For the price of a six-pack or a decent hamburger, you can become a real estate investor with GROUNDFLOOR, after the pioneering real estate microlender unveiled a new revamped dashboard and website today.
Among the highlights are a change in the minimum investment to $10, a letter grading system to help investors compare loans, a quick application process for borrowers, and easy-to-understand information for investors.
For GROUNDFLOOR CEO and Co-founder Brian Dally the approach is all about maintaining the essence of crowdfunding.
“This is all because of the JOBS act in 2012, when everyone would have direct access to crowdfunding,” Mr. Dally explained. “Today in America the opportunities are not equal, and some dollars have opportunity that are not open to other dollars. That is a fundamentally undemocratic idea.”
But many companies, including some profiled in Bankless Times, talk about how they have opened up real estate to more people. Are they not real estate crowdfunding?
“Most people who claim they are involved in crowdfunding after the JOBS Act are just selling to accredited investors. It is an online way of doing what has always been done. They are taking the crowd out of crowdfunding and here we go again,” Mr. Dally said.
Ninety-seven per cent of Americans are non-accredited investors, so when they visit most of the real estate crowdfunding sites they are metaphorically peering through a window of a fancy restaurant watching the hoi polloi eat foie gras. It is not for them and don’t smudge the windows.
That irks Mr. Dally, an internet purist who deeply believes in the equality that is at the core of its identity.
“The internet is replacing a system that was too big to fail with one that is too distributed to be decimated again. It was built to withstand a catastrophe, to route around one.”
“And that is what we are doing with dollars – we are aggregating them and reducing dependence on a single node or single set of nodes which happen to be in Manhattan. We are looking at a system that is as radically different at the architectural level as the internet was. This is a financial network that is internet inspired, 10 dollars at a time ”
While those opportunities to participate in larger commercial projects such as resorts and apartment blocks bring real estate to more people, they open the door a crack when demand exists to blow it off the hinges.
“Projects like the Hard Rock Cafe in Palm Springs are like a time-share on steroids, but that falls into the category of it’s good to be rich. There’s nothing new there.”
The concept seems to make so much sense, so why is GROUNDFLOOR the only one approaching real estate this way?
“What did John Dillinger say, I rob banks because that is where the money is?” Mr. Dally asked. “Why do (the other sites) only work with accredited investors? You’ll have to ask them but that is where they think the money is. We think there is plenty with the other 97 per cent, it’s just harder to tap into it.”
Because there are differences between the 97 and the three, the product has to be different. One challenge was to build an infrastructure that could be profitably operated at a $10 investment, a process Mr. Dally admitted took a while.
That was a treat compared to wading through regulatory issues of the JOBS Act.
“There are a lot of regulatory issues and Nick (Bhargava) is in charge of that,” Mr. Dally said. “He is the reason we are the only company doing what we are doing.”
Another challenge was balancing the need to provide important investment criteria with simplifying the entire process so it would not be cumbersome for those investing smaller amounts.
“If you are only putting 10 dollars in who wants to spend a lot of time,” Mr. Dally admitted. “The most important points are front and center. What do they (the loans) pay? There are a wide variety of rates based on grade, term, leverage, and loan to value percentage.”
Dally and Bhargava recognized people new to GROUNDFLOOR will benefit from being able to quickly compare opportunities side-by-side with a grade system similar to the one used at Lending Club. As they convert to regular investors, GROUNDFLOOR’s new dashboard shows them how their portfolio is performing and when loans are coming due.
“There are charts and graphs to show people where the money is. They can slice it and dice it,” Mr. Dally explained.
They also know when investments mature. At that point, Dally reports many investors reinvest in new properties.
Does Mr. Dally envision a typical investor and a typical process?
“We hope they make a lot of $10 investments, a few each month. Most of us don’t have 50 grand to invest. We are giving the same kind of choice and control to everyone the super rich have always had.”
Before the masses can invest with GROUNDFLOOR, they have to know about them. While GROUNDFLOOR has had good success with Facebook and other social media sites, they are primarily relying on word-of-mouth marketing.
“When you have a product that is 10 or 20 times better than the status quo, people tend to find their way to you,” Mr. Dally said.
Once on the site, Mr. Dally says it is important for lenders and borrowers to connect on a personal level.
“It is good to show people what kind of borrowers people are, that they are people just like them,” Mr. Dally explained.
“We have a wide variety of borrowers, including multi-generational real estate investors and 30-year veterans. There are people who dealt with bad credit in 2008 to people who were pursued by the banks.”
That desire to provide a familiar experience for the lenders extends to the typical GROUNDFLOOR property.
“We have a diversity in borrowers but we tried to keep the projects somewhat uniform,” Mr. Dally explained. “Two-thirds of Americans have owned a single family house, so they understand the experience, so we focus on single family construction and renovation projects.”
This also led to a conscious decision to avoid some attractive opportunities. “We decided to focus on a certain class of property that lends itself to the sorts of efficiency our models require,” Mr. Dally explained. “We turned down some big commercial projects that might have been good. Instead we chose to build something which is repeatable and scalable.”
It has taken a long time and plenty of work for GROUNDFLOOR to get to launch point.
“When we came to market in Georgia we just wanted to spend six, eight, 10 months to learn what non-accredited investors needed and wanted in order to invest in projects like this,” Mr. Dally said. “What kind of projects? What kind of terms? It took several iterations to incorporate what we learned up to this point”
“We had an initial goal of 10 to 12 projects and a half-million dollars in 2014, but it looks like we’ll be way over that. We have returned capital on more than half the loans issued so far.”
For GROUNDFLOOR, this is but the next step, not the last.
“The new platform comes at an important moment, as we prepare to scale beyond Georgia and start to take this to a much broader audience.”