GroundFloor is a real estate investment platform where investors can get short-term loans for their properties and have the option to either refinance them for rent or sell them for a profit.
As a real estate investment platform, GroundFloor essentially makes hard money loans for individual projects and then sells portions of those loans to investors who receive interest on the money they lend to fund the project. Hard money loans are backed by “hard” assets like real estate that pay back quickly and generate profits. Also, when you invest with them, there is no equity risk as you have no shares or voting rights as you do when investing in conventional companies – just income returns!
These loans are different from conventional mortgages. They do not provide the value of a home as collateral and are repaid in monthly installments over 15 to 30 years. They are loans for business purposes, where the borrower uses these funds to increase the value of a property they plan to sell for a profit.
GroundFloor offers non-accredited investors the opportunity to fund loans completely free of charge and with a low participation threshold. In contrast, GroundFloor also offers accredited investors access to investment opportunities in high-yield areas such as US Real Estate Lending – Securitized.
GroundFloor offers a variety of products including loans and an app. In addition to these two offerings, GroundFloor also has an investment product called Notes, which pays off with fix-and-flip loans.
Also Read: How to become a Real Estate Investor
Here are some of the FAQs
1. What is GroundFloor? And is it a good investment?
GroundFloor is a good investment because investors need to understand how it works. It involves more than just vetting the borrower and then assigning a risk score. The process starts with the borrower submitting an application, which is reviewed and accepted by GroundFloor. Then the application is underwritten, if needed, before being passed on to someone else for funding.
The platform’s proprietary loan ranking algorithm is qualified by SEC. This algorithm takes into account factors such as the borrower’s experience, location and more to determine the interest rate on a loan. This helps investors assess the risk associated with each project and in comparison to other projects in the city or country.
At GroundFloor, they carefully monitor each loan and keep in active communication with borrowers about the progress of the project. We try to proactively identify and address potential issues – if those issues are deemed severe enough, a repayment plan is put in place if needed. A recent analysis of GroundFloor since our company’s inception has shown that loans on our platform have lost less than 1% of principal overall – a loss rate far below the average of other lending platforms.
GroundFloor maintains transparency with its investors and regularly publishes performance analysis of loan repayments. GroundFloor also provides monthly summaries on its blog to keep investors up to date with what’s happening with the company in real time.
2. What is GroundFloor’s mission?
GroundFloor’s mission is to give investors access to investments they could not get otherwise. This platform offers low minimum investment amounts, high transaction volume, and the ability to build diverse portfolios of private real estate investments. GroundFloor shares some of the same attributes as other crowdfunding platforms like Kickstarter, making it incredibly attractive to individual investors looking for an opportunity in a different market space than what is available through traditional channels.
3. What is GroundFloor and how well established is it?
GroundFloor is a platform for investing in real estate loans and investments with more than 100,000 registered users. Since its inception, the company has received $30 million in capital from investors. Since then, the company has invested that money in pre-funding loans and developing new products, such as the app Stairs. The company has also generated more than $570 million in investment sales and completed more than $1 billion worth of transactions in June 2017.
Hard money loans have a higher default rate than other residential real estate loans. However, GroundFloor has a history of recovering over 98% of investors’ principal even in situations like defaults and foreclosures, which is significantly better than the national average for this type of loan product. In terms of return on investment (ROI), a model portfolio of GroundFloor was estimated to be slightly less than 10%.
GroundFloor’s management team has a diverse background in real estate, technology, and financial services. CEO Brian Dally spent his 20-year career building groundbreaking technology startups before co-founding GroundFloor in 2013. Co-founder Nick Bhargava comes from a financial services background and is responsible for product development and regulatory strategy. Overall, GroundFloor’s management team has more than 100 years of experience in real estate.
4. What is GroundFloor’s Automatic Investment Feature?
The platform has a feature that allows you to invest automatically. To do this, you can select how much of your money you want to invest for each loan and loan category so that the system invests it when new loans become available. The result is that you can use the automatic investment feature to reinvest principal and interest payments into your promissory note investments.
The exclusive automatic investment feature can be used with scheduled transfers, which allow investors to set up automatic deposits to their GroundFloor account on a specific day each month. This allows you to decide how much you want to invest and how you want to diversify your investments. The platform then takes care of the rest.
5. What is GroundFloor and what are its advantages and disadvantages?
GroundFloor is a platform where anyone can invest. GroundFloor offers loans with higher transaction volumes and different risk-return options. There are no investor fees, meaning borrowers pay for everything themselves! Anyone investing at least $10 in the platform’s offerings must be able to invest through their IRA account. The company also offers automated investing through its “savings product”, Stairs . In addition, it has offered a new fund for more diversified investment options: GroundFloor Notes, which includes loans from multiple lenders in its portfolio.
There is a higher risk of loan default. Interest rates are high because the fix-and-flip loans are risky. There is a possibility of borrowers defaulting on their construction projects and payments. There is also the risk of foreclosure of the property. There is not much diversification among other real estate investments. Equity investments are not possible, you can only finance loans to property landlords and home builders.
6. What is GroundFloor and how does GroundFloor make money?
Interested borrowers can apply for a loan directly on GroundFloor’s website. Currently, GroundFloor offers investors hard money loans for properties with one to four units in 31 states starting at 5.5%. The loans have loan-to-value ratios of up to 100% and terms ranging from six to 12 months. Once the loan is closed, interest-free payments are due until it later begins to amortize.
GroundFloor charges borrowers a fee of 2% to 4.5% of the loan amount for its services, which is then used as a source of pre-funding for the loans GroundFloor originates before issuing them to investors.
In the vast majority of offerings, investors are paid all accrued interest at the end of a loan’s term and are refunded any balloon payment due. Some loans (about 10-20% of offerings) also pay monthly interest.
A risk scale of A to G is used to rate the likelihood of loan default. Grade A loans are considered by GroundFloor to be less risky than the high approval rate and low probability of default. However, at risk level G, the risk is assessed to be higher. Here, GroundFloor considers a proprietary algorithm with additional factors such as borrower experience, location and influence on the borrower that play a role in assigning an appropriate interest rate.
Investors are not directly responsible for the promissory notes they invest in. Instead, they hold limited resource obligations that legally bind GroundFloor to pay them according to the performance of each loan within their investment portfolio. These LROs also limit investor recourse only to the funds repaid on an underlying loan.
7. What is GroundFloor and who can invest in it?
GroundFloor is an investment platform open to all investors except those who live in Nebraska. This is due to federal legislation. However, the new Stairs app is open to all investors.
GroundFloor Notes is currently only available to accredited investors, shareholders and those who have been investing on the platform for more than a year.
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What is GroundFloor’s minimum investment amount?
GroundFloor has a low minimum investment amount of $10 LRO that you can join with. This allows people to earn high returns on property-backed debt instruments who would otherwise struggle with this type of investment.
Stairs is a very affordable way to get started with the app: You can get started with as little as $1.
Investors who want to invest in GroundFloor notes will have to come up with a higher minimum investment of $1,000.
8. What are GroundFloor’s fees?
There are no upfront fees for borrowers, and lenders pay a $1,250 loan origination fee. Unlike traditional hard money programs where closing costs alone are 4% or more (compared to GroundFloor’s 2% to 4.5%), borrowers do not have to pay much out of pocket with GroundFloor! For investors, this means that they do not have to worry about the fees that come with applying for loans on the platform. Their investment is protected as they have access to above market interest rates without having to take on any additional risk as an investor.
GroundFloor Notes does not charge any fees for users of the Stairs app. As a GroundFloor Notes investor, you do not have to worry about fees either!
9. What can be expected from GroundFloor investments?
GroundFloor aims to help investors diversify their portfolios. The analysis shows that a model portfolio consisting of an investment in equal parts in 1,545 loans that will be repaid by July 2021 would have generated an annualized net return of 9.98%. GroundFloor’s analysis also states that if a model portfolio consisted of equal investments in all 1,545 loans repaid to date, the loss rate would have dropped from -0.69% to 0%, which is a win-win for everyone!
10. What is GroundFloor’s selling policy?
GroundFloor has investments that are illiquid. This means you can not sell the asset if you need cash, but there is a six, nine, or 12 month term where your money is used to help a home flipper or builder complete their project with the goal of either selling it upon completion or refinancing into conventional debt and paying investors for their work. Because of the short term, there is no secondary market for these loans, but anything else should make sense given how GroundFloor’s loan products were designed.
11. Is there a GroundFloor app?
GroundFloor does not have a mobile app for its investment portal, but it has made great strides in developing an app. It is currently accelerated from a website and accessible via smartphones. GroundFloor also launched a mobile savings app called Stairs in late 2021. The app combines the simplicity of saving with real returns on investments. It allows users to earn 4% to 6% interest per year on their money every day!
12. GroundFloor loans
GroundFloor loans are mainly true balloon loans with deferred repayment. This means that you have to wait for the end of a project instead of making monthly interest payments on your loan.
GroundFloor ensures that all loans come first in the event of default (unless they are structured differently and offer a higher yield to compensate for the increased risk). However, as an investor, you have no true ownership of the property. All loans are essentially secured by GroundFloor’s promise to forward interest and principal payments to investors. GroundFloor maintains transparency with investors. While SEC only requires annual publication of financial data, GroundFloor publishes statements twice a year to keep investors up to date on how their money is being used and what’s going on with the company. GroundFloor also publishes regular analysis of loan performance, as well as regular blog posts about developments in its various businesses.
13. What is GroundFloor and is it risky?
When it comes to investing, there is always risk. GroundFloor hard money loans tend to be riskier than traditional credit investments like mortgages because they have a short term and are not government guaranteed (unlike mortgage loans). The nature of this type of investor is more prone to loss and carries a higher risk of not being able to repay their loan.
Among the potential risks of these loans is the risk of a borrower getting into trouble and being unable to repay the funds. There are many things that can go wrong when building or renovating properties. Therefore, it is important for investors to know these potential problems themselves before embarking on an investment project. The personal loss tolerance of the investor is also very important in deciding whether they are even willing to make such investments.
The biggest risk for a GroundFloor lender is that the borrower will not be able to repay the loan. GroundFloor will pursue foreclosure if necessary, which can be expensive and time-consuming. On average, investors received 78% of their invested principal back after a foreclosure in 2017.
Banks are not designed to deal with REO properties, so in the event of a default, GroundFloor prefers not to take the property. Instead of acquiring an REO property and taking the risk for the investor or refinancing it, GroundFloor proactively liquidates funds as they become available. If there is evidence that a borrower is planning to default, GroundFloor will either work with them before they do, or quickly liquidate the transaction and return investors’ capital when possible.
Sometimes default is an option for a project. Sometimes the project can be reworked to resolve the issue.