Groundfloor Review: Can They Really Deliver 10% Returns?

Groundfloor’s website boasts an average historic 10% return.

How realistic is that?

Well, if you’ve ever seen one of those property flipper shows on TV, you already know how profitable that type of real estate investing can be.

If you’ve been biting at the bit to get involved in that action, but lack the capital necessary, Groundfloor provides a way for you to profit from the process.

They make it easy, too, so please read on.

What Is Groundfloor?

Groundfloor is a fractional real estate investing platform, but one with a bit of a different twist. Instead of investing in large commercial real estate projects, they focus on providing renovation loans to renovate or build single-family and small multifamily properties.

If you’ve ever seen HGTV’s Flip or Flop or Desert Flippers, you already have a general idea of the basic concept behind Groundfloor. Except that Groundfloor doesn’t do the actual renovations or build the properties themselves. Instead, they provide short-term financing to real estate entrepreneurs who buy the properties and renovate them.

Investors then buy shares of the renovation loans, and earn high returns on their money, with far less risk.

Groundfloor was founded in 2013 and is based in Atlanta, Georgia. The company is an online marketplace, bringing together investors and real estate entrepreneurs. Since its founding, the company has arranged over 4,800 projects, that have repaid investors over $1.3 billion.

The deals themselves are different from how most real estate crowdfunding platforms work. There is no equity funding provided. Instead, Groundfloor arranges short-term financing to enable real estate entrepreneurs to engage in new construction, renovations, and ultimately, the flips. For this reason, investors’ money is tied up for far less time than is the case with other real estate crowdfunding platforms.

Groundfloor has a Better Business Bureau (BBB) rating of B (on a scale of A+ to F), where it’s been accredited since August 2015.

Groundfloor Awards & Mentions

Groundfloor has won quite a few awards and received mentions in a variety of hot tech company lists.

• Named on the Forbes Fintech 50 list.
• Ranked in the top 10% (#402) on Inc. Magazine’s 2020 Inc. 5000 List
• Ranked #102 in Deloitte’s Technology Fast 500 2020.
• HousingWire Tech 100 Award
• Fintech Breakthrough Award for Best Crowdfunding Platform
• Benzinga Global Fintech Awards Finalist
• Atlanta Business Chronicle Pacesetter Award 
• Technology Association of Georgia Top 10 Most Innovative Companies
• Technology Association of Georgia’s Fintech ADVANCE Award
• Atlanta Inno’s 50 on Fire Award
• TiE Atlanta Entrepreneur of the Year Award
• Golden Bridge Award for Startup of the Year

How Groundfloor Works

Investment returns of 10% are only the average, with the range being 8% to 15%. Groundfloor has a mobile-first approach, especially with its new Auto Investor account. You can set up your account easily in the Groundfloor mobile app, though you can also do this on your desktop or mobile browser.

While in the app, you can see your portfolio’s health and summary, including the total number of loans you’re invested in, your accrued interest, your average realized returns, details of your returns, and more. The Groundfloor mobile app can be found in Google Play and the Apple Store.

When you invest in Groundfloor loans, you’re investing only for the short term. Most loans have a term of between six and 18 months. This is radically different from most real estate crowdfunding platforms that require you to remain in an investment for several years.

Loan parameters are as follows:

• Individual loans from $75,000 to $750,000.
• Loans can be up to 70% of “after repair value” (ARV) or up to 100% of loan-to-cost (LTC), depending on user experience.
• Must be non-owner-occupied properties only.
• Must be one to four-unit properties (no apartment buildings).

Since each loan is an investment in an individual property, the underlying real estate itself acts as security for the loan. In most cases, the loan you invest in will represent a senior lien on the property. This is an advantage that’s unavailable with P2P loans, which are typically unsecured personal loans.

“LROs”. Loan investments are referred to as limited recourse obligations or LROs. Each LRO, which is a slice of a loan, is available with a minimum investment of $10. For example, you can spread a $500 investment across up to 50 different properties, adding diversification to your real estate loan portfolio.  The only caveat is that there may not be more than 10-20 loans available at any given time.

Like other real estate crowdfunding platforms, Groundfloor subjects all loans to a strict vetting process. You can see more details of each loan you’re invested in on your desktop view.

Groundfloor does its due diligence, so by the time the loan is listed on the platform, you know it’s been given the once over.  Even so, it’s important to take your own look at the loans and figure out if you think the loan is worth the risk. How much skin does the borrower have in the game?  What’s the loan-to-after-renovation value ratio?  Does the borrower have a history on Groundfloor – have they had loans before and have they repaid?

If a loan offered on the platform fails to fully fund within 45 days, it will be removed from the site. Any funds you’ve committed to the loan will then be refunded to you.

The Groundfloor investor platform and mobile app allow you to track the progress of your investments.

Both the return of your investment principal and accumulated earnings are paid to you when the loan is paid off by the real estate entrepreneur.

Groundfloor also offers a product called Notes. There are two types of Notes you can invest in, standard and Rollover Notes. Standard Notes come in 30-day, 90-day, and 12-month terms, while Rollover Notes come in 30-day and 90-day terms. One benefit of Rollover Notes is your ability to cancel your investment within the first 30 days. This offers liquidity whereas other Groundfloor products do not. With a Rollover Note, your principal investment is automatically reinvested to a new Rollover Note of the same duration, while you keep the accrued interest. However, all Notes require a higher minimum to invest: $1,000.

Of course, all investments have risk. Whenever you’re investing in real estate loans, there’s a chance the loan could go unpaid and go into foreclosure. However, Groundfloor puts itself in a first-lien position on its loans, to help mitigate risk for investors as much as possible.

Groundfloor also works to resolve the situation and works with the property owner to get the loan repaid. Finding a resolution first is the most important step for unpaid loans with Groundfloor. Foreclosure is a last-resort solution.

Fortunately, in many cases, defaulted loans still yield returns. The average return rate of defaulted loans on Groundfloor is 6%

Groundfloor Investor Requirements

Groundfloor accepts both accredited investors and non-accredited investors.

This is another departure from typical real estate investing platforms since many do require investors to be accredited.

Automatic Investing

As of fall 2023, Groundfloor released a new experience to make investing with Groundfloor much easier. It’s called the “Auto Investor account”.

Here’s how it works. With Groundfloor’s Auto Investor account, your funds are automatically invested across a wide range of available loans as soon as funds reach your account. This instant diversification can help you see repayments in as little as seven days.

Groundfloor Features And Benefits

Minimum initial investment. LROs are purchased with minimum denominations of $10.

Fees. There are no fees paid by investors, either to use the Groundfloor platform or in connection with investments in LROs.

Accounts available. Taxable investment accounts, plus traditional, rollover, Roth, SEP and SIMPLE IRAs, as well as solo 401(k) accounts.

Availability. Open to investors in all 50 states (since January 2018).

Dividend distributions. There are no dividend distributions. Both income and invested principal are returned as each loan is repaid. This is unlike the way most real estate crowdfunding platforms function, in that Groundfloor does not provide monthly dividends.

Limited liquidity. Even though loan investments are short-term in nature, you will need to remain invested until the loan is paid out. Only one product, Groundfloor Rollover Notes, offers liquidity if you want to withdraw from an investment early.

Customer service. Available by phone or email, Monday through Friday, from 9:00 am to 5:00 pm, Eastern Time.

Platform security. To keep all information safe, Groundfloor uses encryption with an AES 256-bit symmetric key.

How To Sign Up With Groundfloor

To invest with Groundfloor you need to be at least 18 years old and supply the usual information required for any investment platform (name, address, email address, phone number, Social Security number, and any documentation required to prove your identity).

Next, you’ll browse the platform to determine the projects you want to invest in.

Once you’ve opened your Groundfloor account, you must create a funding account to begin purchasing LROs. The funding account is non-interest bearing and is a service by Wells Fargo Bank. The account is covered by FDIC insurance, which covers depositors for up to $250,000. Funds can be transferred into the funding account by electronic transfer from your linked bank account. Invested funds can also be withdrawn from your funding account, but only to your linked bank account.

Once your account is funded, you can begin investing in individual projects.

Sign Up For Groundfloor

Refer Your Friends, Get Bonus Credit

Another nice thing about Groundfloor is their referral program.  After you’ve signed up, if you like the service you can refer your friends and family to join you.

When the person you’ve referred transfers money into their account, you’ll each earn a bonus credit.

A lot of referral offers have a limit to how many bonuses you can earn, but this is one is nice because there is “no limit to the amount you can earn”. Just share your referral link from your dashboard and when they sign up using that link you’ll be in business.

Groundfloor Pros & Cons

Pros:

• Investment returns average 10% per year.
• Loan terms are short – generally only six to 12 months.
• The minimum investment is just $10.
• There are no fees charged to investors.
• You do not need to be an accredited investor.
• Investments are secured by the underlying real estate.

Cons:

• Limited liquidity – you must maintain your investment until it pays out, unless you are invested in a Rollover Note.
• There are no monthly income payments – all funds are distributed when loans are fully repaid.
• Groundfloor does not provide investment advice – you’ll be acting on your own information.
• There is a risk of loss of some of your investment principal. However, Groundfloor’s average return rate for defaulted loans is 6%, so you’re still likely to accrue interest for defaulted loans.

Should You Invest With Groundfloor?

If you’ve been bitten by the real estate investing bug, but don’t want to get involved in all the technicalities, complications, and costs that are involved, Groundfloor is the next best thing. You can get involved strictly as a lender to flipping or new construction projects, earn a healthy return on your money, and do it with limited funds and limited risk.

In addition to earning high returns on your investment, Groundfloor enables you to diversify your investment portfolio to include real estate. That can be particularly important, both as a long-term investment strategy, as well as a form of diversification away from an all-paper asset portfolio. Meanwhile, you can diversify across many different loans with just a small amount of money, further reducing your investment risk.

An investment allocation in real estate, particularly in short-term projects like flipping, can enable you to earn high returns, even when other financial assets are not performing well.

If you’d like more information, or if you’d like to open an investment account, visit the Groundfloor website here:

Sign Up For Groundfloor

• Ultimate Guide To Real Estate Crowdfunding

Groundfloor

9

Rating

9.0/10

Pros

• 10% average returns
• Loan terms are short – 6-18 months
• Minimum investment just $10
• No fees charged to investors
• No need to be accredited investor

Cons

• Only one product is liquid
• No monthly income payments
• Groundfloor does not provide investment advice
• Risk of loss of your investment principal

Sign Up For Groundfloor