If you are not an accredited investor and want to participate in residential real estate crowdfunding deals for as little as $10, then Groundfloor may be for you. The downside is that this service model is unproven and therefore risk-free.
|Account Fees||No Fees for Investors|
|Time Commitment||3 Months|
|Offering Types||Debt, Equity, Preferred Equity, Direct Ownership|
|Property Types||Commerical, Residential, Single Family, Foreign Investors|
|Regions Served||8 states plus Washington, D.C.|
Pros & Cons
- Open to non-accredited investors
- It only takes $10 to start investing
- The first floor had an average annual return of 10.5%
- Short term investment option
- Investors do not pay commissions
- Investing in debt carries the risk of borrower default
- Investments are not very liquid
What Is Groundfloor?
If you're considering real estate crowdfunding as an investment option, you've probably noticed that most platforms limit participation to accredited investors. Groundfloor has broken that mold by creating a platform open to anyone with less than $10 who is interested in lending money for real estate fix-up and remodeling deals.
Founded in 2013 by Brian Daly and Nick Bhargava, Groundfloor is based in Atlanta. Its platform is aimed at small residential development projects. Dali says:
We think this is a revolutionary concept for personal finance. This is a steady, tangible way for ordinary people to make good returns on their money.
Groundfloor, an online marketplace, brings together individual investors looking for short-term credit investments and borrowers looking for short-term financing for their real estate projects. Borrowers get more flexible, faster and cheaper capital than traditional banks or lenders.
Investors gain access to short-term, high-yield investments that typically offer returns of 6% to 14%, depending on the risk level of the specific loan. Groundfloor currently has some Grade G loans on its platform with projected yields of up to 25%. Just remember that the higher the expected return, the higher the risk.
It all begins when a borrower seeks a loan to finance a real estate restoration or renovation project. Groundfloor reviews the details and conducts due diligence on the transaction and the borrower.
If Groundfloor decides to take out a loan, it is assigned a loan grade from A to G and the corresponding yield, where A grade loans are the least risky (lowest yield) and G grade loans are the riskiest (lowest interest rate). return). higher yield). Factors used by Groundfloor to qualify a loan and assign an interest rate include: location, collateral position, borrower commitment, skin-in-the-game, and more. The final rate is adjusted based on factors such as loan amount, loan term, personal guarantee, Groundfloor history, creditworthiness and other factors.
Grade A loans offer a yield of around 6%, and Grade G loans typically offer a yield of up to 25%, with each letter grade offering the following rate:
- Grade A: 6%
- Grade B: 8%
- Grade C: 11%
- Grade D: 14%
- Grade E: 18%
- Grade F: 21%
- Grade G: 25%
When the loan is fully funded, the borrower withdraws the money according to an approved schedule and completes the repair or restoration project. The property is then listed, sold and finally closed. Upon closing, the borrower repays the Groundfloor and a lump sum of principal invested plus accrued interest is credited to the accounts of all participating investors.
Borrowers in 23 states can borrow from $75,000 to $2 million at a low interest rate of 5.4% (for a Class A loan over three months with monthly payments). The first floor will finance up to 90% of the project cost and up to 70% of the post-investment cost.
And borrowers may not pay during the loan term. These terms are very favorable compared to hard money lenders, which typically charge 12% to 15% interest and require stricter loan-to-value (LTV) ratios.
How Does Groundfloor Work
First, you create and fund your Groundfloor account by linking your checking or other designated account. You transfer money and once your Groundfloor account is funded, you choose which project(s) you want to invest in. You can browse the summary page of loans funded on the platform and then view additional information on each loan's detail page. You decide when, how much and where to invest.
Once a deal is available for financing, investors have up to 45 days to fund the loan. The loan is usually granted for a period of six to 12 months, but can be shorter or longer.
Technically, you are investing in a Limited Resources Obligation (LRO), which is a debt security issued by Groundfloor. The LRO you purchase corresponds to the project you have chosen to finance. Each LRO's performance is determined by the borrower's loan performance.
When you buy an LRO, you become a ground floor creditor. They repay the LRO when the borrower repays the loan they invested in.
Groundfloor is registered with the Securities and Exchange Commission (SEC) in California, Georgia, Illinois, Maryland, Massachusetts, Texas, Virginia, Washington and Washington. The company plans to expand to more states and eventually reach the entire country.
Groundfloor's due diligence team consists of experienced real estate executives, and they turn down most people who plan to borrow from them. But there are no guarantees. If you buy a loan and the loan defaults, you could lose your entire investment.
When the money is in the loan, it is not liquid. You cannot sell it to another investor and you cannot withdraw it. Once the principal is repaid, you will receive interest on top of the loan. You will have the option to reinvest or cash out to your bank account.
So far, Groundfloor has provided $38 million in loans to 318 projects. Investors have received an average return of 10.5% to date.
Investing in private real estate without being an accredited investor is possibly Groundfloor's biggest advantage. To be clear, some other sites like Modiv and Fundrise allow non-accredited investors to invest in private real estate through real estate investment trusts (REITs). Fundrise, for example, manages a private REIT that gives investors access to private real estate. The difference is that Groundfloor offers direct access to private real estate rather than investing in a specific management company.
One of the advantages of Groundfloor is that it does not charge investors commission. Instead, it makes money by charging fees to borrowers so you don't have to worry about administration or negotiation fees.
How to Contact Groundfloor
You can contact Groundfloor's investor support team by emailing email@example.com or calling 404-850-9223. Business hours are 9:00am to 5:00pm EST, Monday through Friday.
Groundfloor provides non-accredited investors with an easy way to invest in low-cost real estate. The platform also has a strong track record of annual returns.
However, investing in real estate debt is riskier than some types of investments because borrowers can default. The $10 floor minimum helps reduce risk because you can spread your capital over multiple projects. But the risk of default still remains.
If you prefer equity-based investing or want other debt-based investment options, there are several first-floor alternatives worth considering.
|Account Fees||1%/year||None||0.25% – 1.0% setup fee|
Sign UpRead Review
Sign UpRead Review
Fundrise is our favorite ground floor alternative because it also has a $10 minimum investment. The main difference is that Fundrise focuses on commercial and residential equity-based investments. You get quarterly dividend payments and potential stock appreciation. There is also a 1% annual management fee, unlike Groundfloor.
If you have more capital to invest, you can also consider CrowdStreet. This crowdfunding platform specializes in commercial real estate deals and funds. There is a minimum investment requirement of $25,000 for most offers, but it offers more investment options than Groundfloor.
Finally, you can also invest in real estate debt through the PeerStreet marketplace. You get more individual trades on PeerStreet than on the ground floor, although as an investor you have to pay fees, which is a bit of a downside.
Groundfloor is a P2P real estate lending platform for fix-up and flip properties open to non-accredited investors. A low minimum investment opens up immediate access to private real estate transactions for anyone and allows you to spread your risk over multiple individual projects.
If you are willing to take more risk for a slightly higher return, Groundfloor could be a great investment for you. Investors who don't need liquidity and are willing to experiment should look into this platform. It's a passive way to get into real estate investment corrections and turnarounds. But make sure you understand the risks of crowdfunding platforms and do your due diligence before investing.
If you are an accredited investor, you can of course invest on the Groundfloor platform, but there are many other platforms that you should also consider.
However, if you are interested in passively investing in fixed and flip properties but are not accredited, Groundfloor is worth a visit. It is one of the few sites that accepts non-accredited investors, and the only site that allows non-accredited individuals to invest in private real estate deals instead of REITs. And a minimum investment of just $10 provides access to diversification, even if you only have a small amount to invest.