Now onto something new. In order diversify income streams and to create some nominal income to cover general expenses, we’ve ventured into crowd funded note lending. It’s been on my to do list for some time now, and as with many things, now that I’ve done it, I wish I had done it sooner.
There are numerous companies that offer this investment option and opportunity exists for accredited, non-accredited, retail investors and business entities. I looked into CrowdStreet, Fund That Flip, and a couple of others before settling on Groundfloor. I’m not an accredited investor and my corporation did not meet all the requirements for some providers, thankfully, Groundfloor is pretty much open to anyone and after doing some due diligence and trading a few emails I signed up.
The onboarding process is similar to a brokerage, taking only a few minutes to set up an account. Expect to read and sign numerous disclosures; agree to terms may be more accurate. There is short account approval process as well as the time it takes to verify and fund your account. I think I was able to fund investments within seven business days. Not too bad.
I found most of the crowd funding sources having plenty of loans to participate in, with varying degrees of rates and loan terms. Generally, you can expect to see returns advertised between 6-14% with terms from a few months to a couple of years. The majority of loans I saw distributed returns at maturity or upon completion of the project. By that I mean a disposition through either sale or refinancing. Occasionally some loans were offered that paid proceeds monthly. Additionally, with vey low minimum investing requirements it is very easy to diversify across different geographic locations, risk profiles and asset classes. Diversification does not mean I have to buy outside of an asset class I understand, instead crowdfunding allows me to spread risk within a comfortable skillset.
Since this is a crowdfunded project, my recourse is not directly tied to the property, instead, Groundfloor issues an LRO (limited recourse obligation) and I become a creditor of Groundfloor. Other providers work under a BDN (borrower dependent note). The variety and discussion of the legalities of a investors relationship with the provider is beyond the scope of this post. I suggest you visit the FAQ section of any company you’re thinking of investing with. That information should be easy to find and made reasonably clear. Do your due diligence and be satisfied. It’s your money.
When done properly, I think it’s completely reasonable to expect 10-12% annualized returns though crowdfunding. I’ll let you know if I’m right.