How the Web will transform big finance

“In the past 180 years, the U.S. housing finance system (HFS) has evolved from an informal/communal institutional arrangement to one of the most well-functioning and extensive financial intermediation systems in the world.”

So begins a report commissioned in 2006 by the U.S. Department of Housing and Urban Development (HUD). The authors continue on to laud our achievements in institutionalizing, securitizing and automating this “HFS.” Our system was so well developed, they said, that other nations should look to us for how to build their own.   Read more on The Hill. 


Ten Bucks & The Dawning of a New Age of Housing Finance

Today we are introducing a significant GROUNDFLOOR upgrade and dropping our minimum investment to $10. Those changes are closely related to one another, as well as to our mission as a company.

In a world of real estate investment websites whose limitation to accredited investors takes the “crowd” out of crowdfunding, we’ve been asked by many “why $10?” Simple. The new minimum makes real estate investing more accessible than ever before. That’s arguably true in the sense that more people can or will choose to afford $10 than could or would ante-up $100. The real breakthrough, however, lies in what this opens in financial diversification and in financial control, for whom. Having direct access to this class of investment has never been practically and legally available to anyone other than the very wealthy. Only a company dedicated to changing that would venture into the territory we’re penetrating today.

From the beginning, our vision for GROUNDFLOOR has aspired to mirror the architecture, values and economics of the Internet itself. Our first year of offering loans taught us a lot about what that vision looks like in very practical terms. This upgrade delivers. Not only our new $10 minimum, but also the new loan grading system, redesigned presentation of data and investor tools support offering a greater variety of loans, while making it faster and easier for anyone to participate with precise control over the level of risk and reward they want. A minimum investment that’s 500 times larger than ours (as is typical for accredited investor real estate investment sites) correspondingly requires at least 500 times the capital to match us in diversification and control. Obviously, more people have $1,000 per month to invest than $50,000 per month (or in any time period, actually).

If you live in Georgia, make your first $10 investment today. The first one is on us, and we’d love to hear what you think. If you live elsewhere in the U.S., stay tuned. Today’s upgrade also sets the stage for expansion beyond Georgia early in the new year, as we continue to clear the regulatory hurdles required to offer real estate microlending to all. In the meantime, have a thought, idea or a vote of moral support? Comment below, or email us at founders@groundfloor.us. We always enjoy hearing from you.

 


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Big Changes Are On The Way

Last November, almost one year ago, we quietly introduced the very first opportunity for everyone to become a real estate microlender. Since then, we’ve been listening to lender feedback, making small improvements and testing new ways of making the experience simple, quick and even more financially rewarding.

On November 11,  just 10 days from now, we’re planning to unveil a series of more significant changes. Here’s a glimpse of what you can look forward to.

For Borrowers

In preparation for our November launch we released a borrower-centric workflow that quickly and seamlessly guides borrowers through the process that submits their loan for funding.

For Lenders

Because of the improvements to the loan submission process there will be many more loans available. Lenders will have even more choice to decide how their money should be put to work.

For Everyone

And there is another HUGE announcement coming.  But I can’t reveal that just yet.  Stay tuned!


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Venture Atlanta 2014

This week GROUNDFLOOR participated in Venture Atlanta, Georgia’s flagship event for technology start-up financing. Here, entrepreneurs are connected with venture capital and the technology community comes together to learn what we all have to offer. Hosted by the Georgia Aquarium and back-dropped by beluga whales, we found ourselves to be in great company with other innovative and disruptive technologies, led by inspiring individuals.

The event has been described as Atlanta’s version of ‘Shark Tank’. Each presenter has only six minutes to present their company. To date, companies who have presented at Venture Atlanta have raised a combined $1,240,110,000. Wow!

CEO Brian Dally (@brian_dally) presented to a full house.

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The pitch was met with enthusiasm in person and on social media!

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You can learn about the whole event on Venture Atlanta’s Blog.

 


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Ask the Borrower: Adam Ailion

I recently had the opportunity to sit down with one of our borrowers, Adam Ailion for a question and answer session. It was a great experience and one that I am happy to share with our GROUNDFLOOR community.

 

Q: Adam, please tell us a little bit about who you are and give us an idea about how you got started as a real estate investor.

A: I got started in real estate investing during our most recent economic crisis while working closely with real estate investors in helping them acquire rental/flip properties throughout Atlanta. By doing so, I was able to see the inconsistencies and flaws in how the banks were liquidating their assets and I took advantage of their improper pricing strategies and inadequate marketing of their distressed properties. Through working in the business I was able to cherry pick the good deals, minimize my risk and only purchase properties that I knew would generate a nice profit. Looking back I was able pick up a handful of screaming deals but wish I was able to do more. This opportunity only comes around once every 20-30 years and this was my chance to get a piece of the pie while I was young, but I don’t feel my piece was big enough. I am just trying to catch up these days.

Early on financing was my biggest hurdle. Mentors always told me, find the deal, and you’ll find the money. However back then when the money was tight I didn’t find that to be the case. Even when you had a screaming deal. If only GROUNDFLOOR was around back then. My first investment purchase was buying a $16K duplex in South Atlanta at age 19 back when I was in college and still living in my parent’s basement. I used my own money to buy and renovate the property and leased it for $1100/mo. I later bought a 3-bedroom condo in Buckhead for $61K to reside in, took advantage of the homebuyer tax credit, and had the rental property pay my mortgage for several years. Once I got the taste of how lucrative and rewarding investing in real estate could be I was hooked.

Q: I know that you’re very active in this industry and the community in general. Can you tell us some about how you’re doing that today?

A: I gain great pleasure in helping others grow within the real estate community and helping them succeed in business. I am constantly seeking to help by training and mentoring new investors/realtors who are early learners of the business and working with them to be successful components of our team. I am an active member of the Cobb Association of Realtors Association (CAR) and serving as the president of their Young Professionals Network, which is part of the Georgia Association of Realtors (GAR), and the National Association of Realtors (NAR). In addition, I am active in local Real Estate Investment Association (REIA) chapters.

Q: Can you describe your investment philosophy and maybe the 2 or 3 keys to your success? 

A: I have four pieces of advice.

  1.  Don’t get too greedy, pigs get fat and hogs get slaughtered. If you can make a decent profit, take it and move on.
  2. Always remember to make your money at the time of “buying”. In other words, profit is earned at the time of purchase not at the time of sale, buy smart and don’t over pay for a product, asset or a business.
  3. Don’t get emotionally attached to a piece of property, don’t over renovate or over improve, but don’t skimp on the rehab.
  4. Don’t be terrified of debt, when used responsibly and modestly debt can be a very good thing for the right situation. Especially when long-term interest rates are at 3-5%.

Q: Where or from whom have you typically raised capital for your deals in the past?

A: Institutional lenders, personal funds, grandmothers estate, private lenders, foreign investors, home equity lines, and GROUNDFLOOR.

Q: Do you still have access to those capital sources today?

A: Yes, for the most part.

Q: What was it that attracted you to GROUNDFLOOR as a source of capital for your deals?

A: It was a cutting edge and innovative way for me to finance single-family real estate projects by means of public support and the pooling of their funds instead of the typical approach of funding from a large regulated financial institution, or an individual investment entity. It allows for average working class citizens who know nothing about real estate investing the ability to place funds into an investment without getting their hands dirty. It’d be foolish for them to take on a project that they don’t have any experience in handling. I get calls all the time from people wanting to flip homes or buy and manage rental property, but they don’t have any experience, which creates enormous risk and most of the time failure. The GROUNDFLOOR service offers those investors a medium to safely and securely invest their funds, earn a premium rate of return, all while minimizing their risk. The investor wins, developer wins, GROUNDFLOOR wins, and the banks lose. I see no problem with that and it is something I can passionately support.

Q: What are the different advantages to using GROUNDFLOOR? How does it help your business?

A: It allows me to offer my clients an alternative means to finance their real estate projects, and it provides me a solution to offer those investors who aren’t equipped to invest solely on their own to still partake safely. It also allows for the market to select or reject a project. My first project, which had 100% equity, was denied funding from a bank and a credit union due to the property being held for less than 6 months; I couldn’t even get a home equity line. Not because I was an illegitimate borrower, I have 740+ credit, sufficient assets, and owned the property completely outright. Getting money out of a property where the risk to the lender is low shouldn’t take 30-45 days to underwrite, and it shouldn’t be like pulling teeth to obtain, and I’m glad to report it wasn’t when I went with GROUNDFLOOR.

Q: Are there any other potential advantages for other real estate professionals that are looking for a new or additional capital source?

A: It eliminates the need for having to shop multiple hard money lenders or private lenders to see who will agree to lend on the project, only to find out they won’t lend because they have funds tied up elsewhere, or that they don’t feel the deal is good enough, not because they deemed the property or you unworthy of funding. The GROUNDFLOOR service offering would work well for those investors who are looking for cash to rehab a property shortly after purchasing it for cash., such as my example in the previous question. It also eliminates having to face a single underwriter at a large banking institution who is forced deny a loan due to regulations requiring them to only write perfectly conforming loans.

Q: How has your experience been with GROUNDFLOOR? Do you expect to continue to use them in the future?

A: So far so good and I would consider using them again in the future. The staff has been supportive, encouraging, and interested in the project. Their corporate culture is inspiring and one that I connect well with as we grow together. The fund raising on my project was relatively swift and the loan underwriting and funding was timely and much smoother than what I’ve experienced at large banking institutions. Loan servicing and post closing support were also responsive and they were prompt to make payments on any construction draws.

Q: What sort of projects or real estate professionals would be a good fit for GROUNDFLOOR?

A: Any project with sufficient equity with a 65% LTV. Short-term purchase financing for SFH and MF dwellings i.e. GROUNDFLOOR funds 65% of after repaired value, developer funds rehab and 35% equity. 5-10 year rental property financing for real estate investors looking to build their rental portfolio. Cash out refinances at attractive rates for small portfolios of rental property. Eventually some larger capital raises for commercial acquisitions/renovations, net leased space, offering longer-term notes. I wouldn’t mind seeing some nonprofit fund raising for real estate projects/developments i.e. parks, housing revitalization, habitat for humanity construction/renovation funding.

Q: Do you believe GROUNDFLOOR offers good value to investors/lenders?  What sort of people do you think will get excited about this new investment opportunity?

A: Yes I do, depending on the project and developer in question. With any investment you should always do your own due diligence, inspect the property and ask the developer/promoter tough questions. I was pleased to see GROUNDFLOOR due much of this due diligence on behalf of the investors, they screened me, viewed the subject property, reviewed my renovation plans and budgeting, and put it in a nice package for the investors to review prior to making a decision.  Good candidates for this type of investment opportunity would be someone looking to get started in real estate investing without much risk, overhead, or knowledge. Perhaps someone with larger sums of capital sitting on the sidelines either in checking/savings accounts. Someone looking to diversify out of stocks, communities or bonds as the markets change. Once longer-term notes are made available I believe it would appeal more to those individuals looking to invest out of their retirement accounts.

Q: What do you like to do when you’re not running around managing your deals?

A: I’m frequently found hiking Kennesaw Mountain, taking my four legged daughter to various dog parks around town and to Lake Allatoona. I am constantly trying to teach my dog to talk. Sadly I’ve convinced myself that it can happen, I’ve already gotten her to master saying “I Love You”. I also enjoy checking out local microbreweries, trying out new restaurants, attending standup comedy shows, following politics, and I’m pretty skilled at making homemade sushi. However most of the time you’ll find me at home watching the latest movie.

Q: What’s your favorite restaurant in Atlanta?

A: There are so many to pick from, but if I’d have to choose I’d say Bones. The steaks are by far the best in the city, and their service cannot be beat. If I’m going to splurge, it will be there. Second choice would be Atlanta Fish Market.


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New Ways To Profit In Real Estate

Recently GROUNDFLOOR was featured in an article published on the Wall Street Journal.  The article addresses the public’s interest in getting involved in real estate investing while balancing the inherent risks of a recently volatile housing market.

Traditional housing ‘renovation and flip’ investments are normally a situation where the loan is taken on by an individual and is therefore a riskier arrangement.   With Internet-based microlending, the risk is spread out among many investors. In the case of GROUNDFLOOR, an investor can spread their investment dollars among multiple projects, diversifying their real estate investment portfolio, balancing risk and reward with varying rates of return and maturity dates.  Plus our loans are secured, backed by the property to be used as collateral should the loan go into default.

According to the article, investors can use shorter-term microlending strategies as a good alternative to easier-to-liquidate but lower-return bonds and expensive stocks.  ‘Investors worried about pricey stocks and meager bond yields can be lured by the prospect of a steady income stream and average annual returns that could range from 5% to 15%, if things go well.’

The article highlights one of our investors, Michael Patzer and shares his perspective on real estate microlending. ‘Michael Patzer, a 27-year-old software engineer who lives in Atlanta, says he began making loans through Groundfloor in March and so far has helped fund seven deals by putting up $300 to $1,600 for each. The loans must each be repaid after six months, and the interest rates range from 8% to 12%. He has already been paid back on two of the deals.

The complete article, also picked up by Marketwatch, can be found here.


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Atlanta Update

It was six weeks ago that we posted news of our move to Atlanta and closing $1 million in seed financing. Since then, good things have continued to happen for GROUNDFLOOR. Here a few of the highlights:

  • Four loans repaid within their six-month terms, returning $200,000 in principal plus over $10,000 in interest, at a weighted average internal rate of return of over 11%.
  • Our community of almost 2,000 Georgia microlenders funded another loan, 1459 Adele by John Mangham, for $50,000 from 39 participants.
  • We were selected to present at the Venture Atlanta conference two weeks from now, October 21-22.
  • Jesse Dyer joined us director of business development in Atlanta to help more builders offer more loans for funding.

All four of these developments build directly into our plans for expanding before year-end and into 2015. Stay tuned–It’s going to be an exciting time, as GROUNDFLOOR continues to grow up.

Have you been waiting on the sidelines, watching and waiting to participate? Head on over to consider joining in on 1419 Gus Thornhill, our project currently funding with over $42,000 from 48 participants. It offers a 12% rate of interest on a 12-month term. If now’s not the time for you, or that’s not the project, there will soon be more to choose from, along with new and improved property information, loan data and ways to get started.

It’s your feedback that keeps us going in the right direction, so if you see something we can do better, have unresolved questions or just want to say hello, drop us an email at founders@groundfloor.us or comment below and we’ll be right back in touch with you.

 


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Complex Simplicity

The team here at GROUNDFLOOR recently engaged in an important debate about complexity vs. simplicity as we prepared for some exciting updates you’ll start seeing soon. We want to hear what you think.

Almost two years ago, Nick and I started with a big mission: To help the Internet change finance. We believe that using the Web to open access, re-intermediate middlemen and increase transparency can translate into more opportunity for more people.

Broadening access to financial opportunity that was previously restricted to the wealthy and well-connected has at least two implications. Inviting more people to participate means our community of microlenders:

  1. join us with a broad range of experience with financial concepts (for example, anyone with a business degree and professional investing experience knows about Internal Rate of Return, but most people don’t appreciate its nuances), and
  2. might not have enough time and/or money to invest to justify detailed and lengthy analysis of a specific loan being considered for funding.

That sets the stage for the debate: As we continue developing our community, should we

  • a) embrace complexity and risk losing people who won’t bother getting into it? or,
  • b) embrace simplicity and risk losing people who want to dig into and debate the finer points?

Of course, we want to do both–to have our pie and eat it too. We’ll always do our best to serve something for everyone. As a startup, however, we have to make choices. Should we spend our resources and focus our energy on educating and explaining, or simplifying and clarifying? Should there be more detail, or less? In the end, our choices will always be guided by the precept that everyone is capable of understanding complex concepts, but investing with GROUNDFLOOR should never require that you spend the time to do so.

Exciting changes are coming soon. You’ll start seeing some of them in the coming weeks. We think you’ll like the way we’re opening up the future of high-yield microlending to more people, more efficiently and better than ever. Have an opinion to share, or something you want to see more or less of? Let us know in the comments below or email us at founders@groundfloor.us.

 

 


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Custer Avenue – Complete!

This week the rehabilitation of 890 Custer Avenue was completed. This home renovation, funded by our GROUNDFLOOR investors,  was done by Adam Ailion who has been working as a real estate investor and active real estate agent in Metro Atlanta for nearly 10 years.  The transformation of this home is impressive!  Prior to renovation, 890 Custer Avenue had been configured as a two bedroom, one bathroom home with no true master bedroom. The renovation plans included an addition to a room in the rear of the home, creating a third bedroom by adding an attached second bathroom and closet, creating a true master suite.

You can read more about Adam and see the ‘before’ photos of the home pre-rehabilitation.  Then read on to see the ‘after’ photos!

After Renovations

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It’s Pay Day For Tift Investors!

Today, we are pleased to announce an important first, along with our newest loan going live for funding.

John Mangham‘s single family home renovation on Tift Avenue in Atlanta, the first loan ever funded on GROUNDFLOOR, is now also the first to be repaid. It is a historic single family home, purchased in foreclosure  and located in historic Adair Park, a Beltline community in Atlanta, Georgia. The home has 3 bedrooms and 2 bathrooms. The investment was secured by the property and there were no debtholders in front of GROUNDFLOOR investors – meaning that our community was paid first.

Fast facts:

  • The home was a renovation, purchased in foreclosure
  • The loan size funded by our community was $40,000
  • 39 investors contributed to the 6-month, 8% APR loan
  • The home sold for $159,900
  • The loan was repaid with interest earned after 167 days

The new loan going live for funding today, Adele Avenue, is John’s third to be offered to our community. It is a 9% APR, 6 month loan, secured by the property. Please visit the deal page to get in on it. If you’re being repaid on Tift, we’ve made it easy to reinvest and continue backing John (and at a higher rate on the new project). If you’re new to peer-to-peer real estate micro-lending, this is a great time to start. With the success of Tift Avenue we have a feeling that this one is going to go fast! On this deal there is no pledge period — it is moving directly into the funding stage.

Were you an investor on Tift?  Tell us about your experience in the comments below.

Tift before renovations

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Tift after renovations

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