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- Groundfloor offers real estate debt investments to non-accredited, accredited, and non-US investors.
- Investors won’t have to pay any fees, but you’ll need at least $10 to get started.
- Groundfloor is best for passive investors looking to profit from short-term, high-yield private real estate debt investments.
- Click here to open an account with Groundfloor.
Groundfloor says it’s the first real estate investment platform to offer SEC-qualified (under SEC regulation A+) real estate note investments. It serves non-accredited, non-US, and accredited investors (accredited investors are individuals with a minimum net worth of $1 million or annual salary above $200,000). The company also notes that it was built on the belief that there’s a smarter way to capitalize the US by opening private capital markets to individual investors.
Groundfloor is best for passive investors looking to profit from short-term, high-yield private real estate debt investments. The investment app offers several notable features, including shorter 6 to 18-month investment terms (many platforms, like Fundrise and Diversyfund, require a five-year minimum), a proprietary loan-grading algorithm, automated features for accredited investors, and investment options for borrowers and brokers.
One drawback about Groundfloor is that you can only use its automated asset allocation features if you’re an accredited investor. This might be a downside for newer — and nonaccredited— investors who are looking for additional guidance with the investment process. Another thing to note is that Groundfloor doesn’t currently offer mobile app access.
Groundfloor pros and cons
Limited Recourse Obligations (LROs) and notes
Groundfloor says it currently supports investing from personal accounts, LLCs, trusts, For Benefit of (FBO) accounts, and IRAs. When it comes to investment types, the company offers two choices: LROs and notes.
Here’s how it works. Groundfloor offers financing to real estate developers, or borrowers, who need funding for fix-and-flip real estate projects. After providing the loan (which typically ranges from $75,000 to $1 million), Groundfloor collaborates with the SEC to convert the loans into qualified LROs, or fractional real estate debt investments.
As long as you meet the required $10 account minimum, you can purchase these investments in any of the 28 states in which Groundfloor lends. According to its website, Groundfloor is the first lien on each loan (meaning it’s the first to be repaid if the borrower defaults), and each loan is backed by the underlying real estate project(s). These investments return 10% on average.
Groundfloor also gives you the power to decide how much to invest in each private real estate loan, and the company uses a proprietary grading algorithm that rates loans using a grade scale of A-G. The company says grade A loans have lower risk, lower expected returns, lower expected loan losses, and lower interest payments.
Grade G loans, on the other hand, have higher risk, higher expected returns, higher expected loan losses, and higher interest payments, according to Groundfloor’s website. If you’re unsure about how the interest rates vary for different grades, consider Groundfloor’s borrower rate minimums:
- Grade A: 5%
- Grade B: 7%
- Grade C: 9.5%
- Grade D: 13%
- Grade E: 16.5%
- Grade F: 20%
- Grade G: 24%
*Note: These are the minimum rates Groundfloor must charge borrowers for each loan grade.
Like the LROs, Groundfloor’s notes (notes are real estate debt investments that utilize a repayment structure similar to bonds) are also short-term investments, but it says these investments are secured by a pool of Groundfloor-originated loans that haven’t yet been funded as LROs on its platform.
Its notes are typically available in 30-day, 90-day, or 12-month terms. These products offer lower returns than its LROS, but they also provide less risk and shorter terms, according to Groundfloor.
Finally, if you’re more of a hands-off investor, Groundfloor also provides an automated asset allocation feature, but this is only available to accredited investors. Accredited investors in its Anchor investor program can utilize this option. The company is also launching an investment wizard tool to ease the investment process.
Groundflooor also lets you invest in real estate through traditional, Roth, SEP, SIMPLE, and rollover IRAs. In fact, the investment app is currently waiving all fees on IRAs through the first quarter of 2021. Groundfloor says it will offer investors 90 days notice before it resumes its usual fees for IRAs.
You can fund IRAs through one of three ways:
- Contribute using a check
- Transfer funds from another IRA
- Rollover money from a qualified retirement plan such as a 401(k) or 403(b)
These retirement accounts are available both for individuals and businesses. It’s important to note, though, that you’ll only be able to invest in LROs and notes.
Borrower, broker, and shareholder offerings
Groundfloor also provides investment options for borrowers, brokers, and shareholders.
If you’re a borrower or real estate developer interested in fixing and flipping real estate projects, Groundfloor offers six-, nine-, and 12-month terms with loans ranging between $75,000 and $1 million. Rates for these loans start at 5.5%, and Groundfloor doesn’t require borrowers to have a minimum transaction experience.
In order to qualify, you must operate under an active LLC or corporation. In addition, Groundfloor only accepts projects that are single-family residential properties (with 1-4 units), and the property must be located in a state in which Groundfloor actively lends, according to its website.
There are just a few other things to note:
- You’ll need to have a credit score above 600
- Groundfloor rolls mortgage points into closing costs, you can defer interest payments until the loan repays
- You can receive up to 100% loan-to-cost and up to 75% loan to after repair value (ARV represents the ratio between the loan amount and the value of the property after you’ve completed all repairs)
The reason borrowers don’t have to provide interest payments until the loan repays is because of Groundfloor’s true deferred payment option. While the company also offers a monthly payment option, the deferred option basically allows you to push off your interest payments until your loan ends. This could be a more attractive option for developers who don’t want to pay monthly interest payments.
As for its broker offerings, the investment app’s Preferred Broker Program gives real estate brokers the option to broker loans with Groundfloor for clients interested in investing (Groundfloor also has a referral broker offering that gives brokers one point for each client they refer).
On the shareholder side of things, Groundfloor’s partnership with SeedInvest offers investors the opportunity to buy stock in Groundfloor itself.
Groundfloor has received an A+ rating with the Better Business Bureau. The BBB uses a grade range of A+ to F, so this is the highest score a company can receive.
The bureau doesn’t only take customer complaint history into account when assigning ratings; it also considers a company’s time in business, its business practices, licensing or government actions, and advertising issues. Nonetheless, the BBB says its ratings don’t guarantee whether a company will be reliable or perform well.
This is why it’s also wise to conduct your own research as you’re comparing different investment apps. GroundFloor’s BBB record shows that it hasn’t closed any complaints in the last 12 months.
Groundfloor is a wealthtech investment platform offering private real estate loan investments both to nonaccredited and accredited investors. The company says it’s the only direct lender offering crowdsourced funds for short-term residential loans. Along with its $10 minimum requirement and lack of advisory fees, Groundfloor also offers shorter investment terms than other real estate investment platforms.
When it comes to investment products, Groundfloor mainly provides real estate debt investments through LROs and notes. However, the SEC-registered investment app also offers IRAs.
Founded in 2018 by Brian Dally and Nick Bhargava, Groundfloor has also earned several accolades. In 2020, the company ranked in the top 10% of Inc. Magazine’s Inc. 5000 list. In the same year, Benzinga awarded Groundfloor in its Global Fintech awards as the Best Lending Platform.
Groundfloor has more than 87,000 registered clients, and its investors have invested more than $347 million into its products. The company is headquartered in Atlanta, Georgia.
Rickie Houston is a wealth-building reporter at Personal Finance Insider who covers investing, brokerage, and wealth-building products.