Getting started with M1 Finance

M1 Finance: Getting started...

  • What is M1 Finance
  • Getting your referral $10 bonus at sign up
  • What you can expect 

What is M1 Finance and what is a no fee brokerage?

M1 Finance offers many services like investing, barrowing, banking and research. For the purposes of this article I will focus on the investment side of their website. M1 Finance is perfect for the buy and hold, long term investor searching for dividend income with no fees. It allows you to buy fractional shares, so you can get the stocks you want even if you can't afford to purchase an entire share. Instead it will buy chunks of the stocks over time to build the portfolio as you go. I started my account by depositing $40 a week. Because this site is for dividend investors like you and me, there is only one trading window. That's right, stocks are bought at the beginning of the day during the trading window[2] and can't be sold or bought again until the next day during the trading window.  This type of trading platform is perfect for people who want to invest money over time in stocks they plan to hold for long periods. It's also a great platform for people with very little money to invest or people new to investing.

How to get your referral $10 bonus

If you're new to M1 Finance and don't have an account yet, use this referral link or the button at the top when you sign up and you and I will both get a 10$ bonus when you deposit money into the account. The link takes you to the M1 Finance site. Once you have create your account, you'll need to deposit money before you can receive the bonus and invest.

What can you expect

They have both a website and a mobile app that are easy to use. You select the stocks you want and they are divided into a pie. You can specify how much of the pie each stock will allocate and when a purchase is made that is how it will be allocated. If you've never invested before this site makes it very easy to do, users can share there pie (here's a link to mine) or you can pick from prebuilt "Expert pies". I recommend buy stocks in companies you can understand as opposed to one you don't. Example I own Target, I shop at Target and it's competitors and I follow this sector to help understand my exposure. I also recommend buy dividend growth stocks every Monday for a period of about 20 years.
The trading window begins at 9am CT and runs until all orders have been completed.[2] There is a way to get access to a second trading window by subscribing to M1 Plus for $125 per year.
Fractional shares are shares split up into 1/100,000th of a share, so you can buy shares with real high proces like Amazon or Google.
M1 uses tax minimization feature to help users reduce the amount of taxes owed when selling. It prioritizes the shares of a sale like this:
1) Losses that offset future gains
2) Lots that result in long-term gains
3) Lots that result in short-term gains
Because M1 uses pies each purchase made is effectively rebalancing your portfolio, any pie section that is underweight will be bought  up before buy pie sections that are overweight.

I just started With M1 five months ago and I'm extremely happy, it solves so many of my problems that kept me from investing in the past. Problems like:
How do you buy shares when you don't have much to invest?
What do you do with small dividends that set in idle cash?
How can you spread out your purchases over time when you don't have much to invest?

Cons:
No day trading (might be a pro)

Here's a link to a video I did "My First $10 in dividends on M1 finance"

References

[1] © Copyright 2019 M1 Holdings Inc. https://www.m1finance.com
[2] © Copyright 2018 M1 Holdings Inc Trading Window

How I pick Groundfloor loans

My original strategy (2017-2018)
My current strategy (2019)
How I pick loans

My original Strategy from early 2017 to 2018

When I began with Groundfloor my main concern was diversification of loans. The theory is if you buy one loan and it defaults you'll lose money therefore you need to diversify by buying multiple loans so you can profit even if a loan defaults. At the time I began investing in Groundfloor they had never had a principal loss, but I know in lending it is inevitable. Also defaults are likely to go up in an economic downturn or recession (witch are also inevitable). At Groundfloor you can invest as little as $10 so its extremely easy to diversify in this way. I didn't care about term because it didn't matter to me if I got my principal back in  this month or in 12 months from now. The money i put in Groundfloor was going to be reinvested when as soon as the loans repaid so there was no need to select lower terms. My second concern was to get a high return of over 10%. So I knew I needed to buy loans of "C" grade or higher to obtain that kind of return. I planned to buy all loans "C" grade or higher, quickly i saw I was investing 75% of my loans as "C" grade. I was ok with this even though it was very as high because the platform had no defaults and the economy was going strong with a growing housing market. How I use to choose loans was to by everything, if there was 10 ("C" & "D" grade) loans I would deposit $100 and by $10 each loan. Months were there wasn't much inventory I would buy some "A"&"B" loans as well, but nothing significant.

My current high level strategy (as of Sept 2019)

Why I changed my approach and goals with Groundfloor. After having so many successful loans and getting the returns I wanted or better, I gained confidence in the platform. I wanted to increase the amount of my portfolio that was in crowdfunding and I felt Groundfloor could give me good cash flow based on my experiences.  Additionally new products at Groundfloor gave me new opportunity I hadn't had before.
Moving to a balanced portfolio from high risk, high return portfolio became an attractive option with Groundfloors new short term investment products. Groundfloor started offering short term loans products called "Notes" that have a $1,000 minimum investment. When you buy this type of loan you are not lending to a flipper that is doing renovation on a house, your lending to a Groundfloor LLC that is pre funding loans and originating loans for the purpose of resale on there the Groundfloor platform. You provide the capital for 30 days, and they use it to prefund loans they want listed on there crowdfunding site. Your basically funding Groundfloors expansion because platforms like these are always limited by how much money they have to get new deals into their system. I decided to have a large percentage of my portfolio be in these new short term loans.  As a owner in rentals properties I alway keep a large cash emergency fund, that fund is in a high yield savings account. This bothers me because I never use the money and it is returning at about the same as inflation. With the new short term loans available at Groundfloor I saw an opportunity, and I transferred half my emergency fund into into Groundfloor. Groundfloor has a new "30 day" loan each week, so I divided the emergency money into 4 equal portions and each week I purchased a different "30 day" note. Now the money from these notes is available to me quickly and at predictable increments while returning higher than inflation. I still have half my emergency fund in cash and I still have never used it.
Diversifying the long term loans became important to me for two main reasons; I plan to invest more money, and this market has become long in the tooth. I alway say "you can afford to be risky with <1% of your net worth but you shouldn't have the same risk tolerance with 10% of your net worth." So as I moved more money into Groundfloor I started buying all loan grades for LRO's and I made a requirement that no more than 50% should be "C" grade and at least 25% should "A" &"B" combined. As I said before the market is long in the tooth, meaning it has been a profitable 10 year run but we are closer to the next recession than to the last recession. That doesn't mean put all your money under your mattress and buy guns and ammo. But it means taking less risk is good. It's possible a recession might have only a little effect on the people doing the flips that these loans are for, but the it could also have a huge effect on these people. So plan you risk accordly.
Experiencing Groundfloors first default/defaults also changed my risk tolerance, I didn't know how long I would go without a first default but when it came I forced to question my strategy. I really like there response to the first default, the loss was only a 2.03% of principal for me. Witch could be measured in the 1,000ths of a percent of my total money loaned to date. Recently I have had two new defaults and my total losses from all 3 loans are measured at about 4/100th of a percent of the money loaned and 1/10th of a percent of my account balance. 

How I pick loans

At a high level I like to focus cash flow by buying more "30 day" and "90 day" Notes, while evaluating each LRO for the best terms and monthly payments. For short term "Notes" I buy each one that comes out, I try to ladder them so I have predictable cash flow in the future. 
How I pick my LROs right now, I open up all new loans that have monthly interest payments expecting to buy some amount. If there are 5 loans and I have $1,000 i'll assume i'm spending $200 per loan. 
First I look at the "Borrower Summary" and analyze the financial data on past complete projects, if there's no data I'll lower my loan amount 10-20%, I'll google the LLC requesting the loan as well as the principal contact for the loan. If there's no verified data for the buyer and I can't find a relation between the principal and the LLC i'll take another $20-25% off the loan. 
Next I look at the "Grade Factors" and I'll look at the "Loan to ARV score", "Skin-in-the-game" and "Borrower experience". I usually knock off another 10-20% for each of these categories. If there is anything left i'll then look at he property through external websites like Zillow.com, realtor.com, google street view or any other sites that the property come up in. 


Laddering my short term notes
"30 day" Notes @ 4%, $1,000 minimum , any unused cash in my account will be put into "30 day" note
"90 day" Notes @ 5%, $1,000 minimum , each loan that repays I use to buy the next new loan (plus at least $100)
"90 day" Notes @ 6%, $10,000 minimum , this is brand new to the platform, I hope to ladder these loans as funds become available, minimum required to fully ladder these would be $60K 

Summary: In the beginning I largely played it fast and loose with picking loans, often I wouldn't read the loan summary, Financial Overview, Grade Factors or Borrower Summary. I looked at the small amount of money I had in Groundfloor as a risk expected there to be some loses. Now that I have a significant amount of my portfolio in Groundfloor I'm becoming more discerning. You need to understand your own risk tolerance and learn each loan before you start put significant money into the system, the best way to get started is to just start reading the loans in Funding status to see what you like and don't, you can do that without spending a penny. If you want to sign up click the button below to get a $10 bonus.
Click to sign up for Groundfloor and get your bonus

If you want to see a video where I evaluate 11 loans and then invest in the ones I like check out the video "Groundfloor Special 1% Bonus on Select loans" on my YouTube channel.

Real Estate Crowdfunding for beginners, Invest for as little as $10

What is Real Estate Crowdfunding?
How to get started with only $10 a month
How to change you life


Myths

  1. You can't start investing if you only make $36,000 a year, your better off focusing on making more money at your job. 
  2. You need a lot of money to start investing in real estate
  3. You can't start investing if your in debt
  4. You cant start investing until you have an emergency fund
  5. Isn't it risky, how do you know they will pay you back
  6. You can make more money in "Fill in the blank"
Here's why I disagree with experts when they tell people this.

1) You can't start investing if you only make $36,000 a year, your better off focusing on making more money at your job. 

There is a lot true here, conventional advice is don't invest, focus on getting a better job so you can make more money then you be able to invest.  All great advise you should those things as soon as you can because it will get you closer to being financially independent.  My problem here is many of the people who say this think you should go to school (aka spend more $) and get training to find these better jobs. That's not alway easy or possible, it might not fit your situation. Focus on lowinger your spending, looking for more income opportunities consider moving to a place with better economic opportunities, and invest any extra money you can afford. Additionally you can get a second job or side hustle and use that money to start investing.

How a GroundFloor loan works

2) You need a lot of money to start investing in real estate

Just a bold lie, you can invest in real estate by joining in real estate crowdfunding in Groundfloor or buying REITs at a brokerage like M1 Finance (sign up link for M1) for $10 bonus. I'll focus here on real estate crowdfunding, real estate crowdfunding allows you to buy a portion of a loan and make high returns, on average over 10%[4].  With such low minimums it's much easier to diversify your money across multiple loans and loan grades. It's important to know that most platforms have really high minimums as high as $5,000-$25,000 per investment. So with start something like Groundfloor where the minimum buy in is only $10.

3) You can't start investing if your in debt

This is true, the highest return you'll ever get is in paying off your debt, but some debt is good. People will tell you debt is all bad, they are wrong. I'll give one good example: if you have $100k and you can buy one house for $100k and get $1k in rent. Or you could get a two houses $100k with two $50K mortgages and two rents of $1k ($2k total). In the first choice you have $100k in property and second choice you have $200K in property. So if the market goes up only 3% per year, 5 years later the house will be worth $15,927 more or the two houses with be worth $31,854 more. And during those 5 years your collecting rent: with one house you will have collected $60k in rent and with two house after paying the mortgage you will have collected over $91K in rent. In short debt can be bad but it can also make you money so learn as much as you can about debt before using debt.

4) You can't start investing until you have an emergency fund

Yes this should be a high priority, but most people don't have an emergency fund to begin with and
may never have one at all. If you want to get 3-6 months money in the bank before beginning to invest go for it. I'm not telling to forget creating an emergency fund, you definitely need an emergency fund.  But you should think about what an emergency is, and how to plan for it. 
Click the picture to see my latest returns
Here is how I have planned for emergencies.  I have 5 different emergency funds: bank account, M1 Finance, Groundfloor, Peerstreet, LendingClub and IRA. 
Cash Account - my savings account has enough money to cover some expenses (this usually what experts refer to as emergency fund) I don't keep much at this level.
M1 Finance - M1 is my brokerage account, at least 10% of my investments are in bonds and precious metals.
GroundFloor - Fix-nFlip crowdfunding, I allocate at least 25% of this portfolio to short term loans 30-90 day loans. This money is always cash flowing to me and can quickly be accessed at very short increments. For example every week I buy a 30 day loan so every week a 30 day loan is returned to me. This happens while all my other high returning investments are returning cash flow. so any give month a high amount of my total balance is available to me. 
PeerStreet -  Fix-nFlip crowdfunding, I allocate around 4% of my portfolio to short term 30 day loans, same as above this money is always returning to me and can be accessed quickly. Also as above the cash flow from here is extremely high and accessible.
LendingClub - Unsecured crowdfunding, the cash flow from this investment can cover all my expenses for an extended amount of time. 
IRA - Hardship withdrawals avoid penalties.
At any point if I lose a job, my expenses are covered by multiple sources. A recession might affect one or all sources but I can source the optimal one for the situation.  As each investment has different risk I'm not worried they will all have significant losses at the same time. If they are all wiped out I should have focused on investing in guns and ammo.  At anytime I can stop buy new crowdfunding loans and quickly have a surplus of cash for a downpayment for a house. I have invested through recessions before and my portfolio was designed to provide opportunity during recessions. 

Point, counter points: 
Point:This is not a traditionally liquid emergency portfolio
Counter: I would say it's more liquid than stock or real estate, when you buy stock they say it can go up or down and you should have a time horizon of 5 years or more. In an emergency if you go to sell stock it might be down 35% same with real estate. I know many people who invest in stock and dont have separate emergency funds. If the Stock market declined in that same time my gold and bonds will be worth more. The short term loans are in some cases guaranteed and in all cases always secured. As for the unsecured even if there was a reseccion greater than the housing market crash of 2008 I would still receive large amounts of cash flow for extended period of time. In summary even in a massive recession I will have multiple income streams as well as access to larges amounts of principle providing more money than I have planned needing. 
Point: What if you have a really big emergency?
Counter: I have more than enough money to cover all emergencies I could think of. Here are some of the big ticket emergencies I have planned for. Down payment on new house, roof collapsing, paying all my expenses, paying all my wife's expenses, medical bills. leave a comment if you think of something really big I should plan for!

5) Isn't it risky, how do you know they will pay you back

Yes partially true, there is risk in everything even breathing. So , some people will not repay their loans, some of the unpaid loans will require a foreclosure, some foreclosures will result in a loss of principal. Here is a diversification example:  If you buy 1 loan for $1,000 and that one has a loss your screwed, if you by 100 loans at $10 each and one has a loss you still make money. I have had losses, and I have made money. Except that it will happen and plan for it, and learn from it when it happens, don't waste time complaining that it happen to you. 

6) You can make more money in "Fill in the blank"

That's true you could make more money with a time machine. But sadly no one knows future or what the best return asset will be in the next 12 months, maybe tulips will be worth hundreds of dollars, maybe you should buy bitcoin. I dont put 100% percent of my eggs in one basket and neither should you, so even if you think the stock market will go up 50% next year you can still put some money in bonds and crowdfunding just in case you're wrong. Here's some stats:
JP Morgan  "20-year annualized returns by asset class (1998 – 2017)" Average Investor 2.6%[2]  
"20-year annualized returns by asset class (1999 – 2018)" Average Investor 1.9% [3]
"20-year annualized returns by asset class (1999 – 2018)" S&P 500 5.6%[3]
"20-year annualized returns by asset class (1999 – 2018)" Inflation 2.2%[3]
GroundFloor average rate of return over 10%[4]
So you could make more in the stock market than in Groundfloor, but historical most people didn't!

Change your life

Compounding interest table $10 per month
Let's say you start today: Sign up using the link above and you get $10 bonus (that's why year 1 returns are more than year 2 in the compounding interest table), if you commit to deposit $10 per month and invest it in Groundfloor loans the average return rate is over 10% so by year 8 you'll be making more in interest than you deposit each year. You'll make double what you deposit with in 11 years and triple with in 13 years. Because of compounding interest you make more and more money in the later years, so with in 20 years make $1,788.92.

Had you deposited $100 per month you would  make over $26,500 in year 20.

Had you deposited $1,000 per month you would  make over $276,900 in year 20.

It may seem hard, because who has an extra $1,000 a month? Well you will if you start now, it might take a year or 10 years or longer but if you don't start, you'll never have an extra $1,000. So click the link above and get started now.

The first time I saw a compounding interest table like this above I was in my teens, I remember thinking, if I applied myself and saved, I could retire in my early 20's. I know now I was right, I could have, I could have, but I didn't, and I regret it. I went to college while working full time and ran up debt (credit cards, college loans) that took me years to repay. Investing is a long haul strategy you can't do it over night but you can start today.
One of the best things about automating investing (even if its just $10 per month), it's automatically taken from your checking account.  Now you can't impulsively spend it on lattes, cigarettes, soda, candy, phone apps, shoes, or any other thing you might be wasting your money on. It can force you to control your spending and think more conservatively about money.
It can be addictive, once you see returns from your investment an normal though is why didnt I invest ment more. This drive a lot of us to keep or increase investing over time.

References
[1]  www.Groundfloor.us © 2019
[2] JP Morgan Guide to the Markets 2018
[3] JP Morgan Guide to the Markets 2019
[4] © 2018 Groundfloor. Investors

My Passive Returns: 2019-08 August

My Passive Returns: 2019-08 August

Passive Income from M1 Finance, Groundfloor, Peerstreet and Lending Club.

My Returns

Monthly Numbers
Lending Club, COC: 0.86%
PeerStreet, COC: 0.60%
Groundfloor, COC: 0.21%
M1 Finance, COC: 0.21%
Total, COC: 0.46%
Total Annual XIRR: 6.19%

Summary:

  • Continue to hold a large amount of short term debt, mostly 30 day term increasing the amount of 90 day term.
  • In August made a large amount of purchases of loans with balloon payment terms in Groundfloor, should depress future earnings for at least one quarter maybe two but will result in $400 bonus in September.
  • Hard to find 8% or higher loan in PeerStreet causing cash to sett in account longer.
  • Purchasing less loans in Lending Club, focusing on higher yielding strategies and transferring out cash when when its builds up.
  • Two LRO's in Groundfloor had their status resolved in a loss of principal. I'll probably do a post examining those loans. 
  • Even though this is a down month the Total is trending upward, I expect the trend to increase do to new short term (90 day balloon) loans with higher returns although the the trend may dip as buying ramps up.  
Goals:
- COC 0.59% total monthly return, 7% annualized 
- 25% of portfolio in short term loans 
- At least half of short term loans, 90 term
Background:
I like to compare my results to my peers unfortunately that can be hard to do.  I also like to compare dissimilar investments like stocks vs crowdfunding.  I have come up with a few ways to compare two different investments in my portfolio and with bloggers and Youtubers I follow, the results have been surprising. Actually it's probably not surprising many people (myself as well) seem to think they are doing better than they are. Why? because they let the site or app tell them what there returns are instead of calculating on their own. Some investors like Peter Renton use XIRR method of calculation but I like COC. COC returns has its drawbacks, it can report a lower than actual return when making deposits in large proportion or if you buying loans with balloon payments. but I find it to be most reliable for my needs. And I rather have my metrix be under reporting than over reporting my returns.


Sign up Referral bonus urls
If your  interested in signing up for any of these great investment sites and want to get a bonus when you do, use one of the links below.
Click to sign up for Groundfloor and get your bonus
Click to sign up for PeerStreet and get your bonus
Click to sign up for LendingClub and get your bonus
Click to sign up for M1 Finance and get your bonus


Definitions:
COC - Cash on Cash returns, I define as "how much cash was returned divided by how much cash I have invested." 

Getting started with PeerStreet

PeerStreet: Getting started...

  • What is PeerStreet
  • Getting your referral "Yield Bump Token" bonus at sign up
  • What you can expect 

What is PeerStreet and what is Real Estate Crowdfunding?

PeerStreet is a real estate crowdfunding platform.  Its similar to other crowdfunding platforms (Groundfloor or Fund That Flip), a bunch of people provide money to meet a target goal for a project. PeerStreet projects are based in real estate like fix-n-flips or cash out rehabs, these projects provide short term, high-yield debt secured against the real estate as a first position loan[1]. PeerStreet is one of the best and respected real estate crowdfunding sites  Ian Ippolito rates PeerStreet #1 in the top 100 list at "The Real-Estate Crowdfunding Review"[2]  As of writing this they claim annualized returns of 6-9%[3].  And if you're old enough to remember the housing markets crash the "guy" who called it and made millions Dr. Michael Burry played by Christian Bale in the movie “The Big Short” is an investor in PeerStreet.

How to get your referral "Yield Bump Token" bonus

Wait what the heck is a Yield Bump? So a yield bump is not a cash bonus, it is a 1% increase in your next loan. If you buy a loan at 6% they will pay you 7%.  This lets you control the bonus because instead of giving you 10$ flat, you can pick a great loan that you really like.

If your like me you'll pick a loan with a repayment term of 24-36 month at around 7-8% return. Also for these loans I'll spend about 5x (I don't let any loan be more than 2% of the total invested) but with a 1% Yield bump over 24-36 months is $20-$30 per $1,000.In my case I would invest $10,000 so my bonus would be $200-$300 not bad compared to $10 flat.  If you want a yield bump token on your first loan use the link, it takes you to the PeerStreet site, click the "Get Started" button and create your account, once your account is created you'll need to deposit money before you receive the bonus and invest it.

What can you expect

They offer three different loans the normal loan witch doesn't seem to have a name, the "Short Term" and the "Cash Offer". Most of the loans on the platform are the normal 6-36 month fix-n-flap style loans.

Short Term, the short term loans are 30 day loans at 3%, these loans are actually normal loans that they resale a 30 day portion of the loan term to us while taking a "Liquidity Premium" of around 5% off the rate. So effectively Peerstreet is assuming all the responsibility of default for the duration of the loan while investors  buy out 30 day chunks of the loan. When this program started I couldn't believe what I had read, I actually called in to verify this wasn't a misprint, it is a guaranteed 3% return even if the loan does not repay[5], but it's true.

Cash Offer Cash Offer loans are basically a bridge loan for people who are buying and sell a property at the same time. So what happens is you want to sell your house and buy a new one, but you need to buy new house before you move out and sell your old house. You can use a Cash Offer loan to buy the new house and when you sell your old house it pays off the Cash Offer loan (we hope), These loans are around 4 month terms and pay 5% return. PeerStreet actually gets appraisals for each loan that you can read before investing. I recommend reading everything you can about the loans so you can get familiar with how you want to select loans moving forward.  You can even use sites like Zillow, Trulia, MLS and LoopNet to look at comps.

After you've signup using the  link and transferred money in your account you should get a yield bump message, you can see the available loans by clicking "Investments" link at the top middle.  PeerStreet has even given me yield bumps for my birthday before. They have real good settings for Automated Investing, and you can cancel an automated loan purchase up to 24 hr after it is made giving you ample time to review the loan terms.  Yield bump tokens aren't used in automated investing.
Once you lend the money you can't get it back until it's repaid, some borrowers repay early, some repay on time and some pay late. I invest in PeerStreet for the cash flow, I can spread my investments over as many loans as possible and by loans each month to increase my cash flow. PeerStreet has been my safest, most reliable, passive investment to date 9/13/2019.

Cons:
Unfortunately if there is a 9% loan in the system, before you can say words: "9% loan", it is fully funded.
Unfortunately if there is a 8% loan in the system, before you read the appraisal, it's usually fully funded.
Unfortunately you need to be an accredited investor to join and have at least $1,000 per loan to start investing.

Defaults You seriously need to set some realistic expectations about defaults.. Some borrowers will default, for me it not that big of a deal. I'll do a separate blog on why I feel that way.

References

[1] www.PeerStreet.com © 2019 How it works
[2] The Real-Estate Crowdfunding Review © 2015-2018 Top 100+ Real Estate Crowdfunding Sites
2019 Rankings and Reviews
[3] www.PeerStreet.com © 2019
[4] Business Insider © 2019   A startup backed by the hero of 'The Big Short' is attempting to bring Wall Street to Main Street
[5] www.PeerStreet.com © 2019  FAQ What is a 30 day note

Getting started with Groundfloor

Groundfloor: Getting started...

  • What is Groundfloor
  • Getting your $10 referral bonus at sign up
  • The different types of loans offered
  • What you can expect 

What is Groundfloor and what is Real Estate Crowdfunding?

GroundFloor is a real estate crowdfunding platform. Great, what does that mean: In crowdfunding many people provide money to meet a target goal for a project. Groundfloor works with real estate projects like fix-n-flips to provide short term, high-yield debt, secured against the real estate as a first position loan[1]. There are many platforms out there that do the same so why would you use Groundfloor vs other platforms? First you need to be an "accredited investor" to join other platforms. That means you need to make more than 200k if single and 300k if married just to join.  Next you'll need a lot of money to invest. Most platforms have very high miniums anything from $5,000-25,000 minimum per loan buy in. The Groundfloor minimum per loan buy in is just $10. As of writing this the average platform returns annually are 12%[2].

How to get your 10$ referral bonus

 If you're new to Groundfloor and don't have an account yet, use this referral link when you sign up and you and I will both get a 10$ 20$ bonus when you deposit money into the account. The link  takes you to the Groundfloor site. Click the "Get Started" button and create your account, once your account is created you'll need to deposit money before you can receive the bonus

Note: As you can see from the picture, right now the referral bonus is $20 for the month of September 2019.


Different types of loans offered LRO's and Notes

Currently Groundfloor has multiple debt products but they fall under two main categories LRO's and Notes.
LRO's: There multiple LRO or Limited Recourse Obligation Products[1]  "Anchor Investor Loans", "BRRR Loans" and "Funding Now". You won't see "Anchor Investor Loans" unless you become accredited. An LRO (Limited Recourse Obligation Products) is basically a debt security that is submitted to the SEC. Each loan is backed by the underlying real estate asset(s)[1] The LRO's are the loans that you can invest as little as $10 in. LRO's come in different Rates, Terms, ARV's, Purposes, Positions and Terms. I recommend reading everything you can about the loans so you can get familiar with how you want to select loans moving forward.  You can even use sites like Zillow, Trulia, MLS and LoopNet to look at comps.

Notes:
Notes are short term 30-90 day loans with lower return rates that are issued and secured by the assets of Groundfloor Real Estate 1 LLC which is owned by Groundfloor Finance, Inc. basically the Notes are used to buy more loans to then sell on the platform. Here's how it works: Groundfloor gets new loans it then screens. They will pre-fund the loan and submit them to the SEC to convert them into LRO's to be sold to us, the Investors. There growth is restricted by the capitol they have to pre-fund new loans. If they only had 10K for pre-funding they would only have 10K in loans to sell on the platform. Companies use several methods (such as, selling stock or borrowing) to raise capital. So Groundfloor could have gone to the bank or issued bonds or sold stock to raise it funds but instead it has come to us, the investors. This is smart for several reasons, but for me I was able to double my account size because now I could buy loans with very short terms (30 days) and get relatively high returns 4%. I moved 50% of my emergency fund into the short term loans and went from earning less than 1% percent to earning 4%.


What can you expect

If you want to see how I pick loans check out this article "How I pick Groundfloor loans".

After you've signup using the link  and transferred money in your account you should see a referral bonus that you can also use for investing. You can see the available loans by clicking "Invest" button at the top right.

Most loans are grad "C", there aren't a lot of grade "D" loans and I have only bought one grade "E" loan because they are very rare and get bought up very quickly.

As of writing this, the average platform returns annually are 12%[2], In the past my personal returns have been a little higher than average because only 25% of my portfolio contains A&B grade loans. As you can see the average A loan only return 6.5% annualized. Currently my returns are much lower because I have so much money invested in the shorter term loans at 4%.

Once you lend the money you can't get it back until it's repaid; some borrowers repay early, some repay on time, some pay late. I invest in Groundfloor for the cash flow, I can spread my investments over as many loans as possible and buy loans each month to increase cash flow. Groundfloor has been my highest returning passive investment to date 9/12/2019.

If your looking for quick cash flow then avoid the balloon payment loans and focus on loans with  monthly payment terms. I personally like the balloon payment loans because of the compounding interest but you won't get a cent until the end of the loan. In my experience the average loan repays in about 7.5 months.

Cons:
Unfortunately there isn't a good way to separately look at returns of LRO's vs Notes. The more Notes you buy the lower your returns will be.
Unfortunately there is no automated investing, it would be nice for people like me who want to buy a little of every loan.
Unfortunately Groundfloor uses AVR as opposed to LTV which is less accurate and less subjective and doesn't require fortune telling.

Defaults You seriously need to set some realistic expectations about defaults.. Some borrowers will default, for me it's not that big of a deal. I'll do a separate blog on why I feel that way.

References

[1]  www.Groundfloor.us © 2019  What is an LRO and what am I actually investing in?
[2] www.groundfloor.us © 2018 Thousands of investors are earning an average return of 12%.

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