 10% per year. Since it invests in debt and not equity, Groundfloor does not have monthly or quarterly returns like Fundrise.
The borrower can pay interest monthly or choose a deferred payment plan, where the investor will receive money at the end of the loan repayment period, taking anywhere from six to 18 months, in the form of principal, interest, and loan default penalties, if applicable.
What Is Fundrise? (How It Works and Its Requirements)
Fundrise is an online investment platform that allows anyone to invest in real estate. Unlike traditional REITs, which are often difficult for individual investors to access, It makes it easy for anyone to get started.
Sign up for an account and deposit funds, and you can start investing in a diversified portfolio of properties across the United States; one of the key advantages of Fundrise is that it offers a high level of diversification.
By investing in a large number of properties, you can spread your risk and potentially earn higher returns. And because it is an online platform, you can monitor your investments and progress 24/7.
So, if you’re looking for an easy and efficient way to make the most of real estate investment opportunities, Fundrise may be the perfect solution for you.
How Does Fundrise Work?
Fundrise helps connect people who want to invest in real estate with property owners looking to raise money. The process is relatively simple: real estate investors choose a property they want to invest in, and then Fundrise uses that money to fund the project.
Once the project is completed, the investor receives their share of the profits. In addition, Fundrise offers a dividends program, allowing investors to earn money from their investments even when the property isn’t sold yet.
While some risks are associated with investing through Fundrise, the potential rewards make it an appealing option for many people.
The company earns returns in the following ways:
- Purchasing undervalued real estate and upgrading it to increase the rents or worth
- Rental income collection for stable properties
- Holding mortgages and collecting interest
- Purchasing properties with the potential for value growth
It is not the platform for short-term investors looking to make money on real estate. Fundrise provides long-term opportunities and returns best suited to those who want a simple way of investing in real estate without all of the upfront capital.
Fundrise has the following investment options:
- Equity and debt
- Commercial property
- Private property
- Homes for single-family
- Apartment complexes
Fundrise – Fees
The following are the details of Fundrise’s all-in 1% management fee, which is fairly reasonable:
- An annual asset management fee of 0.85% that goes towards da-to-day operating costs of the projects
- An annual advisory fee of 0.15% which can be waived in certain circumstances
However, there are some potential costs associated with Fundrise that are not as transparent, such as:
- An origination fee of 0% to 2% to cover costs of originating a loan for a new asset/project is passed on to investors. This is a 1-time fee paid at the start of an investment.
- 1% early redemption penalty if you redeem or liquidate your shares that have been invested for less than 5 years, including shares held for less than 90 days.
- Fees for self-directed IRAs; $125 per year in assets payable to Millennium Trust Company.
Fundrise – Minimum Investment
Just like Groundfloor, the minimum investment in Fundrise is $10 for its Starter Plan.
However, to fully benefit from all the platform features, you can consider investing in other Fundrise portfolio types, such as Basic ($1,000 minimum), Core ($5,000), Advanced ($10,000), and; Premium ($100,000).
Fundrise – Returns
Fundrise has a 5-year record of Fundrise investment returns from 7.31% to 16.11% from 2017 to 2021. In 2021, Fundrise’s investments returned 22.99% to its investors.
Since its founding in 2010, its total investor distributions have reached over $124 million.
Groundfloor vs. Fundrise (Pros and Cons)
As we are done with the basic overview of both real estate investing platforms, let’s evaluate Groundfloor vs. Fundrise and get to know their pros and cons.
Let’s start by discussing the advantages of both.
|Groundfloor Pros||Fundrise Pros|
|No investor fees||No income or accreditation requirements|
|High historical returns of approximately 10.5%||Fundrise’s investments returned 22.99% to its investors in 2021.|
|On top of the interest income, investors also can earn from loan default penalties.||90-day money-back promise with no penalties for withdrawn investments|
|Short-term investments (6-18 months)||Portfolio of properties across the U.S.|
|Low minimum of $10||Just $10 to start|
|End of loan contract payouts (principal, interest, and loan default penalties, if any)||Quarterly dividend payments|
|Open to all investors (no need to be accredited)||Completely passive investing|
|Capable of diversifying across various risk levels||Available as IRA|
Here are the cons of both platforms:
|Groundfloor Cons||Fundrise Cons|
|Chance of default||Speculative investments (typically 5 years or more)|
|Only allows debt investments (no equity)||Unknown future performance and returns|
|Some borrowers have no prior experience with home flipping||Tax liability; regular income tax on earnings|
|There are no alternatives to residential real estate for diversification||Lack of fees transparency|
Groundfloor vs. Fundrise: Which One Should You Choose?
Groundfloor and Fundrise are among the top real estate investment platforms available today.
Many people are curious about Groundfloor vs. Fundrise. Which is better for you? Here is our comparison.
While Groundfloor makes short-term debt investments and gives you access to your money within the next 6 months to a year, Fundrise invests in a diverse portfolio of real estate, focusing on equity rather than debt, and is a much lengthier investment. Anyone who withdraws money from Fundrise in less than 5 years is subject to a penalty.
One of the key distinctions between both is how you make money.
When you invest in Groundfloor, you can either receive money at the interest rate given to you at the time of investment or a higher interest rate if the borrower doesn’t adhere to the loan terms. It allows monthly payouts.
However, Fundrise rewards investors through quarterly dividends and equity growth (appreciation). You can put money into growth funds, income funds, or a mix of the 2.
When you invest in Fundrise, you purchase an eREIT. Fundrise diversifies your investment based on your deposited sum and your account level. It makes investment decisions, selecting from various residential and business projects.
Also, Fundrise’s Starter Portfolio initially required a $500 minimum investment but was reduced to $10 to match the minimum investment requirement of Groundfloor. With this small amount, you get the Starter Plan, the most basic portfolio type without the additional features holders of other Plans can enjoy.
So, who wins the Groundfloor vs. Fundrise battle?
While both accept a minimum of $10 investment, Grandfloor has a no-investment-fee-policy compared to Fundrise’s investor’s fees and early redemption penalty. With Groundfloor, you invest in a real estate debt backed by collateral. Fundrise also invests in debts, but mostly in equities, including eREITs, that are traded on the private market, which is generally illiquid.
If you are not risk-averse and are a beginning investor out to learn the ropes with a long-term market perspective, Fundrise may be the platform for you. Groundfloor will appeal to those looking for short-term, relatively high-yield investments and provides opportunities for diversification across different projects in the form of loans to real estate entrepreneurs.
The bottom line would be your own preferences, investment style, and financial goals. So, make sure to clarify these to yourself, do further research, and practice your due diligence before committing to either or both platforms.
Frequently Asked Questions (FAQs) – Groundfloor vs. Fundrise
Which One Is Better: Groundfloor or Fundrise?
As stated above, Groundfloor may be better if you want short-term investments with diversification possibilities. Fundrise is your sure bet if you have a penchant for risk-taking in the hopes of higher returns in the long run.
Evaluate your investment style and goals, and consider your circumstances before deciding which platform is for you.
Has Anyone Made Money With Fundrise?
Fundrise is a reliable source of making money. According to Fundrise, between 2017 and the third quarter of 2021, its average annualized platform returns were 7.31% and 16.11%, respectively.
Does Groundfloor Pay Monthly Dividends?
Unlike other investment platforms, Groundfloor doesn’t offer dividends since it invests in debts, not equities. Instead, investors will receive their money through loan repayment, interest, or penalties for defaults at the end of the loan period, which takes from 6 to 18 months, depending on the contract.
Conclusion – Groundfloor vs. Fundrise
As you have learned from this Groundfloor vs. Fundrise faceoff, both platforms have pros and cons for investors in real estate.
Groundfloor lets you start with as little as $10, provides more liquidity with its shorter terms, and does not charge any management fee for investors, contributing to a larger ROI.
Fundrise, on the other hand, also has a $10 minimum requirement but with typical 5-year terms, offers more features, such as a dividend reinvestment option that allows for a more passive income, and has a user-friendly interface ideal for beginners.
We hope this information can help you narrow your choice based on your investment strategies and financial goals. Make sure you have done your research and due diligence before investing in either or both since Groundfloor and Fundrise are excellent options that could boost your returns.
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Marjolein is a financial consultant who has built over €4,000 monthly passive income and saves over 70% of her income. Read Radicals’ inspiring story, from stuck in the 9-to-5 to loving life. Feel free to send Radical a message at the bottom of this page