Groundfloor Vs Fundrise? Which Real Estate Crowdfunding Platform Is Right For You?
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Real estate investing isn’t just for the wealthy. Today, anyone including non-accredited investors can invest in real estate using an online real estate investment platform, otherwise known as crowdfunding.
Pooling hundreds or thousands of investors’ money together, platforms like Groundfloor Investing and Fundrise help borrowers fund their investments either on the debt or equity side. Both investments have their pros and cons, and investors are welcome to invest in each to diversify their portfolios.
Groundfloor focuses on short-term fix and flip investments and Fundrise focuses on long-term equity investments, requiring a longer time commitment than Groundfloor’s debt investments.
Groundfloor is also newer to the industry, but is it a good real estate investing platform? Should you consider it? Check out our review below.
What is a Real Estate Investing Platform?
A real estate investing platform opens up more possibilities for borrowers to secure funds to buy an investment home. The money they borrow is ‘hard money’ or money based on the profit the home is intended to earn based on the projected renovations and sales price.
The real estate investing platform brings together multiple investors to fund the loan rather than one person or company funding the entire amount. Investors can typically invest in a fractional share of the loan, earning interest on his/her investment when the borrower sells the home and pays off the loan.
This opens up more possibilities for borrowers since they don’t have to qualify for the loan based on their credit score and income, but rather on the property’s potential and the borrower’s ability to make it happen.
What is Groundfloor?
Groundfloor is a real estate investing platform that brings together borrowers (investors buying the fix and flip properties) and individual investors, like yourself.
The process starts with the borrower applying for the loan. Groundfloor uses its loan-grading algorithm to determine if it’ll approve the loan request and at what interest rate. The riskier the loan is the higher the interest rate Groundfloor charges.
Groundfloor then funds the loan so the borrower has the funds to buy and renovate the property – getting the investment started. It then opens up the investment to individual investors who want a piece of it, giving investors full information about the loan’s riskiness and potential interest earnings.
Individual investors can invest as little as $10 in an investment, making it easy to diversify your portfolio between risky (high interest) and conservative (lower risk) loans. For example, if you have $500 to invest, you could invest it all in one loan or in 50 different loans at $10 each or any combination you choose.
When the borrower completes the project, sells the home, and pays off the mortgage, Groundfloor funds the Investor Account with the principal and interest earned to pay each of the involved investors back.
Related: 4 Best Real Estate Crowdfunding Sites For Non-Accredited Investors
Groundfloor Vs Fundrise: How Does Groundfloor Compare?
Groundfloor Investing and Fundrise are the two most popular real estate investing platforms available today.
Many people want to know the difference between Groundfloor vs Fundrise – which is more suitable for you? Here’s how they compare.
Whereas Groundfloor invests in short-term debt, giving you access to your funds within the next 6 months to 2 years, Fundrise invests in a diversified portfolio of real estate, focusing on the equity rather than the debt, and is a much longer investment. Fundrise charges a penalty to anyone who withdraws funds in less than 5 years.
When looking at Groundfloor vs Fundrise, one of the main differences is how you earn money. With Groundfloor, you earn interest based on the interest rate charged to the borrower as disclosed when you invested or a higher interest rate if the borrower didn’t live up to the loan terms.
Fundrise, on the other hand, pays investors in dividends and equity growth (appreciation). You can invest in growth funds, income funds, or a combination of both.
When you invest in Fundrise, you invest in an eREIT. Fundrise does the diversifying of your investment based on the amount you invested and your account level (everyone starts as a beginner but you can work your way up). You don’t choose the investments Fundrise invests in, they choose among both residential and commercial projects.
Previously, the minimum investment for Fundrise’s Starter Portfolio was $500. However, the company recently reduced that minimum to $10 to match Groundfloor’s minimum $10 investment. When you’re ready to cash out (wait at least 5 years), you can redeem your shares and receive the market value at the time.
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Groundfloor Pros and Cons
Groundfloor Investing is a great way for beginners to get their feet wet in real estate investing. You don’t have a long-term commitment and only need $10 to start, but what are the pros and cons of the platform?
- Earns an average 10% return annually
- Only need $10 to invest
- You choose the deals you want to invest in and your level of risk
- No investor fees (the borrower pays an origination fee which pays Groundfloor)
- Anyone can invest including non-accredited investors
- Can set up automatic investments
- You are in control of your investments
- Borrowers have a somewhat high default rate
- No protection against a borrower defaulting and foreclosing on the property
- You can only invest in debt not equity
Final Thoughts – Is Groundfloor Investing Worth It?
Groundfloor Investing is a great way for beginners to get involved in real estate investing and other investors to have a short-term liquid investment. Typically, when you invest in real estate, it’s for the long-term unless you’re an experienced fix and flip investor.
Groundfloor opens up more possibilities for liquidity, versatility, and diversification. You are in charge of what you invest in and how much you invest. There are no investment fees either, allowing you to make an even higher return on your investment. While Groundfloor promises a 10% return on your investment, it of course depends on the market, but through the last few years, they’ve averaged at least a 10% return, making it a great way to invest even a small portion of your available funds. Learn more here!