Are you looking for alternative investments to the traditional stock market? Have you fantasized about joining the ranks with other real estate investors, but don’t have tens of thousands of dollars to get started? Groundfloor is a real estate investing platform designed specifically for non-accredited investors. In this article, we’ll explore how Groundfloor works, its minimum investment requirements, the benefits for non-accredited investors, and the types of real estate investing available with Groundfloor. We’ll also look at some pros and cons of Groundfloor, as well as other real estate crowdfunding platforms.
Introduction to Groundfloor
Groundfloor is a real estate crowdfunding platform that offers non-accredited, everyday investors the chance to invest in the real estate market. Founded in 2013 by Brian Dally and Nick Bhargava, Groundfloor is one of the first platforms to offer non-accredited investors the opportunity to invest in real estate projects via real estate loans (real estate debt), with as little as $10.
Groundfloor’s mission is to make real estate investing accessible to everyone. By leveraging technology and crowdfunding, the platform offers a unique way for investors to add fractional shares of private real estate investments to their portfolio on their own terms. Investors can choose which projects to invest in and how much to invest in each project, allowing them to tailor their portfolio to their financial situation and risk tolerance. The platform has a low investment minimum of $10 per project, making it easy to try out and diversify your portfolio.
How Groundfloor Works
What’s unique about Groundfloor compared to most real estate crowdfunding platforms, is the ability to invest on the lending side. Rather than pooling funds to acquire equity on a particular property, you are making an investment as a lender, with pre-determined loan repayment details provided.
Groundfloor uses venture loans to real estate entrepreneurs, which are originated and serviced by the company. The loans are underwritten using third-party reporting and analysis of the proposed project, along with the company’s collective real estate experience. The loans are then assigned a letter grade and corresponding interest rate based on their relative risk level. Once the loan is funded, Groundfloor creates investment securities based on the loans and files them with the SEC. These investments are then available for individual investors to invest in on a fractional basis. Once the loan is repaid, investors receive principal and interest repayments, which they can withdraw or reinvest.
Investing with Groundfloor – Average Returns
Once you have linked your bank account and have funds in your Groundfloor account, you can start investing in Groundfloor loans. The company originates all the loans offered on the platform and pre-funds them with its own capital. The loans are then graded for risk and yield using a proprietary algorithm and are distinguished by a color and alphabetical risk grade from A to G. Low-risk, lower-yield loans are graded A, B, and C, while high-risk, higher-yield loans are graded D through G. Most loans offer yields of 7.5% to 14% and terms of 6 to 12 months. This visual representation of each investment categorized by loan grade is a particular feature many investors have enjoyed.
Groundfloor also offers a unique deferred payment loan product to real estate developers. With this structure, borrowers defer all interest payments until the end of the loan term, and investors receive principal and interest repayments in a lump sum at the end of the term. Importantly though, this is not the only loan product available. There are also more traditional loan product offerings that provide investors with monthly interest payments throughout the repayment period.
Minimum Investment Requirements
Groundfloor requires a minimum investment of $10. This is one of the lowest minimum investment requirements of any real estate crowdfunding platform. This low minimum investment requirement makes Groundfloor an attractive option for non-accredited investors who are just starting out in real estate investing.
Groundfloor also has a maximum investment limit of $5,000 per project. This maximum investment limit is in place to protect investors from taking on too much risk. Groundfloor also has a portfolio limit of $50,000, which is the total amount of money an investor can invest in Groundfloor projects.
Types of Real Estate Investing with Groundfloor
Groundfloor offers a variety of real estate investing opportunities, from residential and commercial development projects to short-term real estate investments. Here’s a closer look at the types of real estate investing with Groundfloor:
- Residential Development Projects – Residential development projects are projects that involve the development of residential properties, such as single-family homes, multi-family homes, and apartment buildings.
- Commercial Development Projects – Commercial development projects involve the development of commercial properties, such as office buildings, retail spaces, and warehouses.
- Short-term Real Estate Investments – Short-term real estate investments are investments in real estate projects that are completed in a matter of weeks or months. These investments offer investors the potential for a quick return on their money.
Pros and Cons of Groundfloor
Groundfloor offers a number of benefits for non-accredited investors. The low minimum investment requirement of $10 makes it easy for non-accredited investors to get started in real estate investing. The maximum investment limit of $5,000 per project helps protect investors from taking on too much risk. Groundfloor also provides investors with access to a team of experienced real estate professionals.
However, Groundfloor does come with some drawbacks. For one, the platform has a limited selection of investment opportunities, and the returns on investments can be unpredictable. Another potential drawbacks of using Groundfloor is the lack of liquidity. Since the loans are short-term, investors must wait until the loan is paid off to receive their returns. This can be problematic for investors who need access to their money sooner. However, the company does offer a secondary market where investors can sell their investments to other investors, providing some liquidity.
Groundfloor: Investor fees
Groundfloor is a free platform for individual investors that charges no fees, costs, or commissions. The company generates revenue from the fees and costs it charges to borrowers, including a 2% to 4.5% fee of the loan amount, a $250 application fee, and $1,250 closing costs. There is no minimum account balance required, and investors can invest as little as $10. One of the key advantages of using Groundfloor is that it does not charge any fees to investors, unlike many other real estate crowdfunding platforms.
Real Estate Crowdfunding Platforms
Groundfloor is one of many real estate crowdfunding platforms available to investors. Other real estate crowdfunding platforms, such as Fundrise, RealtyMogul, and First National Realty Partners offer similar services as Groundfloor, but all have their own unique competitive advantages.
Fundrise falls closest to Groundfloor in terms of minimum initial investment, but at $500 this could still be considered a substantial increase for the everyday investor. That said, the inherit design of Fundrise allowing investors access to varying real estate investment trusts (REITs) provides diversification even for the smallest investors.
RealtyMogul, and First National Realty with $5,000 and $50,000 minimum initial investment respectfully makes these platforms typically attractive to a different type of investors.
Conclusion
Overall, Groundfloor is a unique platform that offers the potential for high-yield returns on short-term loan real estate investments. It’s transparent, easy to use, and provides investors with a level of control over their portfolio. With one of the lowest initial investment requirements required in this new world of tech investment platforms, at just $10. While there are some potential drawbacks, like the lack of liquidity, the platform offers a compelling investment opportunity for those looking to diversify their portfolio and earn high-yield returns. Click here to get started with Groundfloor today.
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