Author Topic: Groundfloor loan with $0 gain  (Read 2449 times)

jheizer

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Groundfloor loan with $0 gain
« on: August 23, 2017, 08:12:19 PM »
https://www.groundfloor.us/investments/1207-malbay-drive

After repair value = cost of property + cost of repairs

And they plan to sell it when done.  What am I missing?  Its an A grade too?

Edit: And the purchase price = completed price.  Its almost like they bought it with cash then used groundfloor to pull some money out but for what reason?  I guess just to have more cash on hand for other projects maybe.  LLC was formed 2 weeks before it was bought.
« Last Edit: August 23, 2017, 08:16:43 PM by jheizer »
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Fred93

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Re: Groundfloor loan with $0 gain
« Reply #1 on: August 24, 2017, 01:22:31 AM »
https://www.groundfloor.us/investments/1207-malbay-drive
After repair value = cost of property + cost of repairs
And they plan to sell it when done.  What am I missing?  Its an A grade too?

The after repair value is just the opinion of some 3rd party.  If you've ever had an appraisal done for a house you own, you may have disagreed with the appraisal.  I know I have!  This is not uncommon.  My guess is that the buyer (ie borrower) disagrees with the appraiser about what the value of the property will be after the improvements.  This is not an unusual situation, so it doesn't bother me.

I think you are thinking the wrong way about the appraisal.  The purpose of the appraisal in this case is to protect the lender.  As long as the house is appraised at substantially higher than the loan, then you are protected.  You don't care whether the borrower makes a profit! 

All appraisals are speculative, ie predictions about something in the future, and thus uncertain.


jheizer

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Re: Groundfloor loan with $0 gain
« Reply #2 on: August 24, 2017, 09:20:53 AM »
I think you are thinking the wrong way about the appraisal.  The purpose of the appraisal in this case is to protect the lender.  As long as the house is appraised at substantially higher than the loan, then you are protected.  You don't care whether the borrower makes a profit! 

Thanks.  You're right.  I wasn't think about the ARV in their little graph as being the direct output of the appraisal.  I did come to the realization that the Loan To Total Project Cost was all that really matter and invested last night.
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Rude Dude

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Re: Groundfloor loan with $0 gain
« Reply #3 on: August 27, 2017, 03:54:04 PM »
Had a look at Groundfloor and their offerings. I really think accredited investors would be better off investing in a private mortgage fund or REIT. Fractionalized RE investing offered by online lenders like Groundfloor might sound sexy because of low investment minimums, but it puts investors at a disadvantage vs. traditional RE investments. To wit:

- through the LRO, investors are creditors to Groundfloor and the investors' share of the loan is NOT secured by real estate. You're just making a loan to the platform; your investment is effectively unsecured. Also, investors could have a problem recouping the principal invested if the platform goes sideways
- the loans are not personally guaranteed by the buyer; in the event of a default, the lender has no recourse to the borrower's personal assets such other investment properties. Increases the probability of delinquency and default. Also means that the lender doesn't have any visibility on the owner's personal credit, which is still a hugely important factor in assessing repayment. It's possible that at lot of these borrowers don't have much in the way of outside income or personal assets, but a personal guarantee is oftentimes the only reason borrowers will continue to pay if there's a problem with the subject property
- the borrower doesn't need to produce tax returns or bank statements. Sounds a little like the ninja loans made before the financial crisis.
- Extremely high loan to cost ratios. The lender advertises 90% LTC, but mentioned that the LTC was 95% on a loan that recently defaulted (see the blog post - kudos for the company for being transparent about this)
- the lender occasionally makes junior position loans. Looks like they're mostly rehab loans. While I'm not opposed to 2nd loans, as an investor you'll want to make sure that the first loan has a 70% or lower LTV (of the purchase price). If the borrower has problems with permits, contractors, etc. they may be unable to continue the project and likely default on the first. The lender of the first will foreclose and the holder of the 2nd will be wiped out because the project is in the middle of a rehab and is unsellable - all the protective equity is gone.
- Does Groundfloor's management and u/w team have actual RE lending experience? They very well may, I didn't get the chance to check this out
- Is groundfloor lending nationally? If so, does their u/w team understand the nuances of and have experience lending in the geographies in which they lend? 


Overall, this model is going to appeal more to borrowers who don't have provable income, assets, credit or experience. Also keep in mind that this product will appeal more to borrowers in geographic zones that are more exposed to a correction.

This stuff is not for the faint of heart. Do your homework before investing.

Fred93

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Re: Groundfloor loan with $0 gain
« Reply #4 on: August 27, 2017, 06:06:14 PM »
- through the LRO, investors are creditors to Groundfloor and the investors' share of the loan is NOT secured by real estate. You're just making a loan to the platform; your investment is effectively unsecured. Also, investors could have a problem recouping the principal invested if the platform goes sideways

Yep.  True of all the P2P guys.  However, Groundfloor distinguishes itself by having gone thru SEC  registration.  Greater regulatory oversight and transparency here the almost anyplace else.