Groundfloor Review: Is a $10 investment even risky?

This Groundfloor Review looks at Groundfloor’s crowdfunded approach to investing in real estate loans

Things that cost $10 include a cheap lunch, about two gallons of gas, or a car wash. Instead of using $10 on consumer goods, Groundfloor wants the forward-thinking investor to put that into real estate and earn money instead of losing it. There are no fees for investors.

Industry

Groundfloor sits among a class of companies that includes Yieldstreet, Crowdstreet, and Peerstreet. Take a look and compare Groundfloor to Fundrise. Groundfloor pools money, like a GoFundMe or Angellist, and originate and back loans for real estate developers or individual family home fix-and-flips. In six to 12 months, the project is done, the loan is due, and after it is repaid in full with interest by the borrower, the principal plus interest goes back to the investors.

Competitor websites boast public REITs have lost 28 percent and public stocks have lost 23 percent since the beginning of the year. Groundfloor returns have averaged more than 10 percent year-to-date.

Competitors at a glance

• Yieldstreet (minimum investment $5,000)
• Crowdstreet (minimum investment $25,000)
• Peerstreet (minimum investment $1,000)

Fundrise: Top Competitor at $10 minimum

Pros

• Provides new investor education
• Multiple investment types
• Reviews 

Cons

• 1% annual fee
• New to $10 marketplace
• Aimed at longer-term investments

Groundfloor

Pros

• Established $10 investment results
• Investment wizard (matches borrower and investor risk)
• No annual fee 

Cons

• Moderate risk of investment type
• Capital cannot be moved until the end of the project
• No equity-based investment option (REIT)

Real Estate and Portfolio Diversity 

Real estate is considered key to building long-term wealth. However, the large down payments, day-to-day management of rentals, as well as collecting rent and maintenance are often barriers to entry or interest in that industry. Thankfully there are other options than DIY-type. Read about First National Realty Partners, a commercial real estate investment platform that invests in real estate in a slightly different way, or RealtyMogul, which specializes in commercial projects.

Getting Paid 

The rate and returns when investing with Groundfloor differ from real estate investment in physical properties. According to their website, the range of returns on their investments can range from 5.5 percent to 25.5 percent. Low-risk projects return 5.5 percent, and higher-risk projects return 25.5 percent. Additionally, if all the investment interest was averaged, it would result in an annualized net return of 10.72 percent. The money cannot be pulled until the project is completed and funds are returned.

Customer Experience 

The customer experience is facilitated online or through their app. If a borrower (the real estate flipper or developer) draws against the loan investors are notified. Monthly updates on the project are also sent to investors. If the borrower does not report on the project, Groundfloor sends an inspector directly to the project.

There is a $10 minimum for US investors and a $5,000 minimum for non-US residents. There are zero fees for investors.

Investors get to compare property choices side-by-side with Groundfloor’s investment wizard tool. Users input their available capital and their level of risk, and it shows a list of available choices. The investor then decides what percent to invest in which properties.

As an investor Groundfloor uses conservative, moderate, or dynamic to capture the general range of risk into broader, more easily understood categories. Read another Groundfloor review here.

Groundfloor Review Investment Choices 

Investor 

In addition to fix-and-flip or rental projects, investors can also choose Groundfloor notes as an investment option. Groundfloor notes are loans that the company has secured, but not yet funded. They are offered in 30-day, 90-day, or 12-month periods. These offer better rates of return than bonds or CDs, but lower than the Groundfloor crowdfunding experience.

Groundfloor takes every opportunity to ensure borrowers do not default. As the loan comes to maturity, the asset management team works toward payoff and completion on schedule. Investment in real estate does come with a cushion that Groundfloor backs its assets in a first-lien position. This means that if the loan defaults, they are the first creditor to get paid.

Borrower 

Groundfloor is a loan originator. This means they vet their borrowers. A majority of borrowers will not get approved for loans through Groundfloor. Applicants are required to demonstrate their experience, credit, business plan, and property assessment as-is, and with improvements.

The rates for borrowers are around 7.5 percent, and there is no repayment required until the end of the term. Borrowers can get up to 90 percent of their flip funded, and 70 percent of their rental funded.

Investors fund projects in an average of 45 days.

Management Team 

This Groundfloor review also takes into account the strength of the management team. In any investment, investors must look into the background of the executives. Personal integrity, acumen, real estate, tax, borrower, lender, accounting, and product development are all critical pieces of management analysis.

Co-founders Brian Dally and Nick Bhargava have more than 20 years of experience in real estate and regulatory affairs. Dally and Bhargava founded the Groundfloor in 2013. It is headquartered in Atlanta.

Groundfloor’s leadership team brings expertise in marketing, finance, and strategy. They are putting a lot of resources into the customer experience.

How does Groundfloor make money?

Groundfloor makes $66 from every $1,000 invested. It publically shares it makes money from real estate developers paying origination and point fees, net interest on their loans, and developers paying service fees on their loans. The company issued public stock in 2019. It is currently raising $5M. It does not make money from investors.

>>>> Click HERE to get started with Groundfloor

Groundfloor review conclusion

Groundfloor is tailored to real estate investors who want to take a slightly different approach but may be hesitant to put a lot of money into nontraditional platforms. The investors don’t want to be on the ground doing the work, and may not have the capital to own physical buildings. They may also like Groundfloor’s business model, which provides a unique suite of real estate investment products. Investors in Groundfloor do want to diversify their portfolios and are comfortable with the risk in this marketplace. With the offering of stock and raising more capital, it appears the company has big plans for the future.