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Atlanta-based real estate crowdfunding company Groundfloor has announced its move into new-construction loans.
Groundfloor enables investors to contribute to the development costs of a new home, like a Kickstarter backer helps fund a book’s publishing or art installation.
Crowdfunding home loans offer builders a unique way to circumvent the risk that challenges banks from wanting to stake too much money on a housing development.
The company launched in 2012 in Raleigh, North Carolina, backing house flippers. It moved to Georgia because the state was early to allow crowdfunders to own legal shares of the entity being supported.
Raleigh is one of the nation’s most productive housing markets, and Groundfloor believes its ever-rotating crowd of financial backers can help alleviate the pressure on new-home developers. Also, flipping is experiencing a lull because of rapidly rising property values.
Investors can earn a return of up to 12 percent on flips, while new residential home backing should yield around 8 percent on a 12-month return, according to a report in The News & Observer.
Groundfloor never loans 100 percent and collects fees from the borrower. In total, the company has loaned $70 million to 500 properties around the country, the average flip loan being $150,000.
Developer Grayson Dare Homes of Raleigh has been the primary benefactor of Groundfloor’s efforts. The alternative funding model eliminates the regulations and more stringent loan processes of traditional banks.
We thought that instead of doing one (house) and then waiting on the bank for more funding, we wanted to do three or more (new houses) at a time, Grayson Dare CFO Barry Burnette told The News & Observer.
The Raleigh paper reported that the company is using Groundfloor funding to build three homes on a single lot in Durham County, North Carolina. The homes are expected to reach the market at around $600,000 each.
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