Groundfloor* is a real estate investing site I discovered in early 2017. I’ve been on the lookout for alternative investment opportunities and Groundfloor’s platform for individual investors to lend small quantities of money to home redevelopers (i.e., flippers) for periods of six- to 12-month sounded like a good opportunity to earn some interest on some of my cash reserves. I decided to invest a small amount of money in these short-term real estate loans.
My experience with Groundfloor has been pretty good. My actual returns to date have been 9.7%. I’ve invested in 149 different property loans. Of those 149, 24 loans defaulted. That comes out to a 16 percent default rate. That’s a bit better than the 23 percent default rate (139 defaults/605 total loans) reported by Groundfloor back in their October of 2019 portfolio analysis. However, I only lost a bit of money on one of the defaulted loans. I took a 2 percent loss on that property. Many of the other defaults actually boosted my returns since I received additional interest and penalties from the borrowers on those loans. Of those 24 loans that defaulted, 11 are currently outstanding, so a few of those might also produce negative returns when they are resolved. My guess is that about 2 of those loans will also produce negative returns. It that’s the case, I estimate that I will will experience a loss on about 2 percent of the loans I’ve funded so far. Below I’ve provided a chart of my historical cost basis and earnings from my December investor statement.
Most of the loans provided by Groundfloor are 12-month deferred interest loans for purchasing properties and renovating them. There are also 6- and 9-month loans offered. They also have few loans that pay monthly interest instead of a lump some payment of interest and principal. There are also some loans for new construction, but I’ve mainly avoided those given the extra risks associated with zoning new construction. Finally, some of the loans are for refinancing. All the loans are set up as limited recourse obligations (LROs) and they are filed with the Securities and Exchange Commission.
If you end up trying out Groundfloor , I’d recommend starting out with a small amount of cash. After you get comfortable with the process, you might also want to consider their self-directed IRA options if that helps with your tax situation.
Given that the stock market is starting to hit new highs, stock valuations are looking a bit expensive. What other alternative investments are you considering?
*Disclosure: Fat Pitch Financials is an affiliate of Groundfloor. Links to Groundfloor contain affiliate links.