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Groundfloor Review – Invest In Real Estate Debt In 2022

Published on: 09/01/2022

Description

What Is Groundfloor?

Groundfloor is an American-based real estate investing platform that functions as a marketplace for real estate debt. It was launched in 2013 by Brian Dally and Nick Bhargava and has headquarters in Raleigh, North Carolina.

Groundfloor is a very unique investing platform in that it provides exposure to the real estate market without a traditional real estate trade or transaction. Instead, it works by providing loans to real estate developers looking to make a quick profit by renovating properties, or investing opportunities for investors looking to enter the rental market.

One of the best features of this platform is that it doesn’t charge any fees to investors, has a minimum investment of just $10, and offers reasonable interest rates for borrowers. This platform is available for accredited and non-accredited investors and is quickly gaining customers.

In this quick Groundfloor review, I will review all the platform’s best features. Keep in mind this is a summary – if you want to read a more in-depth analysis where we go over the numbers side of things, check out the full review.

Pros & Cons of Groundfloor

Pros

- Low minimum investment ($10)

- 5% average annual return

- Available for accredited and non-accredited investors

- Partnered with PadSplit for short-term rentals

- Great way to diversify your portfolio by investing in real estate debt

- Choose your investments or set up Automatic Investing

Cons

- Risk of loan default

- Low liquidity

Features & Benefits Of Groundfloor

1) Groundfloor Invest

Groundfloor Invest offers investors direct access to hundreds of real estate investing opportunities. It’s important to note that Groundfloor invests in real estate debt, which is considered less risky than securities or equities.

Groundfloor Invest offers seven categories of investments based on the risk associated with each. The riskier the investment – which is determined by factors like credit score and Loan-to-Cost ratio -the higher the yield.

The average returns are based on the Grade of the investment and range from 5% for the safer Grade A investments to 24% for Grade G investments. The average yield for each Grade is:

- Grade A Investment: 5%

- Grade B: 7%

- Grade C: 9.5%

- Grade D: 13%

- Grade E: 16.5%

- Grade F: 20%

- Grade G: 24%

All investors can choose their investments or use Groundfloor’s Autoinvesting tool, which automatically allocates your investments based on your risk tolerance (from Grade A to Grade G). The average annual return you can expect from using the Autoinvesting tool is 10.5% for moderate risk tolerance.

An alternative that also has solid returns is Streitwise. Streitwise averaged 9.2% annual returns over the last 21 quarters and offers exposure to geographically focused real estate investments. If you are more interested in regular dividend payments, a platform like Yieldstreet might be the platform for you.

2) Groundfloor Borrow

For borrowers and real estate developers, Groundfloor Borrow offers access to low-interest loans with variable terms ranging from 6 to 18 months. Interest rates will vary based on your credit score and the Loan-to-Cost and Loan-to-After repair value.

Groundfloor offers two types of loans: Fix & flip and Fix to Rent loans. Fix & flip loans are short-term loans and are ideal if you want to purchase and renovate a property quickly and sell it off for a profit. Fix to Rent loans, on the other hand, are usually long-term, and they involve a different strategy of acquiring a property, fixing it, and holding it to generate consistent income.

The loan size will depend on your credit score, experience in the industry, and other factors, and it usually starts at $75,000 and can go as high as $1 million, depending on the type of loan. Additionally, Groundfloor allows you to defer interest payments and repay them fully at the end of the term.

You can expect interest rates to fall within 5.5%-6.5%. Keep in mind that to apply for a loan, you need a credit score of at least 640, and similarly to the investment opportunities, your loan application will be ranked from a Grade A investment to a Grade G investment. The interest rates will vary depending on the grade – Grade A investments are considered safe and have lower interest rates. Grade G investments are considered the riskiest and have the highest interest rates.

3) Security

To start investing with Groundfloor, you have to create an account an make a deposit. It may take from 3-5 business days for it to be available on your account. Your deposit is fully insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 up until you make an investment. Your money is not insured after you invest it; as with all investments, there’s some risk involved.

Groundfloor Fees

In terms of fees, Groundfloor takes the spotlight among other real estate investment platforms, like Fundrise, by not charging investors any kind of fee. While Fundrise makes money by charging fees and offers a higher yield, Groundfloor makes money by charging borrowers interests on their loans.

Groundfloor Invest

- Management fees: Free

- Minimum investment: $10

Groundfloor Borrow

- Interest rate: From 5.5% to 6.5%

- Deferred payments: Yes

- Acceptable Loan-to-Cost ratio: Up to 90%

- Acceptable Loan-to-Repair Cost ratio: Up to 70%

Sign-Up Process

Groundfloor is available for US and non-US residents. The sign-up process is very quick, and you can start investing in just a few minutes. Here are the steps:

- Visit Groundfloor’s website

- Click on the Sign-Up button

- Fill in some of your basic information

- Confirm your email

To receive a $50 welcome bonus credited directly to your account, make sure to use this link to sign up. Keep in mind that you don’t need to be an accredited investor to use this platform.

If you are an accredited investor, you may want to check out EquityMultiple. It has a 1.5-2% annual fee, but it makes up for it with a higher annual yield.

Final Thoughts

Whether you’re a real estate developer looking to make a quick profit by taking a loan and renovating a property or a non-credited investor looking to gain exposure to the real estate market, Groundfloor is a solid option for you. With its low entry minimums and reasonable interest rates, you won’t feel like all your profits are going into REIT managers’ pockets. With Groundfloor, you can choose your investments and earn significant profits when flipping or a constant income by renting out the properties.

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