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Groundfloor Review 2023: Reliable Short-Term Loan Investing?

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Groundfloor Review

Groundfloor Review
Groundfloor Review

The real estate industry is highly competitive, and staying ahead of the curve is a must for professionals who want to succeed. RE Training Shop is an online platform that provides real estate agents, investors, and hobbyists with a comprehensive range of digital products, training, resources, and tools that they can use to stay on top of their game. The RE Training Shop is a one-stop-shop for real estate professionals looking to enhance their skills and knowledge in the industry. A2z education centre

Groundfloor Review

Groundfloor Review
Groundfloor Review

The real estate industry is highly competitive, and staying ahead of the curve is a must for professionals who want to succeed. RE Training Shop is an online platform that provides real estate agents, investors, and hobbyists with a comprehensive range of digital products, training, resources, and tools that they can use to stay on top of their game. The RE Training Shop is a one-stop-shop for real estate professionals looking to enhance their skills and knowledge in the industry. A2z education centre

Groundfloor Review

Groundfloor Review
Groundfloor Review

The real estate industry is highly competitive, and staying ahead of the curve is a must for professionals who want to succeed. RE Training Shop is an online platform that provides real estate agents, investors, and hobbyists with a comprehensive range of digital products, training, resources, and tools that they can use to stay on top of their game. The RE Training Shop is a one-stop-shop for real estate professionals looking to enhance their skills and knowledge in the industry. A2z education centre

Because Groundfloor provides investment property loans, they can foreclose on defaulting loans much faster than homeowner loans. Real estate investors don’t get the same mortgage protections that homeowners do. Between a faster foreclosure process and low LTVs (loan-to-value ratios), Groundfloor can recover money from defaulting borrowers relatively quickly.

Note that Groundfloor offers real estate debt investments, not equity investments. You don’t buy fractional ownership in real estate like some crowdfunding platforms such as Arrived, Fundrise, or Streitwise. Instead, you buy a debt secured by real property.

For legal reasons, Groundfloor calls these loan investments LROs: “Limited Recourse Obligations.” Now you know what the heck they’re talking about.

How Groundfloor Works

When you create an account on Groundfloor, you link your bank account and transfer funds to it, like any real estate crowdfunding website. From there, you can pick and choose any of their available loans to fund with as little as $10 apiece.

But I don’t know anything about underwriting loans! How do I know which loans to fund?

To begin with, Groundfloor grades the loans based on risk. Grade “A” real estate loans represent the lowest risk, while loan grades “F” and even “G” represent high risk. Loans pay interest based on their risk level.

When I first started investing on Groundfloor, I tried to pick and choose winners: loans that paid decent interest but still seemed reasonably safe. I later learned that was the exact wrong approach.

Loans are a numbers game, in the sense that a certain percentage of them will default. Of those, some will end up catching up or paying off the loan in full, and some won’t, leading to foreclosure. Sure, fewer low-risk loans default than high-risk loans, but if you try to put all your eggs in just a few baskets, even the safer baskets will sometimes break.

Nowadays, I simply spread my investments across several mid-range risk levels. That usually means $10-30 per loan, spread across hundreds of loans. Most perform just fine. Some default, and of those, most pay some or all of the interest owed me. Occasionally a loan will lose some of its principal.

But averaged together, Groundfloor loans have consistently earned around 10% per year.

Stairs by Groundfloor

In 2022, Groundfloor launched a sister service called Stairs as another investing option with full liquidity. You can pull your money out at any time with no penalty whatsoever.

The drawback? You earn 4-6% interest, rather than 7-15% on individual loans. Stairs pays a base interest rate of 4%, but you can raise that to 6% by signing up for recurring monthly investments and reinvesting your interest.

Stairs offers a pooled fund investing model, where you buy shares in a fund that owns many separate loans. If that sounds eerily similar to Concreit’s investment model, well, it’s nearly identical.

Consider Stairs a higher-yield alternative to a savings account, and a great place to store part of your emergency fund.

Review of Groundfloor Advantages

Groundfloor comes with plenty of upsides for investors. Don’t expect to get rich off it, but it can add a welcome injection of diversity in your investment portfolio.

Solid Returns

No Groundfloor review is complete without breaking down their historical returns, so let’s start there. Since launching in 2013, Groundfloor has returned an average of around 10% for investors.

And despite declining home prices in the second half of 2022, Groundfloor continued delivering those returns. They closed 2022 with an average return of 9.83% across the 849 loans that repaid last year.

Wondering how many of those 849 loans resulted in a loss? Exactly 14 loans, totalling $366,995 in losses out of a total of $171,883,240 invested. That comes to a loss ratio of 0.21%.

In other words, Groundfloor pays similarly to historical stock market returns, but without all the drama.

Alternatively, you can lend money directly to Groundfloor, but expect lower interest rates unless you’re willing to invest a lot.

Low Minimum Investment

You can invest as little as $10 toward any Groundfloor loan.

This is precisely how I invest in Groundfloor today, investing low amounts among a high number of loans.

Easy Diversification

I currently have money in hundreds of Groundfloor loans. Most of the amounts are small, $10-30 per loan. That suits me just fine — I don’t have to stress out about any individual loan not performing.

Which happened to me early on, by the way. I tried to get fancy, picking and choosing loans. I invested hundreds of dollars in a single loan that I thought looked low-risk. While my other loans overwhelmingly repaid on time and in full, that particular loan defaulted. I found myself repeatedly logging in and looking up the status of the loan. Eventually I got most of my money back after Groundfloor foreclosed, but it re-taught me a lesson I thought I’d mastered: the value of diversification.

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Groundfloor Review

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Groundfloor Review

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