groundfloor review
Introduction
Groundfloor is an innovative real estate investing platform designed to offer non-accredited investors a unique opportunity to participate in the real estate market. By providing short-term, high-yield real estate debt investments, Groundfloor aims to democratize access to real estate investment, traditionally reserved for institutional and accredited investors.
In short: Groundfloor is about the simplest, most accessible way to invest in distinct real estate assets. Virtually anyone can do it, with a minimum of just $10*.
Groundfloor Review of Reviews
I’ll tell you what I think. But what does the hive mind think?
A mixed bag, to be sure. Our ol’ pal Ian Ippolito doesn’t think much of it. You can find plenty of dirt on the platform, but you can say that about almost any real estate crowdfunding platform at this point. Interestingly, Groundfloor has a 3.8 on Trustpilot, which is higher than most other real estate investing platforms these days.
What do I think? Groundfloor has some limitations. It’s only one type of asset and only one type of return profile. However, there are two sides to that coin: simplicity is good, especially for newer real estate investors. Not all of their deals yield positive returns, but they rightly point out that diversifying across a broad basket (eminently achievable thanks to the low min) should reliably help de-risk.
In terms of return, my Groundfloor portfolio is in the black, but just barely. One of the 6 loans I invested in defaulted, resulting in a total return of under 1%…. that said, the customer service and communication around the one underperforming asset was decent, especially considering I’ve invested a relatively small amount. Given Groundfloor’s overall track record, and the efficiency with which I was able to get money back on my performing loan investments, I am willing to believe I was somewhat unlucky.
The Righteous Money Rating — 4.0
Groundfloor Overview and History
Founded in 2013, Groundfloor operates on a novel model, offering investors the ability to invest as little as $10 in individual real estate loans. The platform primarily focuses on short-term loans used for residential property renovation and construction. Groundfloor is headquartered in Atlanta, Georgia, and has grown steadily, both in user base and the volume of loans funded.
Groundfloor's mission is to make real estate investing accessible to everyone, and they have arguably achieved this by allowing non-accredited investors to participate in real estate investments with very low minimums. The founders, Brian Dally and Nick Bhargava, envisioned a platform that could bridge the gap between borrowers needing funding for property renovations and individual investors looking for higher returns than traditional savings accounts.
GroundFloor versus Fundrise
Groundfloor and Fundrise are two of the oldest and most prominent non-accredited real estate investing platforms. Both offer super-low minimums. Both offer access to investments in private-market real assets.
The main difference? Groundfloor is entirely investments into single-family houses — fix-and-flips, essentially. (Technically these are limited recourse obligations (LROs), a collateralized debt instrument.) Fundrise offers investments into private, non-traded REITs, with most of the underlying real estate being commercial real estate or multi-tenant residential. Fundrise has also recently ventured into venture capital. In other words, Fundrise offers a bit more built-in diversification, though you can easily diversify across a number of properties with Groundfloor given the $10 minimum.
Fundrise is theoretically a more liquid investing option, since you can make a redemption request and get back capital in a few months. Groundfloor, on the other hand, is dependent on the individual LRO / deal. If a project gets extended or goes into default (which happens) then there’s little you can do but wait around for something to happen. That said, I have not personally tried to redeem any Fundrise shares and I’m not sure if the fine print actually complicates matters.
Groundfloor: the Nuts & Bolts
Operating Model
Groundfloor operates by offering short-term loans to real estate developers and flippers. These loans are typically used for the purchase and renovation of residential properties. Here’s a breakdown of how the platform works:
Loan Origination: Developers and property flippers apply for loans through Groundfloor. Each loan is rigorously vetted by the platform's underwriting team.
Loan Grading: Loans are graded from A to G based on the risk level, with A being the least risky and G being the most.
Investment: Individual investors can browse and invest in these loans with a minimum investment of $10. The low entry point makes it accessible for a wide range of investors.
Interest and Repayment: Investors earn interest on their investments, which typically range from 6% to 14%, depending on the loan grade. The principal and interest are repaid at the end of the loan term, usually 6 to 12 months.
Groundfloor’s unique model of fractional real estate debt investing allows for a diversified investment portfolio with relatively high returns.
As of 2024, Groundfloor has also added a Note option (similar in its features to EquityMultiple’s Alpine Note…
Performance and Returns
Groundfloor has shown impressive performance metrics since its inception. Here are some key performance indicators:
Average Annual Yield: Groundfloor offers average annual returns ranging from 6% to 14%, depending on the risk grade of the loan.
Default Rate: The platform maintains a relatively low default rate, and claims to employ rigorous vetting standards. Note, however, that Groundfloor is not a credit rating agency and its method of grading loans is its own. Defaults do happen.
Historical Returns: Groundfloor reports an overall historical average annual return of around 10%, which competitive considering the relatively short terms and income focus. This rate of return is
Groundfloor publishes a monthly asset management update, sharing its track record. This is a nice transparency measure.
User Experience and Platform Usability
The Groundfloor platform is designed to be user-friendly and accessible. Some of the features that enhance user experience include:
Intuitive Interface: The website is easy to navigate, with clear sections for browsing available loans, viewing investment performance, and accessing educational resources.
Transparency: Groundfloor provides detailed information on each loan, including property details, borrower information, and loan terms.
Educational Resources: The platform offers a range of educational materials to help investors understand the nuances of real estate debt investing.
Seamless Funding: Integration with financial tools like Plaid allows for quick and easy transfers, making the investment process smooth and efficient.
The UI features a tabular view of open investments, which can be mixed and matched to easily form a diversified basket of loans to invest in.
ESG Considerations
While Groundfloor does not explicitly market itself as an ESG (Environmental, Social, and Governance) platform, its focus on residential redevelopment and community revitalization aligns with certain ESG principles. Investors indirectly contribute to neighborhood improvement and housing availability through their investments.
In theory, Groundfloor also empowers real estate investors to more easily take on projects by offering low-barrier-to-entry financing. This can be a more inclusive form of real estate finance. It’s worth noting that Groundfloor’s investments are only in single-family properties, so there’s limited potential to take part in creating new multifamily stock and being part of the solution to housing affordability.
groundfloor review, in Conclusion
Groundfloor stands out as a pioneering platform in the real estate crowdfunding space, particularly for non-accredited investors seeking high-yield opportunities. Its low barrier to entry, user-friendly platform, and potential for significant returns make it an attractive option for those looking to diversify their investment portfolios.
However, potential investors should be mindful of the inherent risks and the illiquid nature of real estate loans.
Pros and Cons
Pros:
Very low barrier to entry and easy to understand
Attractive yield potential: generally between 6 and 14%
Open to non-accredited investors
Income-focused investments that don’t involve a super long lockup period
Intuitive UX/UI; very easy to operate
Simple grading system to help inform investment decisions
Solid customer service.
Cons:
Because the investments are loan-based (not equity) upside is capped
Only residential properties
Groundfloor's approach to democratizing real estate investment is commendable, and its commitment to transparency and user experience enhances its appeal. As with any investment, due diligence and consideration of one's financial goals and risk tolerance are essential. Loans (including those on Groundfloor) can default. These investments are riskier than investing in T-Bills, for example.
For more detailed reviews and user experiences, you can explore Righteous Money's reviews on various investing platforms, including Groundfloor.
*Note: Righteous Money does not offer financial advice. These are personal opinions only and should not be taken as advice to purchase any securities or pursue any investment strategy.