Groundfloor offers fractional investments in short-term real estate loans. Has low minimums ($10) and is open to non-accredited investors, and as of January 2018 is now open to investors nationwide (previously Groundfloor was limited to 7 states and the District of Columbia). Excellent interface for browsing properties and managing investments.
- Very low minimum investment ($10) and open to non-accredited investors
- Outstanding UX for reviewing investments and monitoring performance
- Automated investing feature
- Full details available for all funded and repaid loans
- Requires signup (and bank-account information) to browse investments
- Loans aren't pre-funded (so your capital may be tied up for a month or more in a loan that doesn't fund)
- No ongoing cash flow (investors are paid in a lump-sum at the end)
- No personal guarantee by borrower
Groundfloor positions themselves as an online real estate lender, similar to "hard-money" lenders commonly used with residential real estate rehab projects. Groundfloor reviews a borrower's loan application (they say only 5% are approved), grade the loan on a sliding scale, and then open it up to the investor base for funding (some other platforms "pre-fund" the loans as a lender themselves, reselling those loans to investors over time).
Groundfloor began in Georgia, and after receiving more than $5M in venture funding to help fund their growth, as of January 2018 is now available to investors nationwide.
Types of investments GROUNDFLOOR offers
Groundfloor is a real estate platform focused very narrowly on funding short-term loans for residential 1-4 family projects, including straight "fix-and-flips", as well as buy-and-hold projects and refinancing. All of their early investments were in Georgia, but they've expanded to include investments in California, Illinois, Maryland, Massachusetts, Texas, Virginia, Washington, and Washington DC, and as of January 2018 appear to be expanding further. Though they have no pre-set limits, their current loan target amounts are $50,000-$500,000. Prospective investors should note that the larger the loan amount, the more investor interest required to fund the loan.
What do you get when investing with GROUNDFLOOR?
One of the appeals of real estate investing (especially debt investments) is that the investment is backed by a tangible asset that can be sold off to recover investor money if something goes wrong. But as with many of the crowdfunded real estate investment platforms, your investment with Groundfloor is, strictly speaking, not actually secured by the underlying property. Instead you receive what referred to as a "Limited Recourse Obligation" (LRO) which entitles you to a specific share of the principal and interest payments received from the borrower on the mortgage. From the Groundfloor FAQ:
These kind of securities are quite common among real estate investment crowdfunding platforms, but investors should be sure to understand their limitations. And while some platforms create separate entities for each investment, in the case of Groundfloor you as the investor become an unsecured creditor to Groundfloor itself, and that means that in the event something happens to Groundfloor, you're in line with other unsecured creditors irrespective of what's happening with the specific property you've invested in.
GROUNDFLOOR fee structure
Groundfloor doesn't charge any fees to investors. While some real estate investment crowdfunding platforms charge a "spread" of 1-2% between what the borrower pays and the investor receives, Groundfloor charges borrowers an origination fee (typically around 4%) as well as a range of other administration and processing fees, putting their fees to borrowers on the high end of similar platforms.
Potential returns and cashflow
Unlike other similar real estate investment crowdfunding platforms, Investors do not receive any monthly interest payments, instead receiving a "balloon" payment of the full interest and principal amount at the end of the loan term. While that does mean the borrower retains more cash on hand to complete the project, it also means that investors lose a useful tool for monitoring the health of a project (regular payments).
Breadth of offerings on GROUNDFLOOR
To date, Groundfloor says their borrowers have repaid 79 loans for $6.5M. Because I'm not located in one of the states they operate in, I was unable to review the number of active investments. Investors can select individual properties to invest in, or specify an allocation across the loan grades to automatically invest as new loans become available.
Groundfloor's interface for browsing loans and reviewing property details (and monitoring loan performance) is excellent, and stands out among investment platforms. There are screenshots below, including some taken from their offering circular.
Regulatory framework and due diligence expectations
Groundfloor had been operating under SEC Reg A+, using "Tier I", which is subject to certain state-level review (which is why they were only available to investors in a few states). As of January 2018, Groundfloor will begin offering investments under Reg A+ "Tier II" which does not require state-by-state review. Reg A+ offerings must also be registered with the SEC, including detailed offering circulars, and offering firms are subject to a number of financial disclosure requirements.