Groundfloor vs. Fundrise: Head-to-Head Comparison for 2022

Published on
 
October 11, 2022
Groundfloor vs. Fundrise

If you're looking to get into the world of real estate investing but don't have the millions of dollars required to buy a property outright, you're probably looking at either Groundfloor or Fundrise.

Both companies offer real estate crowdfunding platforms that allow investors to pool their money and invest in real estate projects. But which one is right for you?

This blog post will closely examine both Groundfloor and Fundrise and compare their offerings side-by-side. In addition, to help you make the best investment decision possible, we'll walk you through the benefits of another real estate investing platform - Concreit.

Groundfloor Overview

Groundfloor is a website where you can find fix-and-flip residential projects and hard money loans to invest in. People who want to borrow money can use it to renovate a house and then sell the house. Those looking for investment options can invest in these projects and get a fixed interest rate and projected term.

When you invest in a property loan, you are in the first position to get your money back. You can choose to invest in individual projects or use Groundfloor's analysis tools to invest in projects that meet your criteria. The average time between investments is 4-12 months.

How Does Groundfloor Work?

Groundfloor lends borrowers money, then sells pieces of those loans to investors. These investors share in the profit (or loss) from the loan. The borrower is usually an investor who wants to flip a home. There are no fees for investors, but borrowers are charged 2% - 4.5% of the loan's principal, plus an application fee and closing costs.

When Groundfloor approves a loan application, the borrower receives an initial payment (known as pre-funding) to start the project. The loan is then converted into an SEC-approved security that the general public can invest in, starting with a low minimum investment of just $10.

The borrower pays the investor small interest payments each month, then makes a final balloon payment of all the money they owe at the very end. Some loans do not charge a borrower interest. They only have to pay back the balloon payment at the end.

If someone does not pay their loan, Groundfloor will try to negotiate with them. If that doesn't work, they will start the foreclosure process. Foreclosure can be expensive and take months or years, depending on whether the property is in a judicial or non-judicial state. After that, Groundfloor will help rehab and sell the property.

If the net proceeds from selling the home are more than the borrower's loan balance, the investor gets their principal and interest back. If there is insufficient money to cover the owed amounts, the investor takes a loss on their investment.

Pricing

Groundfloor does not charge its investors any fees. Borrowers pay 3 fees:

  1. 2% - 4.5% of the loan amount
  2. $250 application fee
  3. $1,250 in loan closing costs

Features

  • Open to non-accredited investors
  • Minimum investment is $10
  • Invest in debt used to fund residential fix-and-flips and hard money loans
  • Investment terms generally average less than 12 months
  • Short loan term lengths can generate a quick return, provided the loan performs as expected
  • Can pick and choose among available loans to invest in to personally build your portfolio
  • The site rates how risky its loans are with a rating of A-G
  • Loans have pre-determined interest rates and term lengths
  • Actual returns to date are 10.5%
  • Investors pay no fees; all loan fees are paid by borrowers

Pros of Groundfloor

  • Anyone can invest
  • Minimum investment of $10
  • No fees to invest
  • Invest in debt instead of equity
  • Diversification across different risk levels
  • Monthly interest payments

Cons of Groundfloor

  • Debt investments focus on residential renovation and rehab loans (fix-and-flip)
  • Risk of default may be higher than other types of real estate debt investments
  • A borrower may have never flipped a house before
  • Some loans have high LTVs, which means that if the property value declines or the after-repair-value is overestimated, the borrower may be "upside down"
  • Loans made on property in judicial-only states can take one year or longer to foreclose if the borrower files for bankruptcy

Fundrise Overview

Fundrise lets you invest in a low-cost, diverse portfolio of institutional quality real estate. With cutting-edge technology and experienced professionals reducing fees, they help you make the most of your return potential.

There are many ways to invest in commercial property with Fundrise. You can invest in office buildings or multifamily projects. Another option is to invest in the debt side of the capital stack by providing mortgages for real estate investors. 

Fundrise offers eREIT (electronic real estate investment trust) and eFund investment opportunities, which are pooled funds that are used to purchase land or develop buildings, operate them, and eventually sell them.

How Does Fundrise Work?

Fundrise designed new software that makes dozens of expensive-but-required processes much cheaper at scale. According to the company's website, its portfolios are built to withstand prolonged periods of economic distress, although nothing can be guaranteed.

Fundrise's "value investing" strategy involves buying assets for what they believe is less than their intrinsic or replacement value. Then, through hands-on management and partnerships with local operators, they work to increase the asset's value over time while keeping expenses low.

Investors can access various portfolios on the investment platform, including eREITs and eFunds. You can choose among multiple portfolio options depending on how much you invest. Account creation is quick, and you can pick your investment strategy. Then, your dollars will be spread across a series of funds tailored to that strategy.

Pricing

  • Starter: $10 investment minimum to create a well-diversified starter investment portfolio. Investing features include auto-invest, dividend reinvestment, and access to registered product offerings.
  • Basic: $1,000 minimum investment. You'll get more features, including investing via IRA, access to all Investor Goal features, and the ability to participate in the Fundrise IPO.
  • Core: $5,000 investment at a minimum, with access to more customized portfolio strategies. Choose from a balanced portfolio, growth portfolio, or supplemental income portfolio to match your investment goals.
  • Advanced: $10,000 investment at a minimum. Works much like the Core plan, plus you'll have access to specialized funds, such as the eFund that focuses on last-mile distribution facilities.
  • Premium: $100,000 minimum initial investment. Offers everything the other plans do, in addition to priority access to the investor relations team and periodic access to accredited private equity fund offerings.

Features

  • You don't have to be an accredited investor
  • Minimum investments range from $10 - $100,000
  • Investment lengths generally average 5 years
  • Annualized returns of 4% - 12%, depending on your goals and appetite for risk
  • Annual returns for all clients are 5.52% as of the first half of 2022
  • Annual management fee is up to 1.0% of assets under management per year

Pros of Fundrise

  • Anyone can invest
  • Low investment minimums
  • High potential returns based on investing strategy
  • Redemption program that allows you to sell your shares back early for a 1% fee

Cons of Fundrise

  • Risk of making less than you anticipated if the project doesn't perform as projected
  • Investments are illiquid, which makes it hard to redeem your shares quickly if you need cash in a hurry
  • You'll pay a 1% fee if you redeem your funds before the end of the holding period

Groundfloor vs. Fundrise: Which Is Right for You?

Groundfloor and Fundrise are both online platforms that allow investors to purchase small stakes in real estate projects. Groundfloor specializes in residential renovation and rehab loans, while Fundrise focuses on investment-grade commercial real estate through eREITs and eFunds, and occasionally debt investments.

Both platforms have their advantages and disadvantages, so it is important for investors to carefully consider their options before choosing one. Here, we will compare Groundfloor and Fundrise in terms of fees, repayment terms, and risk.

Groundfloor does not charge any fees for its services, making it a more affordable option for investors. In addition, loans funded through Groundfloor are typically repaid within 12 months or less. 

However, Groundfloor loans may also be more likely to default than Fundrise investments. As a result, Groundfloor may be a better option for investors comfortable with taking on more risk in exchange for more potential reward.

Fundrise charges an annual fee of up to 1% of the value of the assets under management. This fee can eat into returns, but it also reflects the fact that Fundrise offers a more hands-off experience than Groundfloor. 

In addition, Fundrise investments are typically repaid over a period of years, meaning they may be a better option for investors looking for a longer-term investment. However, because they are repaid over a longer period of time, they may also be more susceptible to changes in market conditions.

How Does Concreit Compare to Groundfloor and Fundrise?

Concreit is a platform that allows investors to participate in fixed-income first-lien mortgages through SEC-qualified Regulation A+ Tier 2 offerings. Concreit offers a more liquid alternative to investing in mortgage notes directly. So, why might an investor choose Concreit over Groundfloor or Fundrise?

Concreit has a number of advantages over Groundfloor and Fundrise:

  • You can cash out your Concreit investment at any time, with no minimum length of time required. If you withdraw your money from Fundrise before five years, you will have to pay a 1% fee. With Groundfloor, you have a two-day window to cancel your investment once the loan is fully funded. If you don't withdraw your investment during this time frame, you won't be able to access it again until the loan is repaid in full.
  • Dividends with Concreit are paid weekly, and the average annualized return has been 5.5% over the last year.
  • Concreit offers a more diversified portfolio of debt investment opportunities than either Groundfloor or Fundrise. Concreit invests in hundreds of high-yielding income-focused first-lien mortgages across the United States, which helps to minimize risk.
  • Managed by a team of experts who carefully select each investment for the portfolio. This means that investors can be confident that their money is in good hands.

In summary, Concreit offers a number of advantages over other platforms for alternative investments in real estate debt. Concreit is more liquid, offers a more diversified portfolio, is managed by a team of experts, and you don't have to be accredited to invest.

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Disclaimer

This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security which can only be made through official documents such as a private placement memorandum or a prospectus. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital. Past performance does not guarantee future results or returns. Neither Concreit nor any of its affiliates provides tax advice or investment recommendations and do not represent in any manner that the outcomes described herein or on the Site will result in any particular investment or tax consequence.Before making decisions with legal, tax, or accounting effects, you should consult appropriate professionals. Information is from sources deemed reliable on the date of publication, but Concreit does not guarantee its accuracy.

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