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Intro — Groundfloor's History
Based in Atlanta and founded in 2013, Groundfloor is a mid-sized (pint-sized?) player in the real estate crowdfunding space that hasn’t done much to break out of its very small niche. It offers both accredited and non-accredited investors the opportunity to invest in residential real estate debt — notably, there’s almost no equity investing on offer, with one exception. Groundfloor established itself early on as a platform focused on accessibility, boasting a low minimum investment of just $10. That makes it better for novice investors, as opposed to high-net-worth investors seeking larger diversification and return potential.
What else do we know about this platform?
Key Features
Groundfloor offers investment options to both accredited and non-accredited members, with no distinction between the two. (UPDATE 9/26/2024: Groundfloor has started to offer a handful of accredited-only investments known as "Anchor Investor-only loans".) Most offerings take the form of Limited Recourse Obligations (LROs) backed by short-term residential real estate loans.
We must stress again that Groundfloor almost exclusively offers debt-based investments on single-family homes. (They do offer shares of equity in the company itself, but that's not the same as equity investing in real estate assets.) This narrow focus is limiting in several ways, not least of which is that the single-family home market is even more sensitive to interest rate fluctuations, particularly mortgage rates, than commercial real estate. As a result, Groundfloor's offerings are very subject to volatility.
Investment Opportunities
Groundfloor offers a few investment options, including:
- Individual LROs: Short-term loans for residential fix-and-flip projects.
- Auto Investor: Automatic diversification across multiple LROs based on user preferences. (UPDATE 9/26/2024: It appears that Auto Investor is being discontinued in favor of the Flywheel Portfolio — see below.)
- Groundfloor Notes: A more liquid investment option with shorter terms.
- Flywheel Portfolio: A "curated investment portfolio of Groundfloor loans."
The big drawback of Groundfloor is that it offers zero equity investments in, severely limiting return potential. Other real estate crowdfunding platforms, like EquityMultiple and RealtyMogul, offer many more options across the capital stack. As a result, this platform is best suited to beginner investors with minimal experience.
Groundfloor's marketing for its new Flywheel Portfolio product, with a comparison to LROs.
Fee Structure
With the exception of the 1% annual fee for their Flywheel Portfolio, Groundfloor does not charge fees to investors, and instead generates revenue by charging fees to borrowers.
Minimum Investment
Just like Fundrise, Groundfloor’s minimum investment requirement is $10 for all investors, regardless of accreditation status.
User Experience
Groundfloor's platform is user-friendly, with both a website and mobile app available. The dashboard provides real-time updates on investments, returns, and project statuses. Groundfloor employs industry-standard security measures to protect user information and transactions.
Customer Support
Groundfloor offers customer support via email and phone, available Monday through Friday from 9 a.m. to 5 p.m. EST. Reviews indicate solid customer support experiences, though some users note occasional delays in response times.
Investor Testimonials
Common Praise
- Streamlined platform ("The site is easy to use")
- Accessibility ("An affordable entry point")
Common Complaints
- Poorly performing investments, especially LROs ("Several investments have defaulted," “They have a steadily growing backlog of defaults that they obviously don’t advertise, and which most longer-term users are very aware of”)
- Customer support responsiveness ("Your customer service reps are friendly but any level above that is non-responsive")
- Illiquidity (“It seems that the vast majority of my investments are constantly ‘extended,’ which ties up my money for months—without much of a reward”)
Is There Reason To Be Suspicious of Groundfloor?
Is Groundfloor legit? That's a good question. For the most part, the company has abided by SEC regulations, but some of Groundfloor’s LROs have performed very poorly and even defaulted.
Some Groundfloor users have expressed unhappiness with the company on social media. “Groundfloor is a sham, poor underwriting, delays, and lots of internal fees before debt holders are paid,” one Reddit commenter complains. Another: “I have 38 LROs. All in Foreclosure. Takes years to get your money back. Won’t use GF again.”
“More than 80% of my LRO investments are in a Default/Extended state many of them over 24 months past due,” an accredited Groundfloor investor writes on Reddit. “As far as I can tell they are purposely extending the foreclosure of these loans because it would skyrocket their bad returns metric. This is referred to as, Operating in Bad Faith.”
A comment on the above post reads: "I’m like 3yrs in...I stopped putting in new money 6 months ago. Had 12% and now all I have left are foreclosures/defaults...recently dropped below 10%. Let’s see how far down it goes."
Risk is inherent to any investment, so be sure to do your due diligence on Groundfloor’s offerings before putting up capital.
Track Record
Groundfloor claims a 10% average annual return, and more specific track record information is hidden in their blog posts. They intentionally make it difficult to find details on the performance of individual investments. That’s somewhat unusual, and leads one to believe that transparency isn’t a huge concern for them (see previous section). Keep an eye on social media chatter for in-depth historical information on poorly performing investments.
Similar Real Estate Crowdfunding Platform Comparison
Groundfloor vs. Fundrise
Both Groundfloor and Fundrise allow anyone to invest for as little as $10. Fundrise, however, offers both real estate debt and equity, whereas Groundfloor only offers real estate debt. Fundrise also offers investments in tech companies like Anthropic, Canva, and Uber in addition to its well-known real estate offerings. Groundfloor, by contrast, only sells shares of equity in itself.
Groundfloor vs. RealtyMogul, EquityMultiple, CrowdStreet
These platforms (RealtyMogul, EquityMultiple, CrowdStreet) offer both debt and equity investments and a diverse array of real estate asset classes, including multifamily; this approach stands in contrast to Groundfloor's narrower focus on the single-family market.
Scoring Groundfloor
Platform Details
- Years in Operation: 11
- Minimum Investment: $10
- Types of Investments Offered: Debt (Limited Recourse Obligations - LROs)
- Accreditation Requirement: No
User Experience
- Ease of Use: 4 Stars ... Groundfloor offers a user-friendly web interface and mobile app.
- Account Setup: 4 Stars ... The registration process is straightforward for all investors, and accreditation is not required.
- Customer Support: 3 Stars ... Support is available via email and phone, though responses are sometimes delayed.
Investment Experience
- Investment Options: 4 Stars ... The platform is focused on residential real estate debt, offering individual LROs and automated investing.
- Returns: 3 Stars ... There is an average annual return of around 10%, but several investments have defaulted.
- Risk Management: 2.5 Stars ... Groundfloor claims it has a thorough vetting process for borrowers and projects, but inherent risks remain, and these risks have led some investors to become disillusioned with the platform.
Platform Transparency
- Disclosure of Information: 2.5 Stars ... Groundfloor provides reasonably detailed information on each investment opportunity and regular updates, but their track record is vague.
- Fee Structure: 4.5 Stars ... No fees for investors, a standout feature in the industry.
Overall Rating — 3 Stars
- Summary: Groundfloor is an acceptable choice for investors seeking to diversify their portfolios with real estate debt investments. The platform's extremely low minimum investment, lack of investor fees, and accessibility to non-accredited investors make it stand out in the crowdfunding space. However, the focus solely on residential projects and potential for borrower default are factors to consider.
- Pros: Very low minimum investment of $10, no fees for investors, user-friendly platform and mobile app, accessible to non-accredited investors
- Cons: Limited to residential real estate projects, no commercial real estate equity investments for accredited investors, risk of borrower default, customer support could be more robust
- Would Recommend? Maybe, but only for those new to real estate investing or looking for low-cost entry into the market
Conclusion
Much like Fundrise, Groundfloor offers an opportunity for novice investors to enter the real estate crowdfunding space with minimal capital. Its low minimum investment and fee-free structure may appeal to non-accredited investors with little experience. However, the platform's exclusive focus on residential real estate debt, coupled with the risk of borrower default and occasional customer support issues, pretty much take it out of the running for more experienced investors seeking superior return and diversification potential.
Overall, while Groundfloor presents a solid entry point to the real estate investing space, investors with more experience or higher expectations will find other platforms more suited to their needs. We definitely wouldn’t cite this platform as a top pick for seasoned investors.
Groundfloor's video ad for its now-discontinued Auto Investor product.