Short-term, High-yield Real Estate Debt Investments For All

Company Overview

Brief: Groundfloor is a platform that originates and underwrites loans for residential real estate projects. The loans are then converted into LROs (Lessor's Risk Only) that can be invested in by individual investors. The company has nearly 200,000 registered users and reported $11.2 million in revenue in 2021.

Key People: Co-founder and CEO Brian Dally (20-year veteran in technology startups, JD from Harvard Law School, MBA from Harvard Business School), co-founder Nick Bhargava (leads product development with focus on regulatory strategy. An expert in securities law - was heavily involved in the JOBS Act as an early pioneer of crowdfunding)

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Terms

Security Type: Equity - Preferred

Valuation: $243,407,782

Amount Raised: $1,414,734

Minimum Investment: $100

Takeaway

Here's what I like: As the supposed Rothschild quote goes… when there’s blood in the water, buy real estate (or something like that). I love a good real estate deal because it almost always pays out when given enough time.

There’s a lot to like about this deal. For starters, Groundfloor has processed nearly $1 billion in transactions on the platform. Last year, it took in more than $11M in revenue, and the founders are both super duper connected — so funding and regulatory know-how is pretty much there as needed.

Candidly, I would like this deal more if its valuation were closer to $75M-$100M.

But, the idea of a fractional investing platform that people can go to for relatively low-risk yield is pretty incredible. Especially if you consider that just a few years ago literally nobody except Wall Street bankers could get ANY exposure like this.

For this alone, I am a fan of Groundfloor.

Here's what I don't love: Here is Margot Robbie in a bubble bath to explain…

Sorry, I couldn’t help myself.

I know that I just said how much I love a platform that lets more people access the benefits of real estate investing. But it must be said — betting on loans, however risk-adjusted, always comes with at least some risk.

In particular when the target customer is a retail investor.

The original reason retailers were disallowed from deals like this in the first place was for their own protection — until it wasn’t 🤷‍♂️.

I guess from a company product/market perspective, my only real hesitation here is what will happen to Groundfloor if the real estate market goes to shit again (as residential sales decline for the 8th straight month). I mean, the company claims 8 consecutive years of like 10% returns… but the past decade also happens to be the greatest bull run in US history.

And, as I mentioned above, I don’t love the price..

Who should invest and why: You know how I love a good investing app. The notion that I can basically bet on real estate loans from my sofa is incredible. Which is sort of what concerns me as we head into a recession (or whatever this is). What happens to Groundfloor if new investment opportunities begin to fade and at the same time, current investors' returns dry up? That’s my bearish view, of course.

On the bullish side, single family rentals will only increase over the next decade — recession or not. And this means build-to-rent activities should keep Groundfloor flush with LROs. The question then becomes, do retail investors have enough cash left to invest in it?

In the end, I really like what Groundfloor represents. I love the team and the potential, even if the price is far from a value pick.

Investment minimums are low at $100. So if this is a tool you would consider using, there is really no reason to not also consider putting it on the whole platform itself.

As always, startup investing is super high-risk, and anything can happen. Don't invest anything you can't afford to lose.

Invest in Groundfloor here 👉 Term Sheet

DM’s open on Twitter & IG 🤳 @kitun.