Groundfloor Review 2023 – (Pros and Cons) Real Estate Investing
I love HGTV and especially “Fixer Upper: Welcome Home With Chip and Joanna Gaines.” So when I discovered you could invest in “fix-and-flip” properties with a company called Groundfloor, it got my attention.
In this Groundfloor Review, I’ll cover the pros and cons of what Groundfloor calls investing in “real estate renovation loans.”
It’s awesome that you can get started with just $10!
According to Forbes, about 10% of the world’s billionaires made their fortune in real estate.
Andrew Carnegie, one of the richest Americans in history, famously stated, “Ninety percent of all [multi] millionaires become so through owning real estate. The wise young wage earner of today invests in real estate.”
What is Groundfloor?
Groundfloor gives you the opportunity to invest in real estate for as little as $10.
Groundfloor shows you various loans for residential real estate projects. These include properties that are to be renovated and sold for a higher price, new homes under construction, and other properties for people to live in.
You don’t become a landlord. You don’t pick up a hammer. You’re more like the bank.
You decide which borrowers are worth trusting with your money.
It’s an investment, so you’re not guaranteed to get your money back. The aim, of course, is to make more money than you put in thanks to interest payments to you from the people who borrow from you.
The borrowers want to borrow money from you/Groundfloor because it’s less expensive for them than going to a traditional bank.
How Does Groundfloor Work?
Groundfloor allows individuals to invest in real estate investment loans. What allows everyday folks to get involved is that you’re not required to provide the entire loan to the borrower.
You can invest by lending just part of the money the borrower needs. This can be as little as a $10 investment on your part.
You select the real estate projects you’d like to invest in.
Groundfloor grades each loan based on how risky they think it is. The riskier the loan, the more money you can make because you’re taking a bigger chance. Safer loans pay you too, but you get less return.
The borrower has $120,000 of their own money in the project. Groundfloor has loaned the borrower $338,600 (this is where you, as an investor, come in) to improve the property.
They anticipate the new value of the renovated property will be $66,400 more than the investment.
Here’s How Groundfloor Works for Borrowers:
Instead of borrowing from a traditional bank, those who need money for their residential real estate project can turn to Groundfloor for a less expensive loan. This loan might also have more flexible terms.
To be approved as a borrower, you submit a loan package with details about your real estate project.
A Simplified Explanation of How Groundfloor Works Overall:
1 – The borrower submits a loan application to Groundfloor for a residential real estate project.
Often this is to improve a property and then sell it.
The loan duration is typically between 6 and 18 months.
The borrower agrees to Groundfloor’s terms and fees. (There are no fees for investors.)
2 – Groundloor reviews the loan application.
3 – Groundfloor underwrites the loan.
4 – Groundfloor assigns the loan a grade A through G. (A is the least risky and has the lowest rate of return. G is the riskiest and has the highest rate of return.)
5 – Browse the loans available for you to invest in.
6 – Fund your Groundfloor Investor Account and invest after your funds are posted in 4 to 5 business days.
7 – Once a loan is fully funded and closes, the borrower takes the money according to a schedule and completes their residential real estate project.
8 – When the property is sold, at the closing, the borrower repays investors via Groundfloor.
9 – A lump sum of the principal you invested plus interest earned is deposited into your Groundfloor Investor Account.
10 – Now, you can withdraw your money or reinvest it in other projects!
An Example of How Groundfloor Works:
You see two projects that catch your eye.
3904 Calhoun in Anniston, Alabama
801 W 39th St, in Anniston, Alabama
(These were real fix-and-flip projects on Groundfloor.)
Investor funding from Groundfloor made Askaree Martin’s renovation project possible in Anniston, Alabama:
You could invest $10 worth of the debt in the 3904 Calhoun home and $1,000 in the 801 W 39th St home.
Note that you aren’t directly funding Askaree Martin’s (the borrower) project. You are getting a Limited Recourse Obligation (LRO).
An LRO is a debt security that Groundfloor submits to the SEC for qualification on their platform. Groundfloor holds a first lien position on each loan. Each loan is secured by real estate property.
When the borrower, in this case, Askaree Martin, a person with five years of experience flipping homes, pays back the loan, you get your investment back.
Another way to use Groundfloor is with their “Investment Wizard.” This tool attempts to make it easier to invest in loans that match the level of risk you’re willing to accept.
Groundfloor itself encourages you to “diversify your active funds into many loans rather than just a few” as a way to ensure consistent returns.
The Investment Wizard makes it easier for you to diversify on the Groundfloor platform.
Groundfloor co-founder Brian Dally explained to personal finance publisher Barbara Friedberg in a 2023 interview, “At any given time we have about a hundred [properties] that are currently funding. We’re adding probably 20 to 30 a week. And they turn over.”
“You have to show up and you have to sort of pay attention and allocate into these loans. And we give you tools to pick and choose and you can robo-invest into them by using our automated tools if you want.”
Here is the full interview with Groundfloor CEO Brian Dally:
How to Make Money with Groundfloor
You can make money with Groundfloor when the borrower pays back their real estate loan. You make money from the interest charged to the borrower.
If there’s one thing I want to emphasize in this Groundfloor review, it’s: Remember, this is an investment, NOT a guarantee.
The risky loans pay more because you’re taking a bigger chance with your money. A risky loan is one where you’re not as sure that the borrower will be able to pay back the entire loan.
The safer loans still pay you interest, but less of it. That’s because these loans are much more likely to be repaid in full.
Groundfloor says that average rates of return are 10% or more.
To lower your overall risk, consider diversifying your investments into various properties instead of putting all your money into just one property.
A major benefit of Groundfloor is it’s easy to experiment with the platform and learn because the minimum to invest is $10.
An Example of How to Make Money with Groundfloor:
You earn interest from when you fund a loan until it’s repaid.
Groundfloor rates are annualized. This means their rate is over 12-months. The interest you actually earn is the portion of the 12 month rate in which you have participated.
Say you want to invest $1,000 in a property in Chicago that pays 10% interest.
You didn’t invest right away. You invested 31 days after the loan originated. And let’s say the loan is repaid a year later.
So take your 10% on $1,000, and that’s $100 in interest over the year. Or 0.274 or about 27 cents per day.
Remember, you didn’t invest from day 1. So we need to subtract those first 30 days where you weren’t involved from the 365 days in a year.
Multiply your $0.274 by the 335 days your investment was active, and you get about $91.79 in interest payments in addition to your original $1,000 back.
Is Groundfloor Legit?
Yes, Groundfloor is legit.
That doesn’t mean you’ll automatically make money by investing. It does mean that Groundfloor is a reputable company as of the time this article was written.
Groundfloor has been in business for over a decade.
Co-Founder & CEO Brian Dally has an MBA from Harvard Business School and a JD from Harvard Law School.
According to Groundfloor, it has
- 200,000+ registered users
- $1 billion in investments on the platform
- Paid consistent 10% returns with short-term yields in 9-18 months
- Issued more than 4,100 loans to more than 2,000 independent developers and operators of fix-and-flip, new construction, or buy-and-rent properties
Most, but not all, of the complaints I’ve seen about Groundfloor are situations when people lost money investing. I can’t emphasize enough, no matter how easy Groundfloor makes it seem to make money, all investing carries risk.
The company is legit. Groundfloor is trustworthy. Yet you still must be a smart investor.
The 10% returns number that Groundfloor repeats is NOT a guarantee.
Investing in real estate is a valid way to make money. As they say, there’s no reward without risk. You’re potentially earning a reward because you’re taking a risk by funding someone’s real estate project.
Is Groundfloor Safe to Invest in?
Groundfloor is safe to invest in, but you can lose money. Do not invest more in Groundfloor than you can afford to lose.
If you’re interested in investing in real estate as part of your investment strategy, Groundfloor is worth exploring. I felt I should write a Groundfloor review because they make it easy for just about anyone to invest, requiring only $10 to get started.
Groundfloor is a lender secured by a first mortgage/first lien. This safeguards your investment because Groundfloor has the right to foreclose.
Remember, with any legit investment, you can lose money, including Groundfloor.
Investing is safer when you diversify. Groundfloor recommends diversifying your real estate portfolio on its platform.
Pros and Cons of Groundfloor
|Just $10 to get involved||You can’t withdraw your money whenever you want. You must wait until the loan is repaid – if it’s repaid.|
|No fees for investors||You might not get your entire investment back if the project is unsuccessful. This is true of most investments, though, and not just about Groundfloor.|
|Easy to diversify by investing in different real estate projects with various levels of risk and reward||Many of the public complaints about Groundfloor are about their customer service or lack of communication about deals that don’t work out in favor of the investor|
|Get your money relatively quickly if it’s a successful project) – most loans are repaid in 6 to 9 months.||Groundfloor could provide more information on the site about each property, the real estate entrepreneurs, and the neighborhood.|
You can and should do this research on your own.
|Payouts average around 10% – Remember, this is NOT a guarantee!|
Groundfloor reviews on Google and TrustPilot are mainly positive.
This Groundfloor reviewer says they’re making 10% returns consistently:
This Groundfloor review on TrustPilot says it’s been a good experience:
A complaint against Groundfloor I’ve seen a few times is that repayment can be stalled. And this holds your money up longer than you’d like:
Here is a Groundfloor review from personal finance YouTuber Joshua Mackos:
Here is a Groundfloor review from personal finance YouTuber Ryan Moody:
Groundfloor Reviews Reddit
Groundfloor reviews on Reddit are mixed.
This investor says they’ll keep using Groundfloor. Their returns have been 9%, and they’ve been investing with Groundfloor for a couple of years:
This Groundfloor investor says Groundfloor is worth it:
Here is the mixed experience of a Groundfloor investor with a very diversified portfolio:
It’s important to remember that Groundfloor doesn’t control the real estate market. When housing prices go down, it can be tougher for investors to make a profit.
Is Groundfloor Worth It?
Groundfloor is worth it for investors who want to get involved in real estate in a relatively easy way.
However, weigh the pros and cons for your particular situation. Returns are generally higher when your risk is higher.
I strongly advise against investing money that you can’t afford to lose. Don’t invest money that you can’t be without for the term of the loan, which can be about a year.
Compare this to a high-yield savings account that earns you interest and allows you to withdraw your money at any time.
The benefit of an opportunity like Groundfloor is that you’re expecting to make much more money in interest than you would in a safer place like a savings account or certificate of deposit (CD).
Commonly Asked Questions About Groundfloor
What are Alternatives to Groundfloor?
Alternatives to Groundfloor include:
Do People Make Money on Groundfloor?
Yes, people make money on Groundfloor by earning interest on the money they loan to real estate entrepreneurs who buy homes, improve them, and sell them for a profit.
Which is Better Fundrise or Groundfloor?
Whether Fundrise or Groundfloor is better depends on your goals. Each makes it easy to get started with real estate investing. Groundfloor typically has an investment period of 1.5 years or less. Fundrise is typically five years.
What are the Cons of Groundfloor?
No Groundfloor review would be complete without the Cons of Groundfloor, which include:
- Inability to withdraw your money whenever you want it
- Customer service isn’t always the best, according to online complaints
- Groundfloor could provide more information for investors about each property, the real estate entrepreneurs who are working on the property, and the neighborhood
Groundfloor Vs. Fundrise?
Fundrise offers a professionally managed portfolio of residential (multifamily and single-family) and industrial properties valued at $7 billion. From 2017 to 2020, returns ranged between 7.31% to 10.63%. In 2021, investors on the platform saw their most profitable year with an annual average return of 22.99%. Fundrise investments are intended to be long-term, with a holding period of typically five years or more.
Groundfloor is intended to be a shorter-term way to invest in real estate where you select the projects you like. Returns on Groundfloor are also typically around 10%.
Groundfloor Lending Reviews
Groundfloor lending is a legit way to invest. Positive reviews on Reddit, TrustPilot, and other sites mention that Groundfloor lending fulfills its promises. It makes it easy and fair to invest in real estate.
Negative reviews on the internet tend to complain about customer service and that the person lost money.
It should be noted that any authentic investment opportunity opens you up to risk some or all of your investment. That’s why it pays a profit because you’re taking a chance.
What is the Groundfloor Default Rate?
Groundfloor’s most recent report says their default rate is 6.4%. You can still make a profit with a Groundfloor default from additional interest and penalties from the borrowers. Commenter ToronadoTrofeo on Reddit says Groundfloor has a 5.7% default for him as of 2023 after 6.5 years of investing.