With interest rates at a 22 year high, many are nervous about finding the right way to invest in the real estate market. But with the advent of platforms like Groundfloor and Fundrise, investing in this sector has become even more accessible, and understandable, than ever. Today, we’ll delve into the Groundfloor vs. Fundrise debate to help you find the most suitable investment platform for you.
Groundfloor: An In-Depth Look
Groundfloor is a pioneering American real estate investing and lending marketplace, first established in 2013 by founders Brian Dally and Nick Bhargava. Groundfloor is unique in that it was intentionally constructed to cater to self-directed investors as opposed to institutional ones, a distinct departure from traditional banking and lending norms.
What truly sets Groundfloor apart is that it serves as an online community for investing in real estate debt with the minimum investment being just US$10. The platform links real estate developers in need of funding directly to investors, enabling a smoother, more direct financial relationship.
An important aspect of investing with Groundfloor is the risk associated with it. As with any investment, there’s a possibility of loss, and potential investors should carefully consider the risk factors and other information before purchasing LROs. Groundfloor’s lending model primarily focuses on short-term real estate debt investments, often tied to fix-and-flip housing projects. Investors provide loans to borrowers for these housing projects, with each loan having a fixed interest rate and projected term. After renovation, borrowers sell the houses, with the investors benefiting from relatively safe, real estate-backed returns.
Fundrise: An In-Depth Look
Fundrise is a pioneering force in the realm of online real estate crowdfunding, and has been instrumental in democratizing access to this once exclusive asset class. Established in Washington D.C. in 2010 by Ben Miller, Dan Miller, Kenneth Shin, and Brandon Jenkins, Fundrise was the first company to successfully crowdfund investments into the real estate market.
Fundrise primarily offers eREITs (electronic Real Estate Investment Trusts) and eFunds, giving average investors a simple and affordable way to invest in real estate. eREITs and eFunds provide investors with the opportunity to invest in a diversified pool of properties, helping to smooth out returns and reduce risk.
Similar to Groundfloor, Fundrise has a low investment threshold, permitting investors to get started with as little as $10. This is a significant departure from conventional real estate investing practices, which typically require significant upfront capital. The platform also charges a relatively low annual asset management fee of 0.85% and a 0.15% advisory fee.
However, like all investments, those made on Fundrise come with risks, and returns can vary depending on market conditions and the specific eREIT or eFund chosen by the investor.
Groundfloor vs. Fundrise: Key Differences
Real estate crowdfunding has opened up a new realm of opportunities for both accredited and non-accredited investors, with platforms such as Groundfloor and Fundrise leading the way. While both platforms offer viable methods for investing in real estate, they have different focuses, fees, property types, and liquidity norms.
- Investment Options: Groundfloor primarily offers short-term debt investments, with the loans typically ranging between 6 to 18 months. These loans are made to real estate flippers who buy, renovate, and sell individual investment properties. On the other hand, Fundrise provides investors with a broader spectrum of offerings, including eREITs (electronic Real Estate Investment Trusts) and eFunds.
- Fees: Groundfloor does not charge any fees to the investors; instead, the platform charges fees to borrowers. This creates a direct alignment between the platform’s interests and those of its investors. Conversely, Fundrise levies a 1% annual fee that is broken down into a 0.15% annual advisory fee and an 0.85% annual management fee, along with other miscellaneous fees depending on your portfolio.
- Property Types: Groundfloor’s main focus is on single-family and multi-family homes, particularly properties that are often overlooked by traditional banks due to their state of disrepair. These properties often have high potential for growth once renovated and sold. Fundrise, however, deals with a larger range of properties including commercial, single-family, and industrial properties.
- Liquidity: Real estate is typically an illiquid asset, and investments in this sector often require a commitment of funds for a certain period. Both Groundfloor and Fundrise require a minimum investment of $10, but there is a difference in their withdrawal policies. Fundrise requires a 60-day notice before fund withdrawal. Neither platform can guarantee fund redemption at a given time due to the nature of the real estate market, emphasizing the importance of understanding the risks and your own financial situation before investing.
Groundfloor and Fundrise cater to different types of investors based on their investment preferences, risk appetite, and desired level of involvement. Groundfloor may be a good fit for investors seeking short-term, high-yield real estate debt investments, while Fundrise could be suitable for those looking for a more diverse set of real estate investment options.
The Bottom Line
Choosing between Groundfloor vs. Fundrise largely depends on your investment preferences. Remember, like any investment, both platforms come with their own set of risks, and returns are never guaranteed. Ready to start investing with Fundrise? Don’t forget to check out this special Fundrise promo code before you sign up!
