Groundfloor set the stage to expand their product offerings and enhance their platform with the launch of “Groundfloor Labs” last fall.
This is a way for the Groundfloor team to beta test and gauge interest in new things. That could be new investment opportunities, payment methods, or third-party integrations.
The Groundfloor team believes that this platform will allow them to partner more closely with their investment community to more quickly launch new products.
How Does Groundfloor Labs Work?
Labs is organized into “categories.” Each category is a new idea that could become an official part of the Groundfloor platform. How investors respond will help shape which new ideas are prioritized.
A sample list of offerings from the Groundfloor real estate investment platform
There’s no guarantee that a category will make it to Groundfloor though. In the testing processes, they may decide some categories will be sunset. This could be for a variety of reasons, including a lack of participation and interest from investors.
If a category is sunset, it won’t affect existing investments. They will continue to be managed by Groundfloor. There just won’t be any new deals of that same type.
If a category moves to Groundfloor, it will do so with a more polished user experience. Specifically, the minimum investment will likely be lower than the current $1000 on Labs and investment opportunities will each be SEC-qualified.
Is The Labs Investing Experience Different?
Yes, it is quite different.
Everything in Groundfloor Labs will be a beta experience, described by the company as “fundamentally an MVP.” Investments will still be rigorously vetted though.
Each investment opportunity has an “Opportunity Details” document that provides an overview of the investment. It includes things like the projected IRR, financial models, and an FAQ on the category.
An example of some of the information for a Cash Flow Advance opportunity The full document contains more details
After reviewing the details and deciding to move forward, investments can be made starting from $1000 – if the deal isn’t fully subscribed already.
User Experience Limitations
The user experience is the main area where the limitations of Labs will be felt.
Labs are only available to Groundfloor shareholders or accredited investors. You can apply for access from the Groundfloor Labs landing page.
A few examples include not being able to use the automatic investing features and only seeing records of the investments in the Transactions page.
Click “show more” below to see a more detailed list of user experience limitations.
You will need to use the Transactions page to see a record of your investment.
The Transactions page will only show “Groundfloor Labs” as an investment.
Updates will be communicated through monthly email updates.
Auto investing will not work for these offerings.
Labs investments will not be eligible for promotional activity.
An investment opportunity you participate in may be a part of a testing category that does not come to the main platform. That means you will never get a full, polished reporting and monitoring experience.
The deal flow pipeline is less consistent.
You may allocate capital to an investment that does not fund or is otherwise dissolved. In this case, your money will be returned to you. However, you will not be able to participate in that discontinued opportunity.
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Types Of Groundfloor Labs Offerings
There have been 10 different Labs launched so far. Here’s an overview of each of them:
Construction Equity
These offerings allow investors to potentially benefit from gains upon the sale of a newly constructed building. Each opportunity will have an equity split as a part of the agreement (for example 50/50 split).
When the building sells, any proceeds will first go to repaying the principal amount invested. Any additional gains beyond the principal repayment will then be split between the builder and Labs investors.
Renovation Equity
Renovation equity is very similar to construction equity, but for an existing building.
Labs investors will provide a builder with funds to renovate a building. When renovations are complete and a sale happens, investors will be repaid. First the principal amount invested will be repaid. After, additional proceeds will be split between the builder and Labs investors as set out in the agreement.
Short term rental equity is essentially the same type of investment as the Long Term Rental Equity, however how the underlying property will generate revenue is different.
In the case of long term rentals, the property manager will seek to find a tenant to lease the property for a fixed period of time (most commonly 12 months) at a regular monthly amount. However, for short term rentals revenue will be generated by the property being booked by different guests through platforms like Airbnb and VRBO.
Long Term Rental Equity
The long term rental equity offering is very similar to the Rental Portfolio, except with only one property. As with the Rental Portfolio, these offerings allow investors to receive cash flow and potential appreciation from an underlying real estate property.
This offering is very similar to those available on Arrived Homes.
Rental Portfolio
Rental portfolios allow investors to receive returns based on the cashflow and appreciation of a collection of rental homes.
While building a portfolio of 3 rental homes directly could cost more than $1,000,000, you can buy shares of the portfolio for as little as $1000.
This offering is very similar to the former Roofstock One offering.
Cash Flow Advances / Factoring Advances
Sometimes cash is needed in order to help grow a business. While this could come from debt and equity raises, sometimes an advance is preferred.
In the case of an advance, cash is given up front with no debt. In exchange for the advance, a series of monthly payments is made over an extended period of time. Those payments will repay the amount advanced and provide an additional return on top of that to the investors providing the cash for the advance.
The monthly payments are supported by the cash flow of a rental property.
Land advances are alternatives to mortgages that allow investors to receive a potential return.
In the cases so far, Groundfloor has purchased parcels of land and sold them to other buyers. Those buyers are not paying all the cash up-front through. Instead, they are paying over time through fixed installments.
In exchange for being able to pay through installments, the buyers will ultimately pay a premium over the purchase price over the lifetime of the payment agreement. Basically, they will owe interest for the financing. This provides the opportunities for investors to profit.
If you ever wanted to make a single investment that spans a variety of LRO and Note offerings, this might be the offering type for you.
The Monthly Income Index requires a minimum investment of $10K, which is effectively spread across 100 or more different LRO and Note offerings. It’s also designed to provide periodic cash flow across the investment competing in around 24 months.
Second Lien Financing offerings are basically LROs with more risk and a higher potential reward.
One of the things that backstops the Groundfloor loan offerings is their first lien position. That effectively means those loans are the first to be paid back in the event of a sale or distribution. Other debt and equity holders receive payouts after the first lien is resolved.
Second lien is the same concept, but it is behind the first lien debt. That means if a project goes awry for any reason, second lien debt holders are more likely to see a loss of principal.
In exchange for this extra risk, the potential reward is higher as well. Second lien financing typically demands higher interest rates. In the example below, the first lien debt has an 11% interest rate, but second lien has a 16% rate.
Home Equity Investments allow investors to purchase a portion of equity in a real estate property. If the property appreciates and is sold for a profit, investors will also see gains.
The structure of these opportunities can be quite varied, so it’s important to dig into the details.
Labs is a new section of the website that will be available from the “Investor Account” drop-down. This page is only available to shareholders or accredited investors. Existing investors may already see this option. New registrants can apply for Labs access.
Where Can I Learn More About Groundfloor Labs?
For additional information, you can view the Groundfloor Labs launch video and you can review the Labs FAQ document.
How Does Groundfloor Make Money On Labs Investments?
Groundfloor makes money on Labs investments through a listing fee. That’s the only fee that is charged. There are no fees for sale of a property or on future cash flow. As much of the benefit as possible is being passed onto investors.
What Tax Forms Will Investors Receive?
Labs investment will have a new legal structure the Groundfloor team is referring to as an “ELN.” This will allow for all tax documents to be a 1099 form – with no K1s.
Do You Want To Learn More?
There are also a couple of good resources from the Groundfloor team. Both the Labs launch video, as well as the Groundfloor Labs FAQ provide a lot of additional information.
You can also check out our other resources:
Introduction To Groundfloor
A comprehensive walkthrough of Groundfloor, their offerings, and how to use the platform.
Want To Get Started With Groundfloor?
You can register using this referral link to receive a bonus. After registering and making $1000 of investments on the platform, you’ll be eligible to receive a $100 credit.
Josh Heier
Studied and working in the computer networking field. Interested in technology, finance, investing, and learning new things. Smalltime Angel Investor.
