Groundfloor is a real estate investment platform that offers short-term, high-yield opportunities through partial-interest debt investments. Unlike traditional crowdfunding platforms, it allows non-accredited investors to participate for as little as $100, making it accessible to a wider range of investors. The platform primarily funds residential real estate projects, offering returns based on the repayments of loans by developers. With its unique risk-return structure and self-directed approach, Groundfloor offers an alternative to REITs and other real estate investment vehicles. Investors can review project details, risk levels, and expected returns before investing, which adds transparency to the process.

Services and Features: What Does Groundfloor Offer?

Groundfloor is a specialized platform that does not offer traditional securities such as stocks, bonds, options, or funds. Instead, Groundfloor specializes in one alternative investment class: short-term real estate debt.

Here’s how it works: Borrowers apply to Groundfloor for short-term real estate loans, typically for terms of six to eighteen months. They use these loans to purchase or renovate residential real estate for commercial purposes. The majority of Groundfloor borrowers use this money to buy or sell homes.

Groundfloor offers what’s known as a private equity loan. This means that the loan is secured by a physical asset that serves as collateral and a down payment. For example, when a borrower takes out a loan to buy or sell a home, they don’t intend to make payments from their personal income, as they would with a traditional mortgage. Instead, it intends to repay the loan based on the resale value of the property.

Groundfloor pools this debt into a portfolio that investors (you) can invest in. For example, you might buy $1,000 of debt at 123 Main Street and $5,000 of debt at 567 Broad Street. When you invest, you don’t buy the debt outright. Instead, you get what’s called an LRO, or “limited reverse obligation,” which gives you the right to repay the amount based on the underlying debt.

When the borrower makes interest payments, they are distributed pro rata among Groundfloor’s investors. You receive interest payments proportional to the value of any portfolio you own. When the borrower repays the loan, you get your investment back.

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  What Groundfloor Isn’t

  Note that Groundfloor is sometimes described as a crowdfunding platform. This is not entirely accurate. Groundfloor does not raise funds from its investors to fund its initial loans. Instead, it provides those loans, then offers its investors the opportunity to acquire a stake in the existing debt. A more appropriate analogy for Groundfloor would be secured mortgages.

This structure gives Groundfloor many advantages over other non-traditional investment platforms. First of all, it allows even small investors to enter the real estate market. You can buy a debt share of Groundfloor for as little as $100. This platform is also open to both accredited and non-accredited investors. This makes Groundfloor one of the most accessible forms of alternative investment available on the market today.

Meanwhile, Groundfloor’s debt-backed securities are a good source of income-based investments. As borrowers make interest payments, they accumulate in your portfolio as active income. At the end of the loan term, you get your principal back, allowing you to invest in a new project without having your money tied up for years.

Be Aware of Risks

However, it is important to be aware of the risks. Since Groundfloor offers debt-backed assets, the biggest risk is default. This means that the borrower cannot repay the debt, and the lender must try to sell the underlying collateral to get as much money as possible. This is a constant risk in the real estate industry and a particular danger given Groundfloor’s focus on buying, selling, and renovating homes. While buying and selling is a common practice, it is itself an extremely risky form of real estate speculation that often ends badly for the company involved. Groundfloor’s business model therefore focuses on the riskiest niche in an already risky industry.

This results in Groundfloor having a reported default rate of between 2% and 4.71%. This is high by residential real estate standards. For example, the Federal Reserve Bank of St. Louis reported a default rate of just 1.77% for single-family home mortgages in the fourth quarter of 2024. Even with the property as collateral for this loan, this risk means that the question is not necessarily whether the borrower will make the payments on time, but whether they will.

Fees: How Much Does Groundfloor Cost?

In general, there are four types of fees to consider when choosing a trading platform. You should pay attention to these when evaluating any investment or trading service.

• Trading fees: Any fixed fees associated with each trade you make. This can be a fixed fee or a so-called “spread.” This is when your broker charges you based on the difference between the buy and sell prices of an asset, if any.
• Trading commissions: This is when a broker charges you a percentage based on the volume or value of each trade.
• Inactivity fees: Any fee that a broker charges you for not trading, such as holding funds in a brokerage account.
• Non-trading fees/Other fees: Any type of fee for trading on this platform that is not listed above. For example, a broker may charge you for making deposits to your account, withdrawing funds, or subscribing to additional services.

Groundfloor is free. According to SmartAsset, this platform does not charge any fees or commissions to individual investors.

Groundfloor receives income from its borrowers. When the platform makes a loan, it charges the borrower an interest rate of 2% to 4.5% on the principal amount. The borrower also pays closing and application fees.

Effectiveness: How Well Does Groundfloor Work?

It’s clear that the company’s top priority when developing this site was ease of use. Groundfloor stands out for its admirable simplicity, thanks in part to its efficient interface. Groundfloor believes that its site requires only three actions: deposit money into your account, review your current investments, and purchase new ones. In addition, the site includes an “Education Center” that includes videos and articles about real estate investing and the real estate market in general.

On your Groundfloor account page, you’ll find a list of new properties you can invest in, with detailed information about each one. Clicking on any investment will take you to its details page, where you can find information about the project, lender, and expected return. (This is literally included as a “Value After Renovation” bar chart to show how good any investment can be.) Perhaps most importantly, the large, colorful letter grade indicates the creditworthiness that Groundfloor assigns to this project on a scale of A to G.

Assessing Risk

The risk associated with real estate investing is not in itself a barrier to Groundfloor’s business model. The platform advertises an average return of 10% or more, and most portfolios show an average interest rate of around 10%. Groundfloor’s debt structure offers a good form of income-generating investment, while the emphasis on short-term loans means that your money is not tied up for years.

However, make sure that you approach Groundfloor’s portfolio appropriately. Its business model is speculative, as are the assets underlying the debt securities.

Bottom Line

SmartAsset: Groundfloor Review 2023 – Fees, Services, and More
Groundfloor offers short-term real estate debt holdings. This can be a good way to incorporate speculative investments into your portfolio. It’s an easy way to get into the real estate market, but the average retail investor should understand the risks involved in investing in different types of real estate projects before they get started.

Tips for Investing

• The speculative portion of your portfolio can be one of the strongest areas of your financial life. It can certainly be the most rewarding… if you plan it wisely. That’s why working with a financial advisor can be so valuable. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three vetted financial advisors in your area, and you can interview advisors of interest for free to determine which one is right for you. If you’re ready to find an advisor to help you achieve your financial goals, get started now.
• One of the easiest ways to help your portfolio reflect your risk tolerance, goals, and time horizon is to use an asset allocation calculator.

Images courtesy of ©iStock.com/Khanchit Khirisutchalual, ©iStock.com/VioletaStoimenova, ©iStock.com/gremlin

Eric Reed is a freelance journalist specializing in economics, politics, and global affairs, with extensive coverage of personal and financial issues. He has worked for outlets including The Street, CNBC, Glassdoor, and Consumer Reports. Eric’s work focuses on the human impact of abstract topics, with an emphasis on analytical journalism that helps readers better understand their world and finances. He has worked with reporters in more than a dozen countries, including São Paulo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. Before becoming a journalist, Eric was a lawyer, working pro bono in securities litigation and white-collar crime defense, specializing in human trafficking cases. He is a graduate of the University of Michigan Law School and can be found cheering on his Wolverines on any Saturday in the fall.