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 Review
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Commissions and Fees - 70
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Ease of Use - 70
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Customer Service - 60
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Risk Mitigation And Due Diligence - 70
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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.
Nick says
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”
Jim says
Nick, did you eventually receive your return?
brandon says
it was only 2 months… thought it was supposed to take 6 to 12 months.
Jeff Johnson says
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!
Robert Farrington says
Care to share more about your experience and what happened?
Jill says
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 Funder says
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
ali says
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.
John Pelletier says
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.
Harley says
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.
Clem says
What do you mean you can’t get your money back ?
Joe says
Clem,
I believe Harley just meant once you’ve invested and the loan is fully funded, you can’t pull your money out. Once the loan is repaid, you can either withdraw your funds or invest in another property.
Chris says
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.
David says
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.
Robert says
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.
Dave says
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.
ATLREInvestor says
All of the “defaulted” loans are most likely not truly defaulted loans by borrowers. As a former GF borrower, here is my experience:
BORROWERS and INVESTORS BEWARE!! Groundfloor Finance, Inc. is a wannabe real estate crowdfunding lending platform but instead runs a huge FinTech scam of a company that operates as a middle-man between a real estate borrower and non-sophisticated investors. They are registered with the Securities Exchange Commission (SEC), while they violate several of the SEC’s rules under Regulation A of the Securities Act of 1933. Below is my experience dealing with their fraudulent behavior:
As an experienced real estate investor that understands how the financing process works, it was clear from the beginning when dealing with these folks at Groundfloor Finance Inc, that they do not have a single clue about how to underwrite a property. That should have been the first red flag for me to run for the hills and to this day I have regrets for even giving this scam of a company a chance. Historically, I have financed my real estate deals with EXPERIENCED hard money lenders (“HMLs”). There is one hard money lender in particular that I have an excellent relationship with over the years and he has even come down on the interest rate and origination points as a result of our relationship, however still at 13.5%. The HML process is simple, seamless and headache free. I find a property, perform the scope of work budget with my contractor, pull the comps of the ARV (after-repair value), have my lender independently check it out, he provides me with the term sheet (no appraisals are required as the numbers don’t lie if done correctly and market comps are readily available), I sign the term sheet, we are good to close in 7-10 days. No hiccups, no problems, no BS stupid questions, no last minute fires to put out because lender isn’t on top of their underwriting, none of that. When it comes to draws, I text/email my HML I need a draw, he comes with check in hand as he trusts I will have what I say is done complete, we do a walkthrough and I have check in hand same day as inspection. No issues, no hassles. Now let’s talk about Groundfloor Finance, Inc…
The only reason why I explored crowdfunding was to see if I can save on interest. That was the only reason. In hindsight, the drama, the unreal incompetence of these idiots at Groundfloor makes trying to save on interest absolutely NOT worth it. I ended up actually NOT saving any money as I had to spend loan origination points TWICE by being FORCED by this company to refinance out of my loan nightmare plus interest charged on funds Groundfloor illegally did not make available to me (I can’t make this up if I tried, and I’ll get into that later). Groundfloor owes me about $25,000 and refuses to answer any calls or respond to emails after every attempt to contact them for my reimbursement.
So while trying to chase a lower rate, I sought out Groundfloor Finance Inc, for a commercial C1 property in Atlanta, GA as my next rehab project. Here is Groundfloor Finance, Inc’s underwriting boo-boo #1: As one of the rules by the SEC, when running a residential crowdfunding platform, you are not allowed to underwrite a commercial loan. Groundfloor Inc even ordered an independent appraisal during due diligence that states on the appraisal report that the rehab was for a commercial property. Groundfloor Finance, Inc. caught this error several months later after the fact and tried to illegally foreclose on my house in order to save their ass (I will get into that later). When I first submitted my application, I was promised a 10.5% interest rate on the loan. Days before closing, all of a sudden the underwriter told me my loan was at 14%. WTF? I told him if that was the case I would have just stuck with my HML I work with all of the time, but since we were days away before closing it was too late to try and close with them. The next day he said he could do 11%. Shady and unorganized. Should have been a red flag. Unfortunately, it was too close to closing, and I would have lost my earnest money and my trust with my wholesaler if I was unable to close (which would be the first time ever) all because of this incompetent FinTech scam of a company. After jumping through hoops with them for last minute requests for things they should have asked for weeks ago (a good 14-18 days ago when I first brought the deal to the table), after sleepless nights leading up to closing, we finally closed on time. Closing was on August 25, 2017.
Time to start the rehab! Plans were approved by the city in early December 2017 and we were ripping and rolling on the rehab in order to make up for 3 months of waiting on Dekalb County to approve the plans (they were experiencing a backlog during that time of year). Since we had time to schedule out all of our sub-contractors back to back, we completed 1/3 of the rehab budget within the first 2 weeks of obtaining approved plans from the city. I requested the first draw on December 14th, 2017. I explained that the city did not approve the original addition, but approved alternative plans that still achieved the same number of beds and baths. The substance of the rehab project was the same. Groundfloor ordered another appraisal that supported a resale value that still enabled us to earn a profit and return investor funds plus interest at the conclusion of the project. Groundfloor also sent out an independent inspector to approve the draw request. We were conservative with the amount we requested as Groundfloor’s inspector approved funds for $20k more than what I asked for. A week passed and I followed up about the status of my draw. Radio silence. The holidays passed and I followed up again in early January of 2018 regarding status. I received BS excuses from Glenn Gilbert as to why I was not receiving my funds. After a month passed I could tell they were scrambling to find the funds for my draw request as it was clear none of the investors’ funds were held in escrow.
Groundfloor NEVER disbursed the funds associated with my draw request. Each monthly update, Groundfloor would then LIE to their investors via the investor portal by saying we were struggling to get plans approved from the city each month through March of 2018 when plans were approved back in December of 2017. The investors were lied to month after month and were never told the truth that Groundfloor was deliberately withholding funds from me as the borrower in order to complete the project. Lying to investors is against SEC broker-dealer rules. I used my own money to continue the rehab and ended up completing the rehab completely on my own. The rehab progressed with all required city inspections being passed, all the while Groundfloor was telling the investors that we were struggling to get plans approved by the city.
Since Groundfloor never wanted to tell investors the truth, they proceeded to bully me into a refinance otherwise they threatened to foreclose on my property! A property that they were not even funding in the first place! I was not in financial distress, I was in fact funding the project on my own since Groundfloor refused to grant me access to the investors’ funds ALLEGEDLY held in escrow. They slandered my name publicly by issuing public notices of default and foreclosure on my loan and disclosed this completely false information to the unknowing investors. To add insult to injury, Groundfloor accrued interest on the entire $150,000 rehab funds that they deliberately withheld from me. I asked several times for an audit of the funds in escrow and they never provided me with proof that funds were ever segregated in an escrow account. When I had no choice but to refinance, the payoff was several thousands of dollars more than the amount owed, not even including the unjustly charged interest on the non-existent $150,000 funds. This scheming company needs to be fined and shut down. I talked to several lenders in Atlanta who know specifically of other borrowers who were a victim of Groundfloor’s fraudulent behavior like I was and they came running to them to get out of the nightmare that is Groundfloor.
BORROWERS especially: Save yourself the headaches, the bullying and the threats from Groundfloor Finance, Inc. that are nothing more than a fraudulent FinTech company whose employees clearly have zero real estate experience (talk to any real estate attorney or hard money lender in Atlanta, they have all heard of Groundfloor Finance, Inc and will tell you the exact same thing). Their loan docs are written so that you have ZERO rights and basically state that they have the right to take possession of your property at any time without cause. This is what they do to borrowers REGULARLY so that they can maximize the amount of money they extort out of each borrower. That is how they make their money. Trust when I say that you will have better peace of mind sticking with the competent, well-seasoned professional hard money lenders who actually understand this business. Groundfloor Finance Inc. promises you a lower interest rate to lure you in, but in the end you end up spending way more in all of the extortion they do. It is not worth the hassle working with them. No need to even take my word for it, talk to any seasoned real estate attorney or Hard Money Lender in the game.
As to the unsophisticated investors who also get duped by this Company by the lies they publish on their investor platform (that IS NOT WRITTEN BY THE BORROWERS), and also duped out of their money because Groundfloor seldom pays you back your money or makes you wait unnecessarily for it: proceed with CAUTION if you decide to invest through this scam of a company. It is a wonder how Brian Dally, Nick Bhargava, Rich Pulido and team sleep at night knowing how they missile borrowers into bad loans and perform so much illegal activity specifically prohibited by the SEC. Their bad business will eventually catch up to them. To the public: You have been warned!
Jeff says
For now, I would say “lender beware” until the items below are sufficiently addressed by Groundfloor. I’m currently invested in three CS RE lending platforms and have 150+ loans without a single default over a 18 month period. All three platforms employ Borrower Payment Dependent Notes (“BPDNs”) and have special purpose vehicle (“SPV”) designed to serve as bankruptcy remote. This means if the CS company should go bankrupt, a 3rd party loan servicing provider takes over processing of notes. Currently GF does not have a bankruptcy servicing provider in place, and therefore lacks legitimacy in the CS RE marketplace without this critical level of protection in place. Additionally, GF Limited Recourse Obligation debts appear to be limited “only” to the property secured in the loan. There is no borrower personal guarantee in place. In case of a loan shortfall the lender/investor has no claim against the borrower’s additional assets. Given there can be quite a bit of risk with fix and flip loans, a borrower willing to commit his personal assets adds an additional layer of protection in case “things go south”.
Brandon Eaton says
This company is horrible. I see many reviews from the lender side of the peer to peer investing but from the buyer side they are so unprofessional it’s unbelievable. This company is so bad and unable to make deadlines. They haven’t ordered lenders packets and we are less then 5 days from closing and mid you this is the SECOND push on closing dates I have had to make. I will now lose a contract on a property because of them. I have been in contact with Chad Janga. Chad is the initial issue. I was then in contact with the “manager” Kathy Calderini and this woman is even worse. She lied multiple times on the phone to me about terms and why they couldn’t keep to the dates we talked about. I have paid over 750 in fees to apply for this pure ignorance from a bunch of idiots in a office. STAY AWAY