Groundfloor Review 2022: Real Estate Investing Starting At $10

May 7, 2022
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Written By Adam

This post may contain affiliate links. All opinions are my own.
Investments carry risk and may lose value. Not an offer or solicitation to purchase securities. Please consult the Offering Circular and related SEC filings before making an investment decision

Groundfloor

Groundfloor is a wealthtech platform that allows everyone — accredited and non-accredited investors alike — to start building wealth through private real estate investment opportunities.

Overall Rating:

At A Glance

  • Minimum Investment: $10 minimum investment
  • Investor Fees: None. The borrower pays fees.
  • Types of Investors: Open to accredited and non-accredited investors
  • Investment Options: Real estate investment loans on a fractional basis
  • Investment Profile: Typical loans have returned 12 percent annually on a six- to 12-month term.
  • Types of Accounts: Self-directed IRA
  • Transparent process with lots of details provided about platform risk and performance
  • Loss Ratio: -0.69% (since inception)
  • Many investments are balloon payment, meaning principal and interest are due at maturity

PROS & CONS

PROS CONS
Invest with as little as $10 Lack of diversification – Loans only to flippers
Short term invest timeline (6-12 months No Liquidity
Available to non-accredited investorsOperates in Judicial states (judicial Foreclosures can potentially take six months to three years for completion)
Investment backed by collateralized assetsOnly residential property investments
0% investment fees

What Is Groundfloor?

Groundfloor is a real estate crowdfunding investing and lending platform.

The company’s primary product is short-term real estate debt instruments. Groundfloor is a marketplace that brings together real estate developers and entrepreneurs looking for financing to complete their projects with everyday investors around the country that are looking for ways to invest and build wealth. 

The loans are originated and serviced with Groundfloor. Before launching on its platform, every loan is pre-funded by Groundfloor. However, Groundfloor now allows investors to earn 4-6% by prefunding loans through their new service: Stairs by Groundfloor.

The company thoroughly vets the borrower’s experience, creditworthiness, and business plan and assesses the property value on an as-is and as-improved basis.

Groundfloor was founded in 2013 by Brian Dally and Nick Bhargava and is headquartered in Atlanta, Georgia.

In 2020, Groundfloor was featured in Inc Magazine’s list of 5,000 fastest-growing privately-held companies in America and Deloitte Technology Fast 500, which honors the fastest growing technology, media, telecommunications, life sciences, and energy tech companies in America.

What Kinds Of Investments Does Groundfloor Offer?

Groundfloor’s main investment products are short-term residential real estate debt investments

Benefits of Real Estate Debt Investments

  • Shorter-term
  • Inherently carry less risk
  • Investments are backed by secure, collateralized assets (The properties themselves)
  • Investors are first in line to be repaid should the property need to be sold as collateral to repay the loans

Equity investments, which are usually what you own on other real estate investing platforms, do not have the same benefits as real estate debt investing.

Funded real estate projects are sourced from around the country and vary in size, term length, and risk level.

Groundfloor has built up a solid loan origination pipeline and introduces new investment opportunities on the platform on a weekly basis, ensuring investors always have the option to diversify into new projects.

Groundfloor also offers the ability to set up a self-directed IRA, giving investors the opportunity to diversify their retirement portfolio with real estate. 

How Does Investing With Groundfloor Work?

Step 1) The borrower requests a loan

A borrower (flipper, real estate investor) secures a loan through Groundfloor instead of a traditional bank or hard money lender to finance their residential real estate project.

Step 2) Groundfloor reviews the loan application and assigns a grade

When underwriting a loan, Groundfloor uses a proprietary grading algorithm to assign a letter grade between A and G. The grading algorithm factors in the following indicators that take into consideration the valuation and strength of a particular project as well as the experience and risk profile of the borrower. An investor can view the exact score for each LRO.

Letter A loans generally have lower expected returns, but also lower expected losses, and consequentially, lower interest payments.

On the other end of the grading spectrum, Grade G loans have higher expected returns, but also higher potential loan losses, which means higher interest rates.

Step 3) Groundfloor creates an LRO (Limited Recourse Obligation) and the investment is opened on its platform for individual investors to Invest

Immediately after the loan closes, Groundfloor creates investment securities called LROs that are based on the loans and files the securities for SEC qualification.

Once the securities are registered, Groundfloor releases the investments on its platform for individual investors to invest.

Investors can invest on a fractional basis, starting with as little as $10.

Investors can view project details, loan metrics, and they can also allocate funds into multiple loans with increments of $10.

Step 4) Investors receive updates

Groundfloor provides project updates on a regular basis to investors. These updates are only available through the investor dashboard. Some LROs pay monthly interest, while others may pay all the accrued interest at the end of the loan.

Step 5) Once the loan is repaid to Groundfloor, investors in the LRO receive their principal and interest payments

Once the loan is repaid, investors have the option to withdraw at any time or reinvest into additional LROs.

Getting Started With Groundfloor

  1. To start investing, you first need to open an account with Groundfloor,

2. Upon creating an account, you will be directed to enter your personal information, so Groundfloor’s third-party payment processor can verify your identity.

3. Then, you will be asked to add a funding source for your account. You have the option of instantly linking your bank account via Plaid, or manually entering your bank account information. You can setup one-time or recurring transfers.

4. Once your bank account is linked and you have investable funds in your GROUNDFLOOR account, you can begin investing in GROUNDFLOOR loans!

Groundfloor Grading Scale

Groundfloor has a 7-level grading scale for each loan it underwrites.

Most loans offer yields from 7.5 to 14% and terms from 6 to 12 months.

Loan GradeRate Floors
A [Lowest Risk]5%
B6%
C8%
D9%
E12%
F14%
G [Highest Risk]15%

The loans are visually distinguished in their Investment Portal using color and alphabetical risk grade hierarchy from A to G, and with corresponding color indicators that range from Green to Red.

Each grade has a corresponding rate floor. A Rate floor is the minimum rate Groundfloor will offer borrowers for any given letter grade [5% – 15%].

100% of the interest is passed directly to investors in the LRO. The interest rate and grade will not be adjusted during the life of the loan.

Grade A is considered the least risky but offers the lowest rate floor and consequentially, the lowest interest payments Low-risk loans are typically graded A, B, and C.

Grade G is considered the riskiest, offers the highest rate floor, and has the largest interest payments.

How Does Grounfloor Differentiate Itself?

$10 Minimum Investment. You can start investing with just $10. Groundfloor is truly democratizing real estate investing by removing barriers to entry. Other platforms have investment minimums starting at $5,000 and you are often required to be an accredited investor.

Investments Are Backed By Collateral. With Groundfloor, you are investing in real estate debt, which is a much lower risk profile in the capital stack, compared to common or preferred equity.

Greater Control. Groundfloor allows you to fund multiple investments at once. Many other real estate platforms often only have a select few investment options at any given time.

And with a minimum investment of just $10, you can fund multiple investments at once giving you true investment freedom

Making The World A Better Place. Groundfloor recently partnered with PadSplit to increase housing density and reduce gentrification in Atlanta and other metros.

The majority of companies that offer real estate investments are structured as real estate investment trusts (REITs).

When an individual invests in a REIT, it is pooled with other investors’ money and goes into multiple projects that are owned and or operated by the REIT.

Subsequently, the company, not the investors, makes the decision about which project to fund, and how much investor money to puts towards each project.

Therefore, investors are relying on the REIT itself to pick appropriate investments and manage risk thereby barring everyday investors from having total control over their investment portfolios.

Furthermore, many REIT-based offerings also self-deal, meaning that the companies offering Many REIT-based offerings also self-deal, which means the company offering the REIT may also be the project managers, leasing agents, or property managers for the underlying properties.

The investors on the Groundfloor platform can create customized portfolios tailored to their unique financial situation and risk tolerance. They no longer need a REIT manager to make those decisions for them.

Who Can Invest With Groundfloor?

Accredited and non-accredit investors can invest in loans through Groundfloor for as little as $10.

But if you are an accredited investor, Groundfloor offers special features through its Anchor Investor Program:

  • No caps on investing in Anchor Investor-only loans
  • Exclusive access to our Anchor Investor-only loans
  • Insider access to early releases of new features and investment opportunities, before they’re available to the public

Investment Returns Metrics

Historically, Groundfloor investors averaged 10% annualized returns, on a 6-18 month timeframe. According to the company’s most recent analysis (July 2021), the average annualized return on Groundfloor investor portfolios was 9.98%. 

Furthermore, Groundfloor provides a transparent process with lots of details provided about platform risk and performance

The company has a Loss ratio of only -0.69% (since inception)

There are no fees to invest with Groundfloor.

Is Groundfloor Legit?

Yes, Groundfloor is legit!. Groundfloor currently has over 100,000 registered users on the platform. The company has seen investment sales of over $570M and has processed over $1B in transactions on the platform.

Furthermore, Groundfloor loans are converted into investment securities (LROs) and qualified by the U.S. Securities and Exchange Commission (SEC).

This means that Groundfloor’s investment offerings are subjected to increased oversight by the SEC, which in turn provides a high degree of protection to investors

Awards & Accolades

Groundfloor is an award-winning company, with the following distinctions:

  • Ranked on Inc Magazine’s 2021 Inc. 5000 List
  • Ranked in the top 10% (#402) on Inc. Magazine’s 2020 Inc. 5000 List
  • Ranked #102 on the 2020 Deloitte Fast500 List
  • 2020 Benzinga Global Fintech Awards Winner for Best Lending Platform
  • 2020 Benzinga Global Fintech Awards Finalist for Best Alternative Investments Platform
  • 2020 HousingWire Tech 100 Award
  • Fintech Breakthrough Award for Best Crowdfunding Platform
  • 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

Alternatives To Groundfloor

There are endless real estate crowdfunding platforms, below are a few popular ones.

CompanySpecializationMinimum InvestmentAccreditation Required?
FundriseeREIT (fund)$10No
StreitwiseeREIT (fund)$5,000No
RealtyMogulCommercial real estate$5,000No

Is Groundfloor Worth It?

Given the short-term duration of the notes, it is best suited for those looking to generate income through real estate instead of capital appreciation.

The company is transparent and offers a detailed analysis that is not available from its competitors. Plus, the new Stairs by Groundfloor allow investors to invest cash without taking on repayment risk.

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