Groundfloor Review: 10% Yields, Default Reality and the Notes Alternative

This section establishes what you are actually buying, who is on the other side of it, and how solvent they are. The short version: Groundfloor is an issuer, not a broker, and you are lending to Groundfloor, which in turn lends to a house flipper.

The entities

Groundfloor Finance Inc. is a Georgia corporation headquartered in Atlanta and the registrant for the main product, the Limited Recourse Obligation (LRO). It began as Fomentum Labs LLC in North Carolina in January 2013 and moved to Georgia on August 5, 2014 (Form 1-A POS, March 2026). Its SEC CIK is 1588504 and it has filed under Regulation A since 2015. Three more Reg A issuers sit beside it: Groundfloor Yield LLC (CIK 1810007), formed in April 2020, issues the Notes; Groundfloor Real Estate 1, LLC (CIK 1694600) is a subsidiary LRO issuer with its own Form 1-K; Groundfloor Loans 1 LLC (CIK 2002281), a Delaware commercial-loan vehicle that filed a Form 253G2 in 2024, had no product on the retail menu in September 2026. The lending arm that holds the mortgages, Groundfloor Holdings GA LLC, is the plaintiff in Groundfloor Holdings GA, LLC v. WFG National Title Insurance Co. (Ga. Ct. App. A24A1846, March 14, 2025), a suit to recover nearly $2M it advanced on ten Augusta properties that carried a superior lien; the court reversed summary judgment for the insurer and sent the contract claim back for trial. That is Groundfloor chasing its own money, not an investor suing Groundfloor, but title risk lands on the lender.

The founders and the money behind them

Brian Dally (CEO) and Nick Bhargava co-founded the company in 2013, first in Raleigh and then Atlanta after a $1M seed round (Wikipedia; Groundfloor team page, retrieved September 2026). On September 7, 2015 the SEC qualified Groundfloor’s first Form 1-A, seven series of LROs in eight states and the District of Columbia, the first real estate platform qualified under the post-JOBS Act Regulation A (Business Wire, September 1, 2015; Form 1-K FY2019). In January 2018 the LRO offering was qualified under Tier 2, raising the annual ceiling to $75M less any other Reg A securities sold (Form 1-K FY2021).

Groundfloor raised much of its equity from its own customers. A 2020 Reg A Series B on SeedInvest, at a $72.8M pre-money value, closed with more than $3.6M from over 2,000 investors, taking public shareholders past 4,700 and their combined stake to 25.4% (Crowdfund Insider, May 2020; PR Newswire, January 2021). On February 21, 2022 the company announced $118M in new capital: $5.8M of equity from Medipower, whose chairman Yair Goldfinger joined the board, plus Medipower’s commitment to lend up to $320M through the platform over two years; $7.2M of equity from 3,600+ individuals on SeedInvest; and $5.0M of convertible notes sold to 86 investors on Groundfloor’s own platform (PR Newswire; TechCrunch). Fintech Ventures Fund is a named Series B investor. A Wefunder round followed on August 31, 2022 (Business Wire); Tracxn counts $34.3M raised over ten rounds to August 2023. The company said it was 32% customer-owned in April 2026 (PR Newswire).

Regulatory status

Groundfloor sells its own securities directly to the public under Regulation A Tier 2. In the filings reachable for this piece it is neither a registered broker-dealer nor a registered investment adviser, and it runs no funding portal; the LRO offering circular describes Groundfloor Finance as the issuer and the platform as where the issuer sells. No FINRA arbitration forum sits between you and the company, and the company that grades the loan, sets the rate, services it and decides when to foreclose is the company whose obligation you hold.

How big it is, and how well it is doing

Volume figures are the company’s own. The dated waypoints: $1B of cumulative investment on its tenth anniversary (PR Newswire, February 2023); $500M of principal and interest repaid to more than 230,000 registered investors (PR Newswire, September 6, 2023); $1.3B of retail investment volume, $1.1B of repayments across all products, 245,000 registered users, $323M of assets under management and $26.5M of revenue for 2023 (PR Newswire, February 7, 2024); 300,000+ registered users and 120 employees (PR Newswire, February 9, 2026). Reviews add more than $2.2B lent across 5,800+ projects as of January 2026 (The College Investor, 2026), a figure that includes institutional capital such as Medipower’s; the $1.7B figure still on some review pages is older. All are claimed; the company publishes no audited cumulative number.

The profit and loss is the part the marketing does not lead with. Groundfloor Finance reported a net loss of $14.3M for FY2024 against $4.5M for FY2023, and its auditor expressed substantial doubt about its ability to continue as a going concern in the FY2024 Form 1-K filed March 31, 2025, citing losses and negative operating cash flow. The accumulated deficit stood at $55.8M at June 30, 2025 (Form 1-SA, September 2025). The FY2025 Form 1-K, filed March 31, 2026, carries the going-concern note again and reports a net loss attributable to Groundfloor Finance of $10.4M for 2025, with $2.7M of cash and $14.1M of restricted cash at December 31, 2025 (the 2025 loss figure was read from the filing through a search summary and is unverified at publication). The filing repeats the standing warning that the company “has incurred losses since its inception” and “expects it will continue to incur losses for the foreseeable future”.

The half-year told a better story than the full year. Net revenue for the first half of 2025 doubled to $16.4M from $8.2M and the net loss narrowed to $1.5M from $6.2M (Form 1-SA, June 30, 2025); if the full-year $10.4M stands, the second half lost close to $9M. For the full year the company says revenue passed $40M, up 38.6%, and loan volume rose nearly 50% (PR Newswire, February 9, 2026). The Notes issuer, Groundfloor Yield LLC, reported net interest income of $5,572,181 in 2025 against nothing in 2024 (Form 1-K FY2025, March 31, 2026), yet its auditor’s report still carries a going-concern paragraph because it depends on the parent and on raising capital.

This section walks the money from your bank account to a flipper’s closing table and back, and marks where Groundfloor is paid.

Eligibility and onboarding

Any US resident aged 18 or over can open an account; no accreditation, income or net-worth test applies to LROs or the standard Notes, which are sold under Regulation A Tier 2 (offering circular, 2026 amendments). Tier 2 caps what a non-accredited investor may buy in any one Reg A offering at 10% of the greater of annual income or net worth, and you self-certify against that limit. The $10,000 limited-window notes (April and August 2026) and the Consumer Credit Portfolio II (May 2026) were restricted to accredited investors (Groundfloor news pages, 2026).

How a loan is sourced and priced

A borrower, usually a small residential developer buying a house to renovate and resell, applies to Groundfloor’s lending arm for a 6 to 18 month loan. Groundfloor underwrites it and assigns a grade from A to G, which sets the rate floor: A 5%, B 6%, C 8%, D 9%, E 12%, F 14%, G 15% (Groundfloor, “Loan Grading Factors, Explained”). In practice the loans packaged into the Flywheel Portfolio carried rates between 9.50% and 14.50% (Groundfloor support center, Flywheel Portfolio 101, 2025). Grading factors include loan-to-after-repair-value, borrower experience, skin in the game and the exit plan. The grades are not a clean risk ladder: reviewers working from Groundfloor’s May 2022 loan-grade analysis report B and C loans defaulting at 5.8% and 4.5% against 4.3% for D (CrowdfundedWealth; AngelInvestorsNetwork, 2026). The borrower pays Groundfloor an origination fee of 2% to 6% of the loan amount and a servicing fee of 0.5% to 2%, which “typically will be included in the total amount of the Loan” (LRO offering circular, 2026 amendments). Read that clause twice: the fee is financed into the principal your LRO funds, and it is earned when the loan closes, before anyone knows whether it will repay.

What you actually own

You do not own the mortgage. Groundfloor Holdings, the lending subsidiary, holds the first lien. You buy an LRO issued by Groundfloor Finance, each series corresponding to one loan. The offering circular is explicit: the LROs “represent an unsecured special limited obligation of the Company”, holders “will not have any recourse against the Borrower or its Principals”, and “no LRO Payments shall be payable to the Holder unless the Company has received (or applied) Loan Payments in respect of the Loan” (LRO agreement and offering circular). The company promises to pass through whatever it collects, and nothing if it collects nothing. Your credit exposure is two-layered: first to the borrower and the house, then to Groundfloor Finance’s ability to honour the pass-through.

Funding and the minimum

Each LRO series is listed with the property address, grade, rate, term, loan-to-value and the borrower’s track record. The minimum is $10 per LRO. You can pick loans yourself in the Investor Account or let the Auto Investor Account spread money across every open loan in increments as low as $1, typically 50 to 100 loans at a time; its minimum is $100 (Groundfloor support center, Auto Investor guides). Money sits as uninvested cash until a loan fully funds and closes; idle cash earns nothing, which is why the 1-month and 3-month Notes exist.

Interest, repayment and what “repaid” means

Most LROs are balloon instruments: interest accrues at the stated rate and is paid with principal when the borrower sells or refinances. Some pay monthly. On repayment Groundfloor credits principal and accrued interest to your account and, if automatic investing is on, redeploys it. At the Flywheel launch the company put the average time to repayment at about 10 months, with 95% of loans repaying within two years (PR Newswire, October 3, 2024). The diversification analyses are built on repaid loans; a loan 18 months past maturity is not in that sample.

When the loan does not repay

If the loan is not paid by maturity Groundfloor issues a Notice of Default and, at its discretion, moves the loan into Extension, Default or Workout. It raises the borrower’s rate as default interest, which reaches investors only “on a case-by-case basis” depending on “the commercial agreement between Groundfloor and the borrower” (Groundfloor support center, “What happens if a borrower defaults on a loan?”). A Workout is a negotiated modification, sometimes with new money to finish the project. Foreclosure is the last step; Groundfloor says it prefers a workout as “quicker, more cost-effective, and ultimately economically better than a foreclosure”. The decision is Groundfloor’s alone. You cannot vote, you cannot sell, and you cannot force a sale.

How Groundfloor is paid

Origination (2% to 6%) and servicing (0.5% to 2%) from the borrower; default interest and late fees from the borrower, shared with investors only case by case; on the Notes, the spread between the rate Groundfloor Yield pays you (8.25% on the 12-month Signature Note in May 2026) and the 9.5% to 14.5% the loans earn; on the Flywheel Portfolio, “fees and expenses” netted from the weighted rate (Groundfloor support center, “Is the Flywheel Portfolio rate guaranteed?”), which one 2026 review puts at 1% a year (unverified at publication). The LRO circular states that investors “are not charged any fees in connection with the Offering of the LROs” and no service fees on LRO payments. True of the LRO; the Notes’ spread is the business model.

This section lists what you can buy on September 17, 2026, what each costs, and what has been shut since 2023. The menu has changed materially since mid-2025, so check the date on every figure.

Limited Recourse Obligations (LROs)

The core product since 2015. $10 minimum per loan, terms of 6 to 18 months, rate floors from 5% (A) to 15% (G); typical funded loans in 2025 ran 9.5% to 14.5% (Groundfloor support center, 2025). Sold under the Reg A Tier 2 LRO offering, topped up by post-qualification amendments in January and March 2026, the latter adding $7,544,188 of LROs (Form 1-A POS, March 2026). Open to non-accredited investors, no investor fees, held through the self-select Investor Account or the $100-minimum Auto Investor Account.

Groundfloor Notes

Fixed-rate, fixed-term promissory notes issued by Groundfloor Yield LLC. Rates in May 2026 (Notes page, retrieved May 27, 2026 by CrowdfundedWealth): 1-month 4.75% and 3-month 5.75%, both $100 minimum with interest at maturity; 12-month Signature Note 8.25%, $1,000 minimum, interest monthly. Rates may be reset monthly for new Notes, and the page title on September 17, 2026 advertised “8.50% Fixed APY”, so take the rate shown at purchase. Two limited-window notes were sold to accredited investors only, at $10,000 minimum and a $10M cap each: a 9.25% Preferred Note, six months, April 2 to 30, 2026, and a 9.5% Bond Note, six months, August 3 to September 3, 2026, paying at maturity with a 0.5% bonus if repaid early after a qualifying bond issuance (Groundfloor news pages, 2026). Notes are general obligations of Groundfloor Yield secured by a first-priority interest in its assets, which are loans it holds for about five days and no more than thirty before selling them to Groundfloor Finance, Groundfloor Real Estate 1 or Groundfloor Real Estate 2 (Groundfloor Yield LLC offering circular). The company says Notes investors received $8.4M of interest in 2025 and that 100% of Notes have paid on time since 2018 (PR Newswire, February 9, 2026). Both are claimed.

Flywheel Portfolio: closed to new money July 7, 2026

Launched October 3, 2024 as a pooled, actively managed real estate credit portfolio with a $100 minimum (PR Newswire). Flywheel closed permanently to new investment, including automatic reinvestment, from July 7, 2026 while Groundfloor builds a “next-generation Real Estate Credit Portfolio” (Groundfloor, “Flywheel Changes & The 8.5% Bridge Note”, July 2026). Existing positions keep earning as the loans mature; since July 7 repayments arrive monthly rather than weekly, as investable cash. Investors who put money in on or after July 1, 2025 get access to an 8.5% fixed-rate, one-month Bridge Note, which they must select manually. The successor had no published terms as of September 17, 2026.

Consumer Credit Portfolio II

On May 11, 2026 Groundfloor announced a Consumer Credit Portfolio II, its first product outside real estate: accredited investors only, $10,000 minimum, a $3M offering, a 10.00% fixed target return paid quarterly over 45 months, subscriptions open through May 24, 2026 or until filled (PR Newswire via Morningstar). The company said the first Consumer Credit Portfolio filled within two weeks and was paying on time, a claim about a vehicle a few months old. No offering circular was reachable for this piece.

Self-directed IRA

Groundfloor offers traditional, Roth, SEP and SIMPLE IRAs through Forge Trust as custodian, with a $25,000 minimum transfer to open a new account and $1,000 for additions (Groundfloor IRA page and support center, retrieved 2026). The fee arrangement changed on July 1, 2026: Groundfloor covered custodial fees only through June 30, 2026, and investors since pay Forge Trust directly (Groundfloor support center, “What are the fees for a Groundfloor IRA?”). Forge Trust’s published schedule charges $12 a quarter ($48 a year) for every note or private placement held, plus a $40 purchase fee per asset (Forge Trust fee schedule; CrowdfundedWealth, 2026), and each LRO is an asset. One investor holding 84 LROs reported custody charges above $8,500 a year (unverified customer report via CrowdfundedWealth, 2026); the schedule alone puts 84 positions at $4,032 before purchase fees, so the report is in range. A per-asset fee on a product built to be held 100 loans at a time makes the IRA route uneconomic for LROs.

Closed or wound down

Stairs, a savings-style app launched September 22, 2021 with a $1 minimum and notes paying 4% to 6% with one-day liquidity, was discontinued in 2023 and folded into the Notes and the Auto Investor Account (PR Newswire, September 2021; The College Investor, 2026). Flywheel closed to new money July 7, 2026 as above. An investor complaint says the company declined in 2025 to repurchase non-performing LROs at any price; the complaint is unverified, but no buyback facility has ever existed.

This section counts every cost, direct and embedded, then runs $10,000 through the platform under three outcomes. The headline is honest: on an LRO, the investor pays Groundfloor nothing. The full picture is that the borrower pays a fee stack that shapes which loans exist, and the investor pays in time and, in an IRA, in custody fees.

Direct fees to the investor

• Account, deposit, withdrawal, wire: none published; ACH in and out is free (Groundfloor FAQ, retrieved 2026).
• LRO purchase or servicing fee: none (LRO offering circular, 2026).
• Notes: none; the spread is embedded in the rate.
• Flywheel Portfolio (closed): “fees and expenses” netted before distribution; no percentage published.
• IRA custody: investor-paid from July 1, 2026: $12 per asset per quarter plus $40 per purchase, billed by Forge Trust.
• Secondary-market fee: none; there is no secondary market.

Fees paid by the borrower, and why they matter to you

The borrower pays 2% to 6% origination and 0.5% to 2% servicing, typically rolled into the loan (LRO offering circular, 2026). On a $200,000 loan that is $4,000 to $12,000 up front plus $1,000 to $4,000 in servicing, on top of a 10% to 14.5% coupon. All-in borrowing costs of roughly 12% to 20% a year select for borrowers who cannot get bank or regional hard-money credit, and the 6 to 18 month term selects for projects that must sell into whatever the local market is doing at completion. That is the mechanism behind the default numbers in the next section: the fee is the reason the loan is on the menu, and because it is financed, part of the principal you fund is Groundfloor’s fee.

The cost you cannot see on the fee page: time

A defaulted LRO does not charge you a fee; it holds your principal at 0% while Groundfloor negotiates, sometimes for years. Groundfloor claims defaulted loans have still returned “about 6%” on average once the collateral is liquidated (as cited by Benzinga, Lofty and AngelInvestorsNetwork, 2025 to 2026); if that is a total return over a 24-month workout, it is 3% a year, and over 36 months, 2%. The company does not publish average time-to-resolution for defaulted loans. That is the single most important gap in its disclosure.

Worked example: $10,000 across 100 LROs

Assume $10,000 spread $100 each across 100 LROs at a blended 10% contract rate (a C/D mix), a 10-month life for loans that repay on schedule (the company’s own average, October 2024), no reinvestment to keep the arithmetic visible, and Groundfloor’s fee stack as published: nothing from you. The three cases differ only in what the loans do.

Case 1: every loan repays at month 10. Interest is $10,000 × 10% × 10/12 = $833. Annualised return 10.1%. This is the outcome the marketing describes and the December 2022 diversification model comes close to: a proportional investment in all 2,807 LROs repaid by then would have returned 9.96% a year after a 0.44% loss ratio (Groundfloor, December 2022 Diversification Analysis).

Case 2: a quarter of the loans go past maturity and resolve at the platform’s claimed 6% total. 75 loans repay at month 10: principal $7,500 plus interest $7,500 × 10% × 10/12 = $625. The other 25 loans, $2,500 of principal, come back at month 24 with a 6% total return: $2,650. Cash in: $8,125 at month 10 and $2,650 at month 24, a gain of $775 on $10,000. The internal rate of return is 6.9% a year. The headline rate has lost a third, not because anyone charged a fee, but because $2,500 earned 3% a year instead of 10%.

Case 3: the same quarter stuck, with a mix of full recovery and real loss. 75 loans repay as in Case 2 ($8,125 at month 10). Of the 25 stuck loans, 20 repay in full at month 24 with two years of accrued 10% interest: $2,000 + $400 = $2,400. The last 5 go through foreclosure and return 60 cents on the dollar at month 30 with no interest: $300. Total in: $10,825, a gain of $825 over 30 months, an IRR of 7.3%. This case beats Case 2 even with a real principal loss, because stuck loans that eventually repay with accrued interest are worth more than a 6% total. The outcome hinges on two numbers Groundfloor does not publish per vintage: how many stuck loans eventually pay accrued interest, and how long they take.

The same $10,000 elsewhere. The 12-month Signature Note at 8.25% (May 27, 2026) pays $825 in one year, fixed and monthly, with the going-concern risk of the issuer in place of loan-by-loan risk. A Treasury money-market fund at an assumed 4% (substitute the yield on the day you read this; three-month bills paid roughly 3.5% to 4.5% across 2025 and the first half of 2026) pays $400 a year with next-day liquidity and no credit risk: $816 over two years compounded, almost exactly Case 2’s $775 over the same 24 months. The LRO portfolio in the user-reported cases earns roughly 3 points a year over bills for taking property, borrower and issuer risk with zero liquidity. It is not the 6-point premium the 10% headline implies.

This section sets the platform’s own numbers beside what filings, its monthly updates and its customers report, and explains why the two sets can both be true.

What Groundfloor claims

• 9.91% overall rate of return (Asset Management Monthly Update, July 2025). Claimed, computed across repaid loans; earlier versions were 9.96% on 2,807 repaid loans (December 2022) and 9.84% on 3,663 (2023).
• 4.71% uncured default rate, 28 of 594 loans in the sample on its performance page (undated page as read by CrowdfundedWealth and AngelInvestorsNetwork, 2026). Claimed; the page does not state the vintage window, and no vintage-by-vintage table exists for 2022 to 2025 loans.
• Loss ratio under 1% since inception: 0.94% lifetime as of July 2025. Claimed.
• About 6% average return on defaulted loans after collateral is liquidated (as cited 2025 to 2026). Claimed; the period over which it is earned is not given.
• 100% on-time payment on Notes since 2018 and $8.4M of Notes interest paid in 2025 (PR Newswire, February 9, 2026). Claimed.

What the monthly updates show

Groundfloor’s own Asset Management Monthly Update for July 2025 is more candid than the summary statistics. That month it recorded 4 losses, a monthly loss rate of 2.99%; the last-twelve-month average loss ratio was 2.12%, more than double the 0.94% lifetime figure; 882 loans repaid over the trailing twelve months, and $14.5M of principal and $1.1M of interest came back in July (Groundfloor, July 2025). The lifetime figure is dominated by the 2015 to 2021 vintages, written into a falling-rate market where a flipper who missed the schedule could still sell into rising prices. The 2022 to 2024 vintages met 7% mortgage rates and flat or falling resale prices in many of Groundfloor’s markets, and the trailing loss ratio reflects that.

What investors report

The gap to test is between the 4.71% platform figure and what individual accounts look like. The reports below are unverified customer accounts; what makes them useful is that they cluster.

• A BiggerPockets member who had funded about 70 projects reported 7 of 41 active loans in default, 17% by count, most of them A- and B-grade (BiggerPockets thread 664960, 2023 to 2025 posts). A Groundfloor representative replied that most defaulted loans repay in full; that is a position, not a published statistic.
• A BBB reviewer reported roughly 20% of their loans in default after about a year; another listed defaults with maturities from October 2024 back to April 2022 (BBB customer reviews, 2024 to 2026).
• Reddit posters summarised by two 2026 reviews report personal default-or-extension rates of 24% to 35% of their loan count, with principal loss on some (CrowdfundedWealth; AngelInvestorsNetwork, 2026).
• Trustpilot reviewers on the groundfloor.com listing, scored 2.0 out of 5 across 408 reviews in September 2026 (2026 snapshots ranged from 1.9 to 2.7; a separate groundfloor.us listing of 371 reviews scored 3.1 to 3.4), repeatedly describe portfolios with half or more of the remaining positions in extension or default.

Why both can be true

Four methodology differences do most of the work.

Uncured default is not extension. Groundfloor’s 4.71% counts loans that reached the end of the workout process without curing. A loan 14 months past maturity, in “Extension” or “Workout”, is not an uncured default. Investors count anything past maturity, because from their side it is capital they cannot use.

Loan count is not dollar-weighted; the platform’s figures are. A $1 million A-grade loan and a $60,000 G-grade loan each count once in an investor’s tally; the dollar-weighted platform figure is pulled toward the big, better-graded loans that repay.

Survivorship in the “repaid” samples. The diversification analyses (2017 through 2023) and the 9.9% average are computed on loans that have repaid. The stuck 2022 and 2023 vintages are underweighted in every “since 2013” figure until they close, at which point their late, low or negative returns enter the average.

Time compounds the count. Performing loans repay in 8 to 12 months and leave; non-performing loans stay for 24 to 60 months. An investor who stops adding money watches the performing loans exit and the stuck ones remain, so the share of the remaining book in default rises mechanically even at a constant origination default rate. A Trustpilot reviewer with most positions in default and a platform with a 4.71% uncured rate can be describing the same loan book.

What has actually been realised

The realised record is the loss ratio, not the return: 0.44% of principal on 2,807 repaid LROs through December 2022, 0.94% lifetime and 2.12% trailing twelve months by July 2025 (Groundfloor). Because the LRO passes losses straight to holders, the parent’s 1-K shows its own loan-loss allowance, not the investors’ losses, so there is no filed line to total. Groundfloor has not published a vintage table showing, for each origination year, the share repaid, the share in default, the realised return and the months to resolution. Until it does, the 9.91% is a claim about the loans that finished, and the trailing 2.12% is the better guide to what the loans written in 2024 and 2025 are doing.

This section establishes how you get out, which is by waiting.

LROs

There is no secondary market, no redemption, no early withdrawal and no buyback. An LRO ends when the borrower repays, a workout completes, or a foreclosure sale distributes proceeds. Contract terms are 6 to 18 months; investors report resolved defaults taking two to five years (Trustpilot, BBB, BiggerPockets, 2023 to 2026). Groundfloor has said it does not plan to buy back non-performing loans (investor report, 2025, unverified) and no facility exists as of September 17, 2026. Uninvested cash can be withdrawn by ACH at no charge, usually within a few business days.

Notes

The Notes are the liquidity tool. The 1-month (4.75%) and 3-month (5.75%) Notes with a $100 minimum let cash between LRO cycles earn something, with interest at maturity; the 12-month Signature Note at 8.25% pays monthly. None can be redeemed early. The company reports every Note paid on time since 2018 (PR Newswire, February 9, 2026). The 8.5% one-month Bridge Note offered to Flywheel investors from July 2026 is the same structure with a shorter term.

What happens if Groundfloor fails

This is where the LRO structure bites. Your LRO is an unsecured limited obligation of Groundfloor Finance. In an insolvency, the loans and mortgages sit in Groundfloor Holdings; LRO holders have a contractual claim to the payments on their loan but no security interest in it, and the offering circular’s own risk factors flag that a bankruptcy court could treat LRO proceeds as estate property or delay pass-throughs. Notes holders are better placed on paper, with a first-priority interest in Groundfloor Yield’s assets, but that pool holds loans for 5 to 30 days before sale to affiliates, so the collateral at any moment is whatever is in transit. There is no SIPC, no FDIC and no third-party trustee holding assets for LRO investors. The PeerStreet Chapter 11 of June 2023, in which retail investors in a similar platform waited years for partial recoveries, is the reference case, and it is why the going-concern paragraph matters more here than at a platform where investors own fund units held by a custodian.

This section establishes what forms arrive, what kind of income it is, and whether an IRA makes sense.

Forms

Groundfloor issues a Form 1099-INT by January 31 for any account that earned more than $10 of interest, and a Form 1099-B, per property, for any account that realised a principal loss on an LRO or Note; a 1099-DIV goes to accounts with more than $10 of dividends plus return of capital from the pooled products, and a 1099-MISC to anyone with more than $600 of referral credits (Groundfloor support center, tax reporting article, retrieved 2026). There is no K-1, because you own a debt obligation, not a partnership interest. Where a 1-month or 3-month Note defers all interest to maturity across a year-end, the accrued discount may in principle be reportable as original issue discount on a 1099-OID under IRC section 1272; Groundfloor’s page does not name that form, so ask before year-end if you hold deferred-interest Notes across December 31.

Character of the income

LRO and Notes interest is ordinary interest income, reported on Schedule B and taxed at your marginal federal rate, up to 37% in 2026, plus the 3.8% net investment income tax under IRC section 1411 where it applies, plus state income tax. None of it is qualified dividend or long-term capital gain, and the 28% collectibles rate is irrelevant. A principal loss on an LRO is a capital loss (1099-B and Form 8949), which offsets capital gains and then up to $3,000 of ordinary income a year under IRC section 1211(b); the mismatch, ordinary income on the way up and capital loss on the way down, is a real cost when a portfolio has both.

State filing

Because you hold an obligation of a Georgia corporation rather than an interest in property, the interest is sourced to your state of residence and no non-resident state return is triggered by a loan on a house in another state.

IRA and UBTI

LRO and Notes interest is portfolio income, not unrelated business taxable income; the investor holds no leverage and no active trade, so UBTI does not arise and an IRA can hold LROs without a Form 990-T. The practical problem is the custody fee. Since July 1, 2026 investors pay Forge Trust $12 a quarter for every asset held, plus $40 per purchase, and every LRO counts as an asset (Forge Trust fee schedule; Groundfloor support center, 2026). A 100-loan IRA therefore pays $4,800 a year in asset fees alone, and about $8,800 if each position is replaced once a year; at a 10% yield that is the entire interest on a $48,000 to $88,000 balance, and a $100 LRO earning $10 a year carries $48 of custody. An IRA holding a single 12-month Signature Note is one asset and may still make sense; an IRA full of LROs does not, unless Forge Trust caps the per-asset count, which you should confirm in writing before transferring the $25,000 minimum.

This section starts with the risk that ends the investment and then lays out the dated record.

The risk that ends it: issuer insolvency

The auditor’s going-concern paragraph on Groundfloor Finance’s FY2024 (March 31, 2025) and FY2025 (March 31, 2026) annual reports, and on Groundfloor Yield LLC’s for the same years, is the red flag that outranks all others. It does not mean the company is failing; it means the auditor could not conclude it will not, absent new capital. Set against it: revenue passed $40M in 2025 (+38.6%, claimed), the first-half 2025 net loss was $1.5M against $6.2M a year earlier, and the Notes issuer earned $5.57M of net interest income. Set against that: the full-year 2025 loss reported in the 1-K, $10.4M (unverified at publication), means the second half gave back most of the first half’s improvement. The structure makes the risk material: LROs are unsecured claims on the issuer, there is no custodian, and no secondary market to exit through if the next 1-K reads worse.

Credit and valuation risk on the loans

Fix-and-flip lending fails when the flipper runs out of money or the resale market moves. Groundfloor’s trailing twelve-month loss ratio of 2.12% in July 2025, against 0.94% lifetime, is the measured version of that. The after-repair value that anchors the loan-to-value is an appraisal or broker opinion of a house that does not yet exist; a 65% LTV on an optimistic ARV is not 65%. Investors have no say in workouts, and default interest is passed through only case by case.

Conflicts

Groundfloor grades the loan, sets the rate, earns the origination fee on closing, services the loan, decides between workout and foreclosure, issues the security you hold and runs the only venue that sells it. On the Notes it also sets the spread. No independent trustee or servicer stands between those roles.

The dated record

• September 7, 2015: SEC qualifies the first Reg A offering (Business Wire; Form 1-K).
• January 2018: LRO offering qualified under Tier 2, $75M annual cap (Form 1-K FY2021).
• 2020 to 2022: SeedInvest Series B (May 2020); $118M capital announcement (February 21, 2022).
• September 22, 2021: Stairs app launched (PR Newswire); discontinued in 2023.
• September 6, 2023: $500M cumulative loan repayments; 230,000+ registered investors (PR Newswire).
• October 3, 2024: Flywheel Portfolio launched (PR Newswire).
• March 14, 2025: Georgia Court of Appeals decides Groundfloor Holdings GA, LLC v. WFG National Title Insurance Co., A24A1846, Groundfloor as plaintiff (Justia; FindLaw).
• March 31, 2025: FY2024 Form 1-K: net loss $14.3M; going-concern paragraph at Groundfloor Finance and Groundfloor Yield.
• July 2025: Asset Management update: monthly loss 2.99%, LTM 2.12%, lifetime 0.94%.
• September 2025: Form 1-SA: H1 2025 net revenue $16.4M, net loss $1.5M, accumulated deficit $55.8M.
• February 9, 2026: 2025 revenue passes $40M, +38.6%; Notes paid $8.4M; 300,000+ registered users (PR Newswire).
• March 31, 2026: FY2025 Form 1-K: going-concern paragraph repeated; Groundfloor Yield net interest income $5.57M.
• April 2026: 9.25% Preferred Note window, April 2 to 30, accredited only; Brian Dally named an EY Entrepreneur Of The Year 2026 Southeast finalist (PR Newswire; EY).
• May 11, 2026: Consumer Credit Portfolio II announced, accredited only, $10,000 minimum (PR Newswire).
• July 1, 2026: IRA custodial fees shift from Groundfloor to investors (Groundfloor support center).
• July 7, 2026: Flywheel closes to new investment; 8.5% Bridge Note offered (Groundfloor).
• August 3 to September 3, 2026: 9.5% six-month Bond Note, $10,000 minimum, accredited only, $10M cap (Groundfloor).

Regulatory actions and lawsuits

I found no SEC, FINRA or state securities action against Groundfloor Finance, Groundfloor Yield or their officers, and no class action filed by investors, in the sources reachable as of September 17, 2026. The court matters located are title-insurance suits in which Groundfloor Holdings is the lender seeking recovery: the WFG case above, a companion appeal against Traditional Title Services (Ga. Ct. App. A24A1847, 2025) and a Stewart Title Guaranty matter (CourtListener). The offering circulars’ risk-factor language that non-compliance “could subject the company to class action lawsuits” is a disclosure, not a case.

Complaint patterns

• Trustpilot: 2.0 out of 5 across 408 reviews (groundfloor.com) and 3.1 to 3.4 across 371 (groundfloor.us), September 2026. Themes, in order of frequency: loans in extension or default with no visible foreclosure effort; capital stuck for years; thin communication; app problems moving cash out. Unverified.
• BBB (Groundfloor Finance, Inc., Atlanta): BBB-accredited, rated B with 13 complaints on the profile retrieved September 2026 (an A+ with no complaints was reported in 2021). Complaints describe defaults dating to April 2022 still unresolved in 2025 and fund-transfer problems. Unverified.
• BiggerPockets and Reddit: the 17% to 35% personal default-or-extension counts above; several posters note that grade A and B loans defaulted as readily as lower grades. Unverified.

The pattern is about time, not fraud: nobody in these sources alleges that Groundfloor took money it should not have; they allege that money lent for eight months has been gone for three years.

This section is two lists. Be honest about which one you are on.

It suits you if

• You want direct, first-lien real estate credit exposure with no investor fee and can start at $10 to $100.
• You will hold at least 100 LROs at once, keep adding, and reinvest, so the exit of the performing loans does not leave you holding only the stuck ones.
• You can leave a quarter of the position untouched for two to five years, and a 6% to 8% expected return is enough for that.
• You want a 1-month to 12-month fixed-rate parking place at 4.75% to 8.25% and understand the Notes are, in effect, issuer credit.

Skip it if

• You need the money on a date. There is no exit before the borrower repays.
• You would hold fewer than 50 loans. Below that, your default count is a coin flip and your return is not the platform average.
• You are investing through an IRA in LROs. The $12-per-asset quarterly custody fee since July 1, 2026 makes 100-loan portfolios uneconomic at normal balances.
• You need the issuer to be profitable. Two consecutive going-concern paragraphs are a fact, not a smear.
• You are accredited with $25,000 or more for private credit; Percent or a listed BDC diversifies you across originators.
• You want to be able to sell a bad loan. Nobody will buy it, including Groundfloor.

This section sets Groundfloor beside the five named competitors and the plain liquid alternative. Competitor figures are from the platforms’ own pages and filings as of the dates given; confirm them on the competitor’s own review page.

Which reader goes where. If you want real estate credit rather than equity, Groundfloor and Percent are the two real choices and accreditation decides between them: Percent buys diversification across dozens of originators and a published default record, and its accredited-only gate is the price. If you want real estate equity with a fee, Fundrise is the diversified default and Arrived the single-house version; both have returned less than Groundfloor’s headline. Concreit’s $0.96 NAV should be checked before anyone treats it as liquid. Worthy Bonds’ two peer-lending issuers stopped paying, one in 2022 and one for good in February 2026, and it belongs on no list. If you cannot accept a two-to-five-year stuck period on a quarter of your money, the Treasury money-market fund at whatever bills yield today is the honest alternative, and the 12-month Signature Note is the compromise.

This section is the sequence, then the six documents to read before the first wire.

The sequence

1. Sign up at groundfloor.com with name, address, date of birth and Social Security number; KYC usually clears the same day.
2. Choose an account type: Investor (self-select LROs), Auto Investor ($100 minimum, $1 increments across open loans), Notes, or IRA via Forge Trust ($25,000 minimum transfer for a new account).
3. Link a bank account by ACH. No wire is required and there is no deposit fee.
4. Fund a minimum of $10 per LRO; $1,000 for the Signature Note; $100 for 1-month and 3-month Notes.
5. Turn automatic reinvestment on or off. On means repayments go straight into whatever is funding; off means the cash sits at 0%.
6. Complete the Reg A Tier 2 self-certification (10% of the greater of annual income or net worth) if you are non-accredited.

Six things to read before wiring money

1. The auditor’s report in the latest Form 1-K for Groundfloor Finance (CIK 1588504) and, for Notes, Groundfloor Yield LLC (CIK 1810007) on EDGAR. Look for “going concern”. Both carried it on March 31, 2026.
2. The LRO agreement’s recourse clause: an unsecured special limited obligation with no recourse against the borrower. Decide whether you are comfortable as an unsecured creditor of the issuer.
3. The most recent Asset Management Monthly Update on the Groundfloor blog, for the trailing-twelve-month loss ratio. Use it, not the lifetime figure.
4. The Notes offering circular’s security section (collateral is loans held 5 to 30 days before sale to affiliates) and the current rate sheet, which changed between May and September 2026.
5. Forge Trust’s fee schedule in writing if you are going the IRA route: $12 per asset per quarter, $40 per purchase, and any cap.
6. The Flywheel closure notice if you are offered the Bridge Note or the successor portfolio, so you know what the vehicle replaced.

Groundfloor does one thing well and one thing badly, and both are structural. The thing it does well is give a non-accredited investor first-lien exposure to residential construction credit at $10 a loan with no fee, a product nobody else offers at that price and that, on the company’s own realised numbers through 2022, paid close to 10% a year with losses under half a percent. The thing it does badly is tell that investor what to expect from the loans written since rates rose. The 4.71% uncured default rate and the 9.91% lifetime average are accurate and beside the point; the trailing loss ratio of 2.12% (July 2025), the missing vintage table, the missing time-to-resolution, and the 17% to 35% default-or-extension counts investors report are the operative facts. Our worked example says a diversified investor who accepts those facts should expect 6% to 8% a year with a quarter of the money stuck for two years or more, not 10% in ten months.

Layered over that is the issuer. Groundfloor Finance has never made money, lost $14.3M in 2024 and, by its own FY2025 report, $10.4M in 2025, and has carried a going-concern paragraph in two consecutive annual reports; the LRO is an unsecured obligation of that company with no custodian and no secondary market. The 2025 top line was good, with revenue up 38.6% past $40M and the Notes issuer earning $5.57M of net interest income, and the habit of raising equity from its own customers has kept the company funded through worse. But a 3 out of 5 is what an honest product, an unpublished recent track record and an unresolved solvency question add up to.

What would move the rating up to 4. A Form 1-K whose auditor’s report carries no going-concern language; a published vintage table with repaid, defaulted, realised return and months-to-resolution by origination year; and a trailing-twelve-month loss ratio below 1.5% for two consecutive updates.

What would move it down to 2. A trailing loss ratio above 3% for two consecutive monthly updates; a full-year net loss above $10.4M in the FY2026 Form 1-K (due March 31, 2027); any missed or late Notes payment; or a Flywheel successor that adds an investor-level fee without a redemption feature.

What to watch, with dates. The Form 1-SA for the six months to June 30, 2026, due by September 28, 2026, for the parent’s net loss and accumulated deficit against the $1.5M and $55.8M of a year earlier. The terms of the Real Estate Credit Portfolio that replaces Flywheel. The Consumer Credit Portfolio II circular, since consumer credit has a different loss curve from first-lien housing debt. Whether Groundfloor negotiates a cap on Forge Trust’s per-asset fee. And the Asset Management Monthly Update, every month, for the one number that matters.

Nothing in this review is investment advice; it is research on what Groundfloor sells, what it costs and what it has paid, for you to weigh against your own situation.