Are you looking to boost your portfolio returns through crowdfunding – especially real estate focused? For the last several years Lending Club and Prosper have allowed everyday investors to profit from consumer lending. But in the last 15 months, a new type of crowdfunding platform registered with the SEC. GroundFloor is the first company qualified by the SEC to offer real estate debt investments via Regulation A for non-accredited investors.
So far, GroundFloor has lent out $80 Million dollars across 600+ projects. Investors to date have received average returns of 11% with less than 1% of defaults since 2013. The numbers sound enticing, but is GroundFloor right for you? Here’s what you need to know.
What is GroundFloor?
GroundFloor is a crowdfunded real estate lending and investing platform. As an investor, you can preview and fund loans for Fix and Flip properties. Potential borrowers submit a loan package that includes detailed numbers, pictures of the property and more. The GroundFloor team of experts reviews proposals, and then chooses to allow the loan into the pipeline or not. The SEC then qualifies each loan.
Once the deal is in the pipeline, investors have several days to fund the loan. Usually the loan is for a term of 6-12 months, but it could be shorter or longer. When the money is in the loan, it’s not liquid. You can’t sell it to another investor, and you can’t cash it out. Once the principal is returned, you’ll receive the predetermined interest on top of the loan. You’ll have the option to invest again or withdraw the cash to your bank account.
As of January 2018, GroundFloor works with investors in all 50 states. They work with borrowers in 24 states.
Borrowers can get loans for $25K- $2Million at rates as low as 5.4%. Anyone who has worked with a hard money lender knows that these are screaming deals. They will fund up to 90% of the cost of a project, and up to 70% of the after flip value. You will have no payments during the term of the loan.
Reg A+ Real Estate Lending is Still the Wild West
Many investors who will never pick up a hammer, talk to a home inspector, or rehab a house want access to Real Estate investments within their portfolio. Most of these investors will gain real estate exposure by purchasing REITs.
GroundFloor isn’t a REIT. It’s a lending marketplace, and it’s the only one of its kind. The GroundFloor Team is loaded with Real Estate Experts, and they turn down most people who plan to borrow from them, but there are no guarantees. If you fund a loan, and the loan goes into default, you could lose everything. However, GroundFloor is almost always in first lien position on the home, so some or all of the principal can be returned to you as well.
Since launching in 2013, GroundFloor has seen just 1% of its loans go into default. If a loan falls into default, it could be the loan you fund. As an investor, you don’t have control over the project. You’re outsourcing that work to others.
The loan you fund could be wildly profitable, or it could tank. To invest through GroundFloor you need to be comfortable with real risk. It’s a great concept, and it now has five years of data that you can review on its diversification analysis. Take some time to become comfortable with it before you commit money.
GroundFloor Offers Broad Exposure Potential
GroundFloor doesn’t require you to fund an entire loan yourself. That’s a good thing because the loans are between $50-$500K. You can gain exposure to loans in up to 24 states. Transparent deals in diverse geographic regions can give you a margin of safety.
A common maxim in real estate is “All Real Estate is Local.” It’s true, but that doesn’t mean that you need all your real estate in one location. To invest through GroundFloor you don’t have to be super-knowledgeable about one particular real estate market. Instead, you can diversify your lending into a number of loans spread across different borrowers in different geographic regions.
The opportunity for diversification across a growing number of high quality loans may be GroundFloor’s biggest strengths. But as an investor, you need to be mindful about maintaining diversification. Don’t go all in on a single loan unless you’re willing to lose all your money on a single loan.
Remember, make sure you understand all the risks of crowdfunding platforms.
Who Can Profit from GroundFloor?
If you’re willing to take on more risk for somewhat higher returns, GroundFloor might be a great investment for you. GroundFloor could function like high yield bonds in a well diversified portfolio, but the investments aren’t as liquid. And the minimum to invest is just $10!
Investors who don’t need liquidity, and are willing to experiment should look at GroundFloor. It’s a passive way to get into the fix and flip action. This will appeal to a lot of investors.
Borrowers who can meet GroundFloor’s rigorous standards will receive low cost loans with terms that are favorable to flippers. Eighty-five percent of GroundFloor’s borrowers choose its deferred payment option, so they don’t have to payback the loan during the fix and flip project. As a borrower, this should be a source to consider.
Who Shouldn’t Use GroundFloor?
GroundFloor isn’t an appropriate investment for someone who needs high liquidity. If you need your cash to pay for school, buy a car or start your own business then don’t use GroundFloor. Likewise, people who are already committed to a particular investment strategy won’t need the investment services.
GroundFloor isn’t appropriate for an investor who isn’t comfortable with real risk. Investing in GroundFloor doesn’t mean merely riding out volatility. It requires you to trust that marketplace lending is a good way for you to invest your hard earned cash.
Would you consider investing in something like GroundFloor?
GroundFloor is a P2P real estate lending platform. As an investor, you can preview and fund loans for Fix and Flip properties. Potential borrowers submit a loan package that includes detailed numbers, pictures of the property and more. The GroundFloor team of experts reviews proposals, and then chooses to allow the loan into the pipeline or not.