When (and how) can you sell your Groundfloor investment?
The investments on Groundfloor are illiquid, meaning you can't sell them if you need cash. However, they're also short-term. You're loaning money to a house flipper or builder for six, nine, or 12 months while they complete their project. After that time, they will either sell the property or refinance the loan into a more traditional mortgage (if they intend to hold the property as a rental for monthly cash flow), paying investors back. So, while there's no secondary market, there isn't really a need for one, given the short-term nature of these loans.
Going mobile: Is there a Groundfloor app?
Groundfloor doesn't have a mobile app for its investing portal. However, it has a mobile-optimized website and is accelerating the development of an app.
In addition, Groundfloor launched a new mobile savings app in late 2021 called Stairs. It combines the easy access of a savings account with the real returns of investing. With Stairs, users can earn 4% to 6% annualized interest on their cash.
Groundfloor risks: Is Groundfloor safe to invest with?
No investment is without risk. Groundfloor's hard-money loans tend to be riskier than other debt-related investments. That's why traditional banks don't make these loans. The short-term nature limits the profit potential, and the risk of default is higher than with traditional mortgage loans.
There's a lot that can go wrong with a fix-and-flip or new construction project, and many of those problems cost a lot of money to fix. Because of that, a borrower can quickly run into trouble. So, before choosing to invest through Groundfloor, it's important for investors to have a thorough understanding of not only the potential risks of these loans but also their own personal risk tolerance.
The biggest risk is a borrower default. If this happens, Groundfloor will pursue foreclosure to take the property, if necessary. The foreclosure process can be expensive and time-consuming, and each state governs the process with different rules. On average, investors have received 78% of their invested capital after a foreclosure.
Like banks, which aren't equipped to deal with real estate-owned (REO) properties, Groundfloor prefers not to take possession of a foreclosed property. That's why it closely monitors borrower plans and progress. If there's an indication of a potential default, Groundfloor will either proactively push default to quickly liquidate the funds and return investor principal or work with the borrower to create a workout plan.
Most often, a default is a temporary setback on the project, as reworking the deal terms can often fix the issue.
Many of Groundfloor's loans are true deferred-payment balloon loans that do not pay monthly interest. That means you'll have to wait for the project's end to see a return.
Although Groundfloor makes sure all loans are in first position if there's a default (unless specifically structured otherwise with a higher rate of return to compensate for the higher risk), you have no true ownership of the properties as an investor. All loans are essentially backed by a promise from Groundfloor to pass interest and principal payments to investors.
Finally, Groundfloor is transparent with investors. While the SEC only requires it to release its financials annually, Groundfloor publicly releases statements twice per year. It also regularly publishes analyses of loan and portfolio performance on its blog.
The Millionacres bottom line
Groundfloor lets anyone invest in fix-and-flip projects by providing debt financing to experienced borrowers. While that limits an investor's upside (they don't own equity in the property), it also helps cushion their downside (the underlying real estate backs the LROs). That said, these loans are still risky, which is why they also pay quite well. That makes Groundfloor an ideal platform for investors willing to take on a bit more risk in exchange for a higher yielding investment backed by residential real estate loans.