Groundfloor vs. Fundrise

If you're ready to start investing in real estate, but a rental property or house flipping is too much of a commitment, a growing number of real estate investing platforms allow you to invest for as little as $10. The leaders in this arena are Groundfloor and Fundrise. 

While they seem similar, the former deals with loans, while the latter deals with properties. In a sense, they represent two sides of the real estate investment coin. Should you invest in Groundfloor vs. Fundrise? Read on for the pros and cons, along with the average returns and relative risks. 

What is Groundfloor?

Groundfloor is a real estate lending platform. Lending opportunities focus on short-term residential loans, mostly targeted at real estate investors with fix-and-flip properties. Groundfloor's focus on short-term residential loans means you can find fix-and-flip residential projects and hard money loans and invest directly with a fixed interest rate and projected term.

Groundfloor's unique feature of fractional investing means that Groundfloor issues the loan to the borrower and sells pieces of those loans to investors. You can choose to invest in individual projects or use Groundfloor analysis tools to locate investment projects that meet your criteria. The average investment time is four to 12 months. 

When you invest in Groundfloor, there are no fees. Borrowers pay a fee of 2% to 4.5% on the loan's principal, plus a $250 application fee and $1,250 in loan closing costs. Investors share in the profit or loss from the loan, but Groundfloor is not risk-free. 

A benefit of Groundfloor is that you'll get a small monthly interest payment each month, but you won't get the final balloon payment until the end of the loan term. The investor will take a loss if the property sells for less than the amount owed. 

Pros

• Invest for as little as $10
• Open to nonaccredited investors
• Choose properties according to set criteria
• Relative risk of projects rated from A to G
• No fees for investors
• Diversify your real estate portfolio
• Returns to date have been 10.5%
• Monthly interest payments

Cons

• Investors take on the risk of house flipping or hard money loans
• Groundfloor's rating system doesn't account for all borrower risks
• Some loans have high loan-to-value (LTV), which can lead to losses for investors
• Foreclosures in case the borrower doesn't repay can take months or years

What is Fundrise?

Fundrise is the leading crowdfunded real estate investment platform that allows you to invest in shares of eREITs and eFunds. Fundrise's eREITs invest in commercial properties, including apartment complexes, commercial shopping centers, and office buildings. The eFunds available on Fundrise purchase residential real estate for use as rental properties and possible sale.

Fundrise's value investing strategy focuses on buying assets for what it believes is less than their intrinsic value. You'll also get access to Fundrise's software that streamlines necessary real estate buying processes and offers discounts to scale, further reducing business costs. 

The actively managed properties and ​​partnerships with local operators work to increase asset value while keeping expenses low over time. Fundrise aims to build portfolios that can withstand prolonged periods of economic distress, but there are no guarantees.

Diversification is essential in any investment strategy. Fundrise allows investors to access institutional-quality investment opportunities with strong diversification and investment options. Another major potential benefit of Fundrise is the low minimum investment. With higher investment amounts, you can get better portfolio options and features. 

The drawback of investing through Fundrise is the risk of loss. You'll also face illiquid investments that can make it difficult to redeem shares quickly. Likewise, you'll pay a 1% fee if you redeem funds before the end of the holding period.

Pros

• Minimum investment of $10
• Diversified investment strategy
• Low cost basis
• High potential returns 
• Option to sell shares back early for a 1% fee
• Annualized returns of 4% to 12%, depending on your goals and risks
• Minimum investments from $10 to $100,000 with premium features at higher investment levels

Cons

• Annual management fee of up to 1% of assets under management 
• Risk of loss of returns
• Illiquid investments mean your cash is tied up
• You'll pay a 1% fee to redeem funds before the holding period ends

Comparing Groundfloor and Fundrise Real Estate Crowdfunding Platforms

Should you invest in Groundfloor vs. Fundrise for your real estate investment goals? There are pros and cons to each. Here's how they stack up in investment opportunities, performance, costs and risks.

Investing Opportunities

Both Groundfloor and Fundrise allow anyone to invest for as little as $10. You don't have to be accredited. While Fundrise offers premium investing levels with access to specialized funds and private equity funds, Groundfloor offers comparable opportunities to all investors. 

Performance and Returns

Groundfloor's loans carry more overall risk but also carry greater potential rewards. Its actual returns to date are 10%. It's also a more liquid and generally short-term investment that can offer greater performance possibilities in a shorter time. 

Fundrise offers longer-term performance opportunities, with projected annualized returns of 4% to 12%, based on risk level and portfolio allocation. Total average income returns for all quarters until the third quarter of 2023 were 5.29%. At present, compared to other REITs, Fundrise has performed better, but compared to the stock market as a whole, both REITs and Fundrise have underperformed in 2023. 

Whether you choose Groundfloor or Fundrise, aligning return expectations with investment objectives and overall portfolio diversification is essential. 

Costs and Fees

Understanding total costs and fees and evaluating their impact on investment returns is essential. The fee structure for investing through Groundfloor vs. Fundrise is a major consideration for investment horizons. Groundfloor doesn't have fees for investors and instead charges fees to borrowers.

Fundrise charges a 0.15% advisory fee. That means you'll pay a $1.50 advisory fee for every $1,000 invested. In addition, Fundrise's real estate funds have an annual 0.85% flat management fee. That brings the total fees up to 1% of assets under management. 

User Experience and Accessibility

The user interface and experience on Groundfloor vs. Fundrise are comparable. Both offer easy-to-use investment platforms, low minimums and good customer experience. Which is better depends on personal preferences and each investor's comfort with online investment platforms.

Risk Factors

Risk factors associated with investing through Groundfloor are that borrowers default on the loans. In that case, Groundfloor will enter the foreclosure process, which can take months or years to recover the funds. If the borrower sells the property for less than the loan amount, you also risk a loss on the invested amount. 

Risk factors associated with investing through Fundrise are similar to any other REIT or rental property, including high vacancy rates, inability to sell properties and the fact that you're investing in an illiquid asset.  

While Groundfloor is considered riskier, both platforms employ risk management strategies. Groundfloor does rate the relative risk of projects and allows you to select investment opportunities according to your risk tolerance. 

Fundrise allows you to diversify across investments to reduce overall risk. However, it's important to consider personal risk tolerance and investment goals when choosing an investment strategy and the value of Fundrise vs. Groundfloor for your investment horizon.

Investing in Groundfloor vs. Fundrise

With ultra-low minimum investments, there's no reason you can't invest in both Groundfloor and Fundrise as part of a diversified investment portfolio. For those with greater risk tolerance, Groundfloor may present better opportunities and has shown stronger historical returns. However, Fundrise offers diversification and stable returns for investors with a long-term horizon. Along with investing in real estate online, consider other real estate investment opportunities to continue building your investment portfolio. 

Frequently Asked Questions 

***This is a testimonial in partnership with Fundrise. We earn a commission from partner links on Benzinga.com. All opinions are our own.