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.

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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.