Groundfloor vs. Fundrise: Which Real Estate Crowdfunding Platform Is Better?

If you’re thinking about diversifying your portfolio—congratulations. It’s the best decision you can make for your future. Now, if I could recommend that you include real estate in your portfolio, you’ll be in an even better position.

Here’s why.

Real estate and the stock market don’t react the same. If the stock market crashes, real estate may stay steady and vice versa. That’s why you must have money in both markets. Don’t put all your eggs in one basket, and hope you’ll make decent returns.

You won’t. History proves this.

But, adding real estate may be the furthest thing from your mind because who has thousands of dollars to put down on a house and then more money to cover the mortgage until you sell the property, right?

I get it. Investing in physical real estate isn’t for everyone, BUT investing in crowdfunded real estate can be the entry point you never knew you needed to invest in real estate.

There are two platforms people use most often, and in this article, I compare them—Groundfloor vs. Fundrise—to help you choose.

What is crowdfunded real estate?

Before I get into which platform is better, let’s look at crowdfunded real estate. 

Think of it like when you donate to a GoFundMe. You give a small donation, and GoFundMe adds it to the other donations coming in from others. The total is what the intended recipient receives. 

Crowdfunded real estate is the same idea. Hundreds and sometimes thousands of investors contribute to one real estate deal. It could be a loan or investing in a property’s equity. Either way, investors earn a prorated return based on their investment. 

Crowdfunding helps real estate professionals, whether house flippers or those buying and holding real estate, have the money to grow their portfolios without going the traditional bank route. Most banks make it hard for investors to borrow money because of the risk investment loans create.

However, investors who can invest as little as $100 or as much as they want in one loan make it easier for real estate investors to get their hands on the necessary capital.

How do crowdfunding platforms work?

Before I compare Groundfloor vs. Fundrise, let’s look at how crowdfunding platforms work in general.

When you invest in a crowdfunding platform, you can usually invest in either debt or equity. Here’s the difference.

Debt investments

When you invest in debt, you are the bank, hypothetically. You contribute funds to loan to the investor. The investor makes principal and interest payments like they would on a standard loan. 

Debt investments are low-risk because they have the property as collateral. If the investor defaults, the fund manager will seize the property, liquidate it and pay investors back. 

The downside is your return is fixed. You earn a fixed interest rate and payments on predetermined dates. Your funds are tied up until loan maturity too. 

Equity investments

When you invest in equity, you invest in the property itself. You have a vested interest in it and earn a portion of the rental income earned from the property plus a portion of the profits if/when the investor sells the property.

Unlike debt investments, there isn’t a fixed rate of return. You're at the mercy of the investor paying their rent or making a profit when selling the property. 

When you invest in equity, you usually commit your money for 5 to 10 years or however long the investor keeps the property. 

Groundfloor vs. Fundrise

Like I said above, Groundfloor and Fundrise are the two most popular crowdfunding real estate platforms. 

Here’s a quick summary of Groundfloor vs. Fundrise:

• Groundfloor invests in debt investments. You loan investors money to buy real estate properties. You have a fixed rate of return and the property as collateral.
• Fundrise invests in debt and equity investments. It requires longer time horizons but diversifies your portfolio more than just debt investments offer. 

Of course, everyone wants to know which is better when looking at Groundfloor vs Fundrise. Here’s how they break down.

Groundfloor

What is Groundfloor?

Groundfloor funds loans for real estate investments. They provide loans for residential single-family and multi-family properties. The loans are typically short-term, with investors using the funds to buy the property and sell them for a profit. If the investor keeps the property, they usually refinance the Groundfloor debt right away.

How does Groundfloor work?

Something you should know about Groundfloor is that they offer loans on properties that banks typically won’t finance. The homes are usually in disrepair and can’t secure bank financing.

Groundfloor offers hard money or loans based on the property’s potential versus the borrower’s credentials. The loans have interest rates higher than a typical bank loan with much shorter terms.

Groundfloor ranks the loans based on their riskiness. A loans are the least risky, and G is the riskiest. Groundfloor looks at the amount the borrower invests himself, the investor’s experience, and how active the investor is in the project (is this a part-time thing, or their full-time income?).

You can put all your money in one loan (not recommended) or diversify across several loans. Ideally, you should choose risky and non-risky loans to earn a higher rate of return yet have the reassurance of non-risky loans should a risky borrower default. 

What are the benefits of Groundfloor?

• Invest with as little as $10
• Earn an average return of about 10%
• No fees to invest
• The real estate is collateral
• You can diversify across as many loans as you want in $10 increments
• You don’t need to be an accredited investor

What are the downsides of Groundfloor?

• Borrowers can and do default on their loans
• Returns aren’t guaranteed
• No secondary market for reselling your investment
• You don't have control or even a say in the projects

How does Groundfloor make money?

It seems like Groundfloor wouldn’t make any money since they don’t charge investors anything to invest. But, they charge borrowers an origination fee. They also charge borrower's closing costs.

The origination fee alone is 2% to 4% of the loan amount, and closing costs add up too. Groundfloor earns the fees from the borrower, and investors earn the interest the borrowers pay on the loans.

What happens if a borrower defaults?

Of course, everyone wants to know what happens to their investment if the borrower defaults. Since there is collateral on the loan, it leaves you in a good position.

First, Groundfloor tries to rectify the default by collecting payments from the borrower. They increase the interest rate on the loan until the borrower gets current. If the borrower can’t get current, Groundfloor liquidates the property and distributes the proceeds to the investors based on their investment. 

There’s a risk of a total loss like any investment, but it’s lower with Groundfloor investments than most other platforms.

How to sign up for Groundfloor?

It’s easy to sign up for Groundfloor, especially since you only need $10 to start.

You’ll need to link your bank account after providing your personal information. Once you’re approved, you can choose your loans and start investing. Groundfloor makes it easy to see your options and sort them by the level of risk. 

Fundrise

What is Fundrise?

Comparing Groundfloor vs. Fundrise is like comparing investing in debt vs equity. Groundfloor offers investments in real estate professional’s debt to finance residential properties. Fundrise offers investments in commercial real estate investments. Investors (you) own a portion of the properties you invest in, but Fundrise offers the investments as eREITs.

An eREIT is a private Real Estate Investment Trust. That means you can’t buy and sell them on the regular market like you can a traditional REIT. In other words, your investments with Fundrise are illiquid, aka long-term. 

The tradeoff, though, can be higher returns in the right circumstance.

How does Fundrise work?

Fundrise has a vested interest in the properties it accepts. They acquire properties for less than they believe they can be worth and use their expertise to increase the value over time.

They use a conservative approach that’s meant to handle any economic distress that occurs throughout the years. They do most of the work in-house to keep the costs down. They let you choose from various conservative and aggressive investment strategies with approximately 12 portfolios to choose from.

Fundrise continually adds to the real estate portfolio you’re invested in without requiring more money from you. It’s the benefit of investing in Fundrise versus financing a single real estate investment yourself. 

Any given portfolio may invest in commercial properties, multi-family units, apartment buildings, or office buildings. 

You can invest in Fundrise with as little as $10, but the more money you invest, the more capabilities you get within your account, including investing in an IRA, creating and managing goals, and customizing your portfolio strategy.

What are the benefits of Fundrise?

• Invest with as little as $10 in a Starter account
• Transparent with their fees (nothing hidden)
• You can reinvest quarterly dividends for compounded earnings
• You don’t need to be an accredited investor
• Your portfolio is automatically diversified

What are the downsides of Fundrise?

• You must commit your funds for an average of 5 years minimum
• Fundrise charges a 1% annual fee
• Returns aren’t guaranteed
• All distributions are taxed as ordinary income

How to sign up for Fundrise

When comparing Groundfloor vs. Fundrise, you’ll see that signing up for Fundrise is just as easy as it is to sign up for Groundfloor.

Click here to start your account and enter your personal information. Once you choose your investment, Fundrise allows you to choose your portfolio based on your risk level. From there, Fundrise does the rest, and you have a passive investment in real estate. 

The bottom line

When looking at Groundfloor vs. Fundrise, you’ll see that both invest in real estate, just in different ways. Groundfloor allows investments in debt to loan to real estate developers. You choose the loans you invest in, and Groundfloor does the rest.

Fundrise invests in the physical real estate or the equity side. You invest in multiple developments in one fund, which is based on your risk tolerance.

Both platforms offer a passive way to invest in real estate without owning the real estate outright. You can start with as little as $10 and start your journey in investing in real estate today.