Is Groundfloor a Good Investment?

Groundfloor offers an intriguing opportunity for investors looking to get into real estate investing or diversify their portfolios: invest in fractional real estate loans and benefit from potentially high returns. Like any investment, there are risks for those rewards.

Groundfloor lets you invest for as little as $10 and offers customized tools to modify investments to your risk tolerance. Is Groundfloor a good investment? Read on to understand the pros and cons to decide whether it makes sense for your investing portfolio. 

What is Groundfloor?

Groundfloor is a real estate investing platform that allows investors to use its real estate lending platform to act as the lender for other real estate investors. The opportunities primarily focus on short-term residential loans for ventures like house-flipping or constructing new properties. You can invest directly in these residential projects and hard money loans with Groundfloor. Short-term residential loans mean you recoup the investment in an average of four to 12 months. 

Instead of issuing the loan directly, you can invest in a fraction of loans granted by Groundfloor to borrowers. Groundfloor issues the loan and sells pieces of those loans to investors.

There are no fees to invest in Groundfloor. Instead, borrowers who use the platform pay a fee of 2.75% to 4.5% on the loan's principal, plus a $495 application fee and $1,250 in loan closing costs. Investors share in the profit or loss from the loan. 

A benefit of Groundfloor is that you'll get a small monthly interest payments, but you won't get the final balloon payment until the end of the loan term. However, there's always a risk of a borrower defaulting on a loan. risk. Fortunately for investors, Groundfloor puts itself into a first lien position to mitigate as much risk as possible for the investor. A borrower defaulting on a Groundfloor loan also doesn’t necessarily mean you’ll lose your investment. More often than not, you will still earn interest, just not as much as originally projected. The current average return rate to investors for defaulted loans is 6%.

How Investing With Groundfloor Works

Wondering whether you should start investing in Groundfloor? Here's an overview of investment opportunities, risk, compliance and user experience. 

Investment Opportunities

Groundfloor specializes in securities based on short-term real estate loans. All loans from Groundfloor are secured by property as collateral. Groundfloor invests in senior loans it can foreclose on if the loan is not repaid as agreed. However, this is the last-resort solution for Groundfloor. The company puts itself in a first lien position to help mitigate risk for investors. In fact, the average return rate at Groundfloor for defaulted loans is 6%, so you’re still making money in your investments.

It also offers mezzanine loans in which Groundfloor retains the right to repayment when the property is foreclosed and sold by the senior loan holder, usually a bank. The minimum investment amount starts at just $10, making Groundfloor accessible to anyone. 

Evaluating Groundfloor's Track Record

Groundfloor has a strong historical performance. While the loans carry risk, Groundfloor's average returns are 10% to date in 2023. Because of the short-term nature of the investments, those strong returns are attractive to investors who also want the option of liquidity within 12 to 18 months. 

Groundfloor carries inherent risk if the borrower fails to pay or defaults on the loan. This can mean investors take a loss or are delayed in receiving repayment — though usually, investors still see a return at an average of 6%. However, Groundfloor's historical returns, compared with other investment options, can make it a strong choice. 

Groundfloor's platform is known for ease of use, reliability and stability, making it a good choice for anyone wanting to dip into real estate investing while diversifying to mitigate risk. 

Assessing the Risks of Real Estate Crowdfunding

The potential downsides and risks of real estate investing, such as Groundfloor, are comparable to other real estate investments. You risk the borrower defaulting on the loan and needing to enter a lengthy and potentially expensive foreclosure process. And you risk the property losing value or selling for less than the original loan value.  As Groundfloor puts itself in a first lien position, investors can still see accrued interest on defaulted loans. Currently, the average return rate to investors on defaulted loans is 6%, which is higher than traditional money markets.

To mitigate these risks, diversification and due diligence remain the cornerstones. Groundfloor helps mitigate those risks by rating properties on relative risks and encouraging investors to diversify across many properties to spread out the risk. 

One major advantage for investors is that you don't need to be an accredited investor to use Groundfloor; it's open to anyone. 

Regulatory Compliance and Security

Groundfloor works to proactively communicate with investors and maintain transparency to ensure high levels of investor trust and understanding in the process. 

Groundfloor was the first company qualified by the SEC under Regulation A to offer real estate investments to the general public. Groundfloor is subject to significant government oversight and must meet strict requirements for compliance with regulatory laws. 

For example, Groundfloor must publicly disclose financial and operating information about the company and the structure of each investment opportunity. These degrees of transparency are typically only offered to accredited investors, providing the resources for each investor to assess Groundfloor's performance independently. 

In addition, any online business is coming under an increasing number of potential security threats. Groundfloor employs strong security measures and precautions to protect investors' funds.

User Experience and Feedback

User experience of investing in Groundfloor, as measured by online reviews and reports, is generally good. It gets 3.9 out of five stars on Trustpilot from 359 reviewers. Likewise, other reviewers with in-depth reviews generally rate Groundfloor favorably. Is it perfect? No. Is it a good real estate investing opportunity to start with even a little cash? Yes. 

In addition, Groundfloor works to update its product offerings in response to user feedback. For example, in response to consumer requests, it recently launched automatic investing and a new mobile app to make investing easier.

Groundfloor has a mobile-first approach (though you can also invest from your desktop or mobile browser), making it easier for anyone to start their real estate investing journey. When you invest in the app, your funds are instantly invested across a wide range of available loans (dozens to hundreds, depending on your initial investment) as soon as they reach your account. This automatic diversification means you can see repayments in as little as seven days. You can see your portfolio’s overall health in the app as well, with details like accrued interest, average realized returns, total loans you’re invested in, and more. The Groundfloor app is available for iOS and Android.

Benefits of Investing in Groundfloor

The advantages of investing in real estate through Groundfloor are numerous. The low barrier to entry means anyone could start investing in Groundfloor this month. Because of these low minimums, Groundfloor simplifies diversification within its platform and across other asset classes, regardless of your portfolio size. With its not without risk, Groundfloor offers the opportunity for passive income generation through interest repayments and the possibility to build long-term wealth through strong returns. 

Risk of Investing in Groundfloor

The potential risks associated with investing in Groundfloor are the same as any other real estate investment. You could lose all or some of your investment, or repayment could be delayed for months or years. But that is a small risk and in most cases, investors still earn accrued interest (an average of 6%). You could also earn an average of 10% of invested funds over a year, with the opportunity to re-invest. Groundfloor's rewards and strong historical returns make the risk a reasonable opportunity for many investors. 

You must consider how much you're willing to lose with any investment. As long as you don't invest funds you can't afford to lose and diversify across investments and asset classes to reduce overall portfolio risk, you stand to gain from Groundfloor's ease of use and historical returns. Groundfloor offers potentially greater risks and rewards than other major investments such as stocks, bonds, or index funds. 

How Does Groundfloor Compare to Other Real Estate Investing Platforms?

Groundfloor stands out from other real estate investing platforms in several ways:

• Accessibility: Groundfloor offers real estate investment opportunities to both accredited and non-accredited investors, making it more accessible to a wider range of individuals compared to some other platforms that require accreditation.
• Loan Structure: Groundfloor focuses on short-term, high-yield real estate loans, allowing investors to participate in the financing of individual real estate projects. This differs from its competitors that may offer different investment products like equity or crowdfunding.
• Transparency: Groundfloor provides detailed information about each investment opportunity, including property details, borrower information and financial projections. This level of transparency helps investors make informed decisions and understand the associated risks.
• Diversification: Groundfloor allows investors to diversify their portfolio by investing in multiple real estate projects with varying risk profiles and returns. This diversification can help mitigate risk and potentially increase overall returns.
• Secondary Market: Groundfloor offers a secondary market where investors can buy and sell their investment notes before they mature. This provides liquidity and flexibility for investors who may want to exit their positions earlier or purchase additional notes.
• Low Minimum Investment: Groundfloor has a low minimum investment requirement, allowing investors to start with smaller amounts compared to other platforms that may have higher minimums.
• Technology and Automation: Groundfloor utilizes technology and automation to streamline the investment process, making it easier and more efficient for investors to participate in real estate projects.
• Track Record: Groundfloor has a track record of successfully funded projects and satisfied investors, which can provide confidence to potential investors when considering the platform.

It's important to note that while these points highlight the unique aspects of Groundfloor, each real estate investing platform may have its own strengths and features that appeal to different investors based on their preferences and investment goals.

Is Groundfloor Real Estate Crowdfunding Platform a Good Investment?

Yes, Groundfloor can be a good investment. For those dipping into real estate investing, the low minimum balance makes it an attractive option to try out riskier investments with small sums and diversify across multiple investment projects. However, the same caveats apply to Groundfloor as to any other investment opportunity. 

Your funds can automatically be invested across all available loans on the platform, making it a true set-it-and-forget-it investing model. This method is especially appealing to experienced investors looking for a strong platform to add to their wide array of investments and new investors who may not know much about investing. Does Groundfloor have a place in investors’ portfolios? Depending on your goals and the overall portfolio, it certainly can.

Frequently Asked Questions