Are you looking to boost your portfolio returns through peer to peer lending? 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 peer to peer (P2P) lending platform registered with the SEC. GroundFloor now allows everyday investors to fund fix and flip real estate loans.
So far, GroundFloor has lent out $14.5 Million dollars across 144 projects. Investors to date have received average returns of 12% with no defaults so far. The numbers sound enticing, but is GroundFloor right for you? Here’s what you need to know.
What is 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.
Once the deal is in the pipeline, Investors have just over 24 hours 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 interest on top of the loan. You’ll have the option to invest again or withdraw the cash to your bank account.
Right now, GroundFloor works with investors in 8 states (MA, MD, DC, VA, GA, IL, TX, WA, CA). They work with borrowers in 23 states (see below for states where borrowers are eligible).
Borrowers can get loans for $25K- $2Million at rates as low as 5%. 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.
With just one year under their belt, GroundFloor can accurately claim zero defaults. But inevitably a loan will fall into default, and 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, but it’s largely unknown. 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 23 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. 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 Review
-
Commissions and Fees - 70
-
Ease of Use - 70
-
Customer Service - 60
-
Risk Mitigation And Due Diligence - 40
-
Features - 40
Summary
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.
My wife and I tried this, our first $250 loan matured December 7th, 2016. It is now February 9th, 2017 and we still haven’t received our return. Supposedly he’s paying up on the 26th this month, but honestly I doubt it. Not a sound investment. Sure there’s risk in investing, however…. From LRO agreement: “Company may negotiate to extend payment dates and could agree to a modified payment plan that could
result in the LRO holder receiving less than the Expected Return at the Extended Payment Date”
Nick, did you eventually receive your return?
Borrowing with Groundfloor is a complete disaster. I would beware of investing with them after the horrible experience we had. If you are looking to invest in crowdfunding, there are many more experienced and professional companies out there. Keep away!
Care to share more about your experience and what happened?
This company is a Ponzi scam all the way. Who can return 10% on returns? They say the screen and only accept 5% of the applications, however they say you do not need to provide tax returns to qualify for a loan. WARNING!!! Stay away!
GF LOST over $66k principal on a $97k loan for this project at 4626 Brooks St., NE in Washington, DC. This was a SECOND mortgage on top of a $145k first mortgage from a different lender for a home purchased for only $130k. The borrower defaulted on BOTH mortgages and GF waived their right to foreclose as they determined that the current value of the property was insufficient to even cover the first mtg balance AFTER GF made 9 disbursements for over $52k during the past year towards renovations to improve the property that somehow devalued it to under the original purchase price. The only recovery was the remaining $31k still left in escrow.
Here is the GF link with their explanation: http://blog.groundfloor.us/groundfloorblog/resolution-of-our-loan-for-4626-brooks-st-ne
I have invested over 150k in the ground floor and let me tell you the customer service sucks, they do not pick up your phone number nor answer to your emails. I’m going to withdraw all my investments once the term is over (hopefully I won’t lose any money). Stay away from this company.
While I don’t discount some of the comments and experiences of the posters above my experience has been quite the opposite. Granted I am still a boutique investor with less than $5,000 in loans but still…
Since I started last summer I have had 1 loan refund and 5 loans repaid, some a bit earlier than expected but no big deal. My return is just under 12%. It is important to diversify loans though, I have nothing below a D and wouldn’t invest in such a listing lower than that because the risk is just not worth the potential return. I have 3 loans in A+B listed properties and 3 more in C listed properties with a blended return ~10% currently.
I have found their communication a wee bit slow (but still often initial contact after an email is within 24 hours) and they have improved their communication on the status of properties of late.
I also really investigate the loans that are funding; the location, the company in question if possible, looking for what the neighborhood is like, what municipal buildings there are nearby, transit access, reviews on the company or principal borrower, how much the borrower has invested in the loan etc. Yes you can just invest across the board but I think it pays to do a bit more research on each loan before investing.
There are no guarantees but this is certainly a hands on type investment if you want solid returns and minimal risk of default or property devaluation.
I feel there is a group of people who don’t like Groundfloor, perhaps for good reasons, and like to bad mouth them on the internet. My experience has been much different. I realized this investment would need to be diversified and because Groundfloor allows small amounts (none of the other crowd funders do) I invested $50 in each property. In 6 months I have invested less than 6 K in over 40 properties. Of those, one has defaulted but the property owner claims he has a buyer. (ironically enough this was an A investment) 14 properties have already repaid in full with interest. I had one refunded (but I got interest on that). In addition, of the remaining pending properties at least 20 currently are on the market (verifiable via Zillow) and are pending sale. I have never invested in anything under a D and I would never invest in something that Groundfloor didn’t have first lien position. The way to go is to invest a small amount in almost every product they list. The major drawback for me is there is no way to get your money out. So I would not invest if you think you will need that money.
I recently had one loan pay back way earlier than expected and the other is now in default. The customer service at this place is downright hideous. I have learned that crowdfunding is something that sounds cool on the surface but in reality is a total joke. Its obvious the persons reviewing these loans before they are funded has very little experience or is being forced to approve them to get more out there. My guess is a lot of people lose money as soon as we have any sort of housing pullback as these houses are mostly in downtrodden areas and we all know those go first in a pullback. My novelty investing is over after my experience here The risk is not worth the reward.
I chose GF because I wanted to diversify into other asset classes, and they don’t require accreditation. I was lucky they serve my state (only about half the states). I’ve been using GF for about a year, and over that time I’ve probably had 15 loans, half of which have matured for average return of 11-12%. Some paid off early, and one got extended. Fingers crossed, but I’ve had no issues at all.
I will say the one issue is that there aren’t as many loans available anymore. Its to the point now that when the batch of loans go up for investment, they are filled in about an hour. You snooze, you loose. I also wish they paid monthly instead of at the end of the term.
I’ve never had to use customer service, so I can’t comment on that.
I invested in two separate homes in November 2015. They were set to mature on July 2016 with a 15.6% interest rate. Well BOTH houses defaulted and I have not had access to my funds in over 2 years. They are still working the details on the loss and will NOT be made whole. My money was locked up for over 2+ years and will receive much less than I originally put into it. This has been by far the worst investing experience I ever had. I would stay away from them like the plague.
I strongly disagree with most of the comments here. It sounds like many of them didn’t diversify (1 or 2 investments – why?), and were not flexible on timelines to get money back. I’ve found that I get paid MORE on the ones that default, since there is a penalty to the borrower that is passed on to the investors. I’ve got quite a bit of experience with lending platforms, and GF is one of my favorite, if not the top choice. Here are my GF stats (by number of properties):
Repaid investments = 80 (actual return was 11.9%)
Open Investments = 74 (expected return 11.5%)
Of the open investments, they break down as follow:
Current = 52 (11.2% return)
Workout = 5 (expected 11.9%)
Default = 2 (expected 12.1%)
Default Late = 15 (expected 13.5%)
I have not lost any money, but made decent returns. Some are very late, but so what. As long as I am patient and well diversified, the money comes back with a nice return.