A while back I was researching for a way to take advantage of the current high interest environment when I found Groundfloor. It is sort of a crowd funding platform that caters to small home builders and investors and allows you to participate in loans to them. Long story short: those loans are normally at a higher interest rate than conventional loans so nowadays returns of around 10% for good quality loans is not unreasonable. I just had my second loan pay out which reminded me I have been meaning to post about them here.


Full disclosure: that link has a promo code: they would be giving $50 to both you and me but if you feel that this post is self serving just remove the promo code from the link.

The good:

  • they fall under the securities and exchange commission regulations for transparency and reporting.
  • Small investor access to this type of loan, which are traditionally of higher interest rates than conventional loans and you know how high those are nowadays.
  • They work sort of like crowd sourcing, where lots of people can make small investments across a bunch of loans.
  • The loans take the place of first lien, so even if the loan default you still can expect to recover some of your investment when the property is foreclosed.
  • They provide a ton of information on each loan offering to assist in the decision making process. In addition they have a simplified risk rating system from A to F. At first I was perusing the data for all my loans but the rating system is very sensible.

The bad
  • Well Enron was under the SEC purview as well and we know how splendidly that worked... Still a lot better than unregulated Bitcoin outfits and other shenanigans that are not required to report.
  • Lack of liquidity; your money is locked until the loan pays.
  • adding to the lack of liquidity is that loans can go past their due date. This is not uncommon because construction and remodels often go past schedule. You still get interest on the extended times. More likely is that the loan gets paid earlier; builders don't want to finance longer than they have to.
  • In the event of a foreclosure it may take a while before it resolves.

For me so far the access to higher rates in exchange for less liquidity is a fair trade. I was making extra payments on my 3% mortgage but now I'm placing that money here which at current rates should gain enough to shave an additional two years from my mortgage.