Are you interested in real estate investing? Have you thought about adding it to your investment portfolio? Let’s explore an app that might convince you to dive into this lucrative opportunity in our Groundfloor review.
When you’re searching for investments, there are countless platforms and apps offering a variety of assets, products, and services. If you’re at a point in your financial journey where passive investments are crucial for your financial goals, choosing the right investment is key to achieving your plans.
Real estate investment is popular among investors today. But where can you find a reliable and efficient partner for your real estate investment needs? Let’s check out an app that might help you with this.
Groundfloor is a unique platform and mobile app that allows anyone to add SEC-qualified real estate note investments to their portfolios on a fractional basis. Founded by Brian Dally and Nick Bhargava in 2013, Groundfloor has quickly become popular in the real estate investment industry.
The platform is open to both accredited and non-accredited investors, offering a way to build a customizable real estate debt portfolio for short-term, high-yield returns. This could be appealing for those looking to add an extra income stream through interest repayments on their investments.
Groundfloor is known for its low investment minimums, starting at just $10. But do these claims hold up in practice? That’s what we’ll explore in this Groundfloor review.
Groundfloor is an innovative platform that lets everyone invest in real estate loans on a fractional basis, starting with just $10. They provide hard money loans to individuals (referred to as “borrowers”) for residential real estate projects like fix-and-flip properties, new construction, and buy-and-hold properties. Groundfloor then sells pieces of these loans to investors, who earn interest on the money they loan for the project.
In October 2023, Groundfloor introduced the Auto Investor account, which automatically invests your funds as soon as they reach your account. This instant diversification across numerous loans can lead to repayments in as little as seven days.
Groundfloor’s low minimum investment size of $10 per project makes it easy to start and diversify your portfolio. The company doesn’t charge investors any fees to participate. To optimize repayment rates, Groundfloor pre-screens and funds the loans before listing them on their platform.
The process begins with the borrower submitting a loan application, which the Groundfloor team carefully reviews. If accepted, the loan is assigned a risk grade and interest rate. The loan is then submitted to the SEC and transformed into an investment security called a Limited Recourse Obligation (LRO), which is listed on the Groundfloor platform for funding by investors.
Groundfloor offers loans ranging from $75K to $750K at rates as low as 5.5%, depending on the borrower and project. Loan terms range from 6-12 months, and borrowers can receive up to 100% Loan-to-Cost and up to 75% Loan-to-ARV, depending on their experience. Groundfloor also offers a deferred payment option, allowing borrowers to defer all loan and interest payments to the end of the loan term. Borrowers are charged 2.75% to 4% of the total loan amount to be on the platform.
What sets Groundfloor apart from competitors like Fundrise and Roofstock is that it offers investment opportunities to both accredited and non-accredited investors. Previously, such opportunities were only available to accredited individuals with significant wealth. Now, anyone can try out the platform, even if they’re new to real estate investing.
Groundfloor allows average investors to make investments in individual notes without hidden charges or fees. With a minimum investment of just $10, investors can easily diversify their portfolios. Accredited investors are also welcome and can invest any amount they like.
Groundfloor has been around since 2013 and has over 250,000 registered users. The platform has lent over $1 billion across 4,800+ projects and processed over $1.3 billion in transactions. The company has won numerous awards for its rapid growth and innovation, including recognition on Inc. Magazine’s Inc. 5000 List, Deloitte’s Technology Fast 500 List, and Forbes Fintech 50.
While Groundfloor operates more like a lending club than a brokerage, it is efficient and fulfills its purpose. However, no platform guarantees a 100% return on investments, and investing with Groundfloor requires careful consideration. The $10 minimum investment allows you to try the platform and get a feel for how it works without committing a large sum.
Groundfloor’s loans are known as hard money loans, backed by tangible property expected to produce a profit to repay the loan quickly. Hard money lending can result in a higher chance of defaults compared to other residential loans. This year, 0.6% of properties nationwide have gone through foreclosure, compared to around 2% on Groundfloor. Despite this, Groundfloor has historically recovered over 98% of investors’ principal even in default situations. The average return rate of defaulted loans is 6%, so investors may still earn a profit.
Foreclosure laws in most states are typically more favorable toward lenders for investment properties compared to loans on a borrower’s residence. Diversification is key to successful investing on Groundfloor. Investors who diversify across many loans can still achieve high overall returns, even when losses occur. Groundfloor’s analysis shows that a model portfolio consisting of equal investments in all 3,663 loans repaid since the end of 2023 would earn an annualized net return of 9.84%, with a loss ratio of less than 1%.
If Groundfloor fits your risk appetite, it can be a good addition to your investment portfolio and help your strategy grow. However, it’s wise to diversify your investments. Since Groundfloor deals only in residential real estate, consider other options like index funds and peer-to-peer investing.
Groundfloor offers many advantages, but let’s look at some pros and cons of using the platform. If you’re looking for alternatives, consider Fundrise, Roofstock, or Crowdstreet.
Fundrise allows you to invest in private commercial and residential properties with a minimum investment of $10 for a Starter Portfolio and $1,000 to begin investing. Fundrise charges a 0.15% annual investment advisory fee and a 0.85% annual asset management fee. It’s ideal for long-term investors.
Roofstock offers a marketplace for buying and selling single-family rental properties. It’s best for those wanting regular passive income from tenant-occupied properties.
Crowdstreet pairs individual investors with project developers for real estate projects. It allows you to do your own research and choose your investment criteria, helping you mitigate risks. Crowdstreet is free to register but charges 0.50% to 2.5% for annual invested capital. It’s currently available only for accredited investors.
Now that you know how Groundfloor works, here are some frequently asked questions:
1. The minimum investment for Groundfloor is $10, allowing you to diversify your portfolio with limited risk.
2. Target returns range from 8% to 15%, with terms from 6 to 18 months.
3. Groundfloor is free for investors. Fees apply if you want to borrow money from them.
4. Groundfloor is safe and legit, but every investment has risks. Do your due diligence and choose investments that suit your criteria and financial situation.
Groundfloor offers a great way to invest in real estate, providing various products and services to help you reach your financial goals. However, remember that all investments come with risks and challenges. Proper research can help you make an informed decision. Your financial journey is a marathon, not a sprint. Educate yourself and prepare for the path ahead.
Invest now with Groundfloor!